Farmland Tax Values Will Go Higher, And Higher!

Formula used to calculate rates indicates property tax on bare ground will climb.

Published on: Feb 7, 2012

Suppose the value of an acre of farmland was set at the base rate of $1,390 in 2011. It will be $1,500 for tax assessment purposes for 2012.

Larry De Boer, a Purdue University Extension ag economist who follows tax rates and tax issues, says that by 2015, only three years from now, the base rate for taxing farmland will be $2,030 per acre. That's a large jump from the base rate of $880 in 2007. The $880 per acre figure, however, was lower than previous numbers, and was part of a temporary relief in property tax levels.

There's actually no relief in sight, DeBoer notes. Because of the way the base rate is calculated, based on events and prices that have already come and gone, it's likely that the base rate will continue to increase and remain high for a long time.

The base rate is calculated using a formula originally developed with the help of Purdue ag economists several years ago. The productivity factor used in the calculation is based on soil productivity for growing corn. If the land suffers frequent flooding or is in forest, a value may be deducted from the original calculation.

Land in the Classified Forest Program is assessed at a very minimal rate. You must have at least 10 acres of woods to enroll in the Classified Forest program.

Other factors, including land rents, commodity prices, costs and interest rates feed into the formula  that determines the base rate for assessed value of bare farm land. It was set up so that it is a six-year rolling average, and is based on previous years. For example, the calculation for 2011 was based on 2002 through 2007, with the highest year excluded.

Low corn prices and relatively high interest rates helped keep the average down in 2011. However, that year has now 'rolled' out of the equation and will no longer be used. It's replaced by a year at the other end of the spectrum- 2008.

Since DeBoer can calculate the formula and it runs four years in arrears, he can calculate base rates out for several years ahead. His prediction that the base rate for tax purposes will climb well into the future is partially because 2012, with good crop prices and low interest rates, won't enter the formula until 2016, and won't roll off of it until 2022.