Fayette County

Fayette PVA tightens rules for farmland tax break

Brookmonte Lane in southern Fayette County is lined with large houses on 10-acre lots that previously qualified for the farmland-preservation tax break.
Brookmonte Lane in southern Fayette County is lined with large houses on 10-acre lots that previously qualified for the farmland-preservation tax break.

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People who claim a farmland preservation tax break in Fayette County will have to actually farm their land to get the break, Fayette Property Valuation Administrator David O’Neill announced Tuesday.

Starting March 1, owners of property that has sold since Jan. 1, 2013, will have to fill out an application to receive the agricultural tax exemption. Applicants must state how much acreage is devoted to agricultural use and describe the agriculture activity on their property. Owners who bought their land before 2013 and have previously received the tax break won’t have to fill out an application, O’Neill said.

The change is part of a proposal O’Neill outlined last year after the Herald-Leader published a series of articles that found the lucrative tax break often benefits owners of land that is not farmed, including suburban 10-acre lots and large parcels that have long been zoned for development. Previously, the tax exemption was automatically provided to any parcel of 10-acres or more that was capable of being farmed, even if it had lain fallow for years.

The newspaper identified 841 parcels between 10 and 11 acres in Lexington that received the tax break, which reduced the taxable value of that land by a cumulative $183 million. If that property were taxed at its full cash value, Fayette County Public Schools would get about $1.4 million more each year.

To help reduce the number of large lawns that are classified as farmland, O’Neill began subtracting on Jan. 1 any acreage used for houses, lawns, swimming pools, driveways and other buildings from the amount of land available for farming, which means many of those lots will no longer meet the 10-acre minimum required to receive the tax break. The house, garages and all other buildings are already taxed at 100 percent of their cash value.

“We’ve reviewed these proposals for a solid year and now it’s time to take action,” O’Neill said. “I think it’s the right thing to do.”

Similar changes could take place across the state. Previously, most PVAs had interpreted state law to say that land capable of producing agriculture was eligible for the tax break, but the law says the tax break should be given based on agricultural “use,” said David Gordon, executive director of the Office of Property Valuation at the Kentucky Department of Revenue.

Gordon said his office will be sending an update to all PVAs in the state to clarify the policy, along with applications that PVAs may ask people to fill out, although they won’t be required to do so. Jefferson County is one of a handful of counties that already required a farm tax break application.

A legislative study ordered after the Herald-Leader series published last year found that the tax break costs the state $44.7 million each year with hardly any checks by PVAs around the state to see if the land is actually farmed.

O’Neill said he thinks lawmakers should further clarify the law, including a more precise definition of what qualifies as agriculture use of a land.

“We’re still lacking meat on the bones on what ‘use’ is,” O’Neill said.

But at a meeting in December, a group of lawmakers made clear they don’t think the issue is a problem, and might even try to stop O’Neill’s reforms.

That might be in part because the politically powerful Kentucky Farm Bureau opposes any changes.

Kentucky created the farmland preservation tax break in 1969 as a way to protect family farms from rising property taxes as more and more land was developed across Kentucky. But the legislature significantly weakened safeguards against abuse of the tax break in 1992 at the request of the Farm Bureau, removing such things as a three-year tax penalty if the land in question was developed and a requirement that land owners provide proof of farming income.

In his announcement Monday, O’Neill asked people to contact their legislators if they think further changes should be made.

He noted that under current state law, land slated for future development can continue receiving the agriculture tax break until construction begins at the site or an approved final plat map is recorded in the Fayette County Clerk’s office.

For example, a 24 acre-lot off Georgetown Road was bought in 2000 by the retailer Meijer for $2.4 million. The lot, however, remains empty and continues to be taxed based on its agriculture value of $13,500.

“I feel very confident the changes we’re making are the right thing to do,” O’Neill said. “If there are still changes the public thinks should be made, they will have to be made through statute.”

Linda Blackford: 859-231-1359, @lbblackford