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Harvesting Tax Breaks
How tax relief intended to save Kentucky farms helps pave them instead.
Closing a loophole that has allowed suburban estate owners in Fayette County to claim a tax break meant for working farms could generate an extra $1.5 million this year for schools, libraries, LexTran and other public services that receive a cut of property taxes.
Fayette PVA David O’Neill put together projections for the Fayette Urban County Council’s Budget, Finance and Economic Development committee meeting Tuesday that show the change is expected to add about $150 million worth of property value to the tax rolls in 2017.
A Herald-Leader series published last year found that 841 parcels between 10 and 11 acres in Fayette County were automatically receiving the tax break, even though most of them were suburban homes surrounded by huge lawns and no agriculture activity. The tax exemption, which was created by the General Assembly to preserve family farms, applies to parcels of 10 acres or more.
In response, O’Neill announced earlier this year that anyone who wants the agricultural tax break must apply for it in writing and that the tax break would apply only to parcels with 10 acres after excluding land used for houses, swimming pools and driveways. Anyone who bought their land before 2013 and previously received the tax break won’t have to fill out an application.
“This process we’re going through will address the issue of large homes on 10 acres where clearly there’s no agriculture happening,” O’Neill said. “In the course of correcting that, there will also be some farms that are engaged in legitimate agriculture.”
A legislative study found the tax break costs the entire state about $44.7 million a year and that few local PVAs check to see if the land is actually farmed.
O’Neill estimated that his changes to the tax break could generate $1.125 million for Fayette County schools, $183,000 for the state, $90,000 for LexTran, $75,000 for Lexington Public Library and $45,000 for the urban county government.
Still, those agencies should proceed cautiously as they budget any additional money, O’Neill warned. He said as much as 50 percent of the new farm tax revenue could be held up in property tax appeals. That would mean only about $562,000 to the schools, $37,500 to the library and $22,500 to the urban county government.
Overall, O’Neill reported to city council members that Lexington’s housing market continues to improve, adding about $1 billion in property value to the tax rolls this year.