Overhaul of farmland preservation tax break dies in legislature
Legislation aimed at limiting Kentucky’s agricultural preservation tax break to working farms died without a hearing in this year’s legislative session, but discussion of the issue will continue, officials said Thursday morning.
“We have just begun the conversation,” said David Beck, executive vice president of the Kentucky Farm Bureau, who spoke on the topic at a gathering of Lexington business people, along with Fayette Property Valuation Administrator David O’Neill and David Gordon, the Department of Revenue’s Director of Property Valuation. “We will continue to talk about the issue.”
The Lexington Forum invited the officials to discuss a Herald-Leader series published in February that found that the tax break often helps pave Kentucky’s farms instead of preserve them.
The newspaper found that county PVAs automatically give the tax break to anyone who owns 10 acres or more that is capable of being farmed, regardless of whether a crop is produced. In Fayette County, the tax break is applied to hundreds of suburban homes surrounded by vast lawns, reducing the taxable value of the land by as much as 40 percent. In addition, the tax break is given to dozens of large parcels slated for commercial or residential development, allowing developers to reduce their overhead while other property owners must pay higher taxes to support schools, libraries, health departments and other public services.
The issue stems from changes made to the state’s agriculture tax break in 1992, when lawmakers followed the recommendation of the Kentucky Farm Bureau and eliminated rules to prevent abuse. Before those changes, property owners had to apply for the tax break; they had to show proof of farm income from the land; and if the land was converted to any use other than agricultural, they had to pay a penalty equal to three years of back taxes at fair cash value.
Beck, who worked on the 1992 changes, declined to say whether those changes had caused problems.
“I am not hearing much about this issue,” he said.
However, the Farm Bureau prevented this year’s proposed legislation from receiving a committee hearing, said its sponsor, Rep. Ruth Ann Palumbo, D-Lexington.
“People get apprehensive any time they think they will lose an agricultural exemption,” Palumbo said.
House Bill 576 would have limited the tax break to property “currently” being farmed and excluded land used for housing and recreational purposes, including lawns.
Despite the legislative defeat, Palumbo said, she has requested that the legislature’s Program Review and Investigations Committee complete a study on the issue.
Explore a map of Lexington properties getting farmland tax breaks
In Lexington, Fayette PVA David O’Neill is moving ahead with several reforms. Shortly after the newspaper stories appeared, O’Neill said that starting this year, properties of 10 acres or more that are sold will no longer automatically receive the tax break. Instead, owners must present proof of agricultural production. In addition, land used for houses, pools, lawns and driveways will be excluded from receiving the tax break.
Although he isn’t waiting for action by the legislature, O’Neill said, he and other PVAs need clarification from the state or new rules to determine what land qualifies for the tax break.
“I saw House Bill 576 as a starting point,” he said, “because it requires that land be in use as agriculture. That’s what gets to the heart of the issue.”
O’Neill said the legislature and the Department of Revenue need to resolve the issue to ensure that deserving farms continue to receive the preservation tax break.
“As long as these loopholes exist, I think the long-term sustainability is at risk,” he said. “The last thing I want to do is anything that is detrimental to the farmer, ... so I’m interested in fixing this situation.”
The other panelists seemed less interested. Beck said farmers understand that once a property is developed, its tax status should change as well.
Gordon said the issue will be discussed at two conferences of PVAs. Currently, revenue officials tell PVAs to automatically grant the tax break because appeals boards and judges have sided against PVAs who tried to enforce stricter standards. Only two or three PVAs require landowners to prove that they generate agriculture income before granting the tax break.
“Hopefully there will be some clarification we can make,” Gordon said.
Lexington resident Roy Cornett, who has followed the issue closely, asked the panelists whether they would agree that granting the tax break without asking for proof of agriculture production is a problem. O’Neill said yes. Beck and Gordon avoided the question.
Cornett said he left the forum depressed about the possibility of change.
“Nothing is going to happen if you have the Department of Revenue and the Kentucky Farm Bureau unwilling to say that we currently have a problem,” Cornett said.
Linda Blackford: 859-231-1359, @lbblackford
This story was originally published April 7, 2016 at 12:52 PM with the headline "Overhaul of farmland preservation tax break dies in legislature."