Lawmaker files bill to limit farmland preservation tax break to working farms

A Lexington lawmaker filed a bill Tuesday aimed at stopping land developers and owners of suburban 10-acre estates from receiving Kentucky’s farmland preservation tax break.

Rep. Ruth Ann Palumbo, a Democrat, called her House Bill 576 “a first step” to addressing problems revealed last month in a series of Herald-Leader articles. Her proposal would limit the tax break to property “currently” used for farming, excluding houses and lawns as well as rezoned land sitting vacant as it awaits planned development.

Palumbo also asked the legislature’s Program Review and Investigations Committee to study the qualifications of property that gets the state’s agricultural assessment, which results in a much lower tax burden.

“The bill I filed today doesn’t solve all of the problems,” Palumbo said. “That’s why we’re going to continue the discussion during the (legislative) interim this year. After we have a chance to look at the study, we might decide we need to file another bill next year to resolve other issues.”

A Herald-Leader investigation last month found scores of examples of the farmland preservation tax break benefiting suburban homes surrounded by vast lawns, qualifying as agricultural land that can knock as much as 40 percent off their tax bills, and large parcels rezoned for commercial or residential use, where plat maps have been filed with the city and concrete slabs are expected to be poured soon.

For example, the newspaper found a 20-acre lot on Leestown Road in Lexington with a fair cash value of $2.59 million that produced $84 in tax last year. The owner, Whitesburg Re-Development Co., has filed plans with the city to build a large retail complex on the site called Masterson Station Center. But under the farmland preservation tax break, the land is assessed at an agricultural value of just $8,300.

In 1992, the General Assembly eliminated rules to prevent abuse of the tax break, including a three-year tax penalty if the land in question was developed and requirements for land owners to apply annually and provide proof of farming income. Most counties now only require that a property have 10 or more undeveloped acres that potentially could be used for agriculture. Actual farming is not necessary.

Palumbo’s bill would end that practice. For the purposes of the tax break, agricultural land would be defined as 10 or more contiguous acres “currently used for the production” of crops or livestock. The bill specifically excludes “residential units,” defined as homes, “and land used in connection with the main dwelling house, including but not limited to lawns, drives, flower gardens, swimming pools and the other areas devoted to family recreation.”

Before land could get the agricultural assessment, the county property valuation administrator would have to “obtain documentation or other credible evidence sufficient to establish” that the land is actively farmed and “currently meets the requirements and qualifications for payments pursuant to agriculture programs under a currently enforceable agreement with the state or federal government.”

Palumbo said she wanted clear language that protects working farmers from rising land values, as the law originally intended, without allowing non-farmers to shield their upscale homes and development properties behind an agricultural tax break.

HB 576 is likely to be assigned to the House Appropriations and Revenue Committee, which considers tax legislation. Rep. Rick Rand, the committee’s chairman, said Tuesday that he read the Herald-Leader’s articles on the farmland preservation tax break and he “will keep an open mind” as he reviews Palumbo’s bill.

“This has not been as big a problem out where I come from as it perhaps has been in Lexington. We’re more concerned with keeping taxes reasonable on productive farmland,” said Rand, D-Bedford. “But there’s bound to be a middle ground, a compromise we can find. Obviously, people who are getting farmland exemptions need to be farming that land, and if there’s something we can to do to correct that, then let’s try it.”

Palumbo’s bill will have to race the clock. Wednesday is the 39th day of the 60-day legislative session. Much of the General Assembly’s attention in the remaining four weeks will focus on passing a two-year state budget, currently a work in progress in Rand’s committee.

Terry “Catfish” Rakes, president of the Kentucky PVA Association, said his members want the legislature to provide stricter criteria for eligibility for the farmland preservation tax break. Rakes said he hadn’t seen Palumbo’s bill yet, but he would want it to be clear about the burden of proof.

“Just off the bat, I’d be concerned unless we have exact directions on who is supposed to verify that land is being ‘currently’ farmed and how they’re supposed to verify it,” said Rakes, the Marion County PVA.

“This law has just been so vague over the years,” Rakes said. “But I will say, the PVA Association is very open on this. We want to come to the table to determine how it’s going to be handled, because nobody knows the assessment business like we do.”

Fayette County PVA David O’Neill last week responded to the Herald-Leader articles by saying his office would stop automatically granting the tax break to 10-acre residential estates unless the parcel is still 10 acres after excluding land that contains a house, lawns, driveways, flower gardens, swimming pools and other areas devoted to family recreation.

However, if the land has been owned by the same person for five years, it will keep the tax break until it changes ownership, O’Neill said. Properties that change ownership on or after Jan. 1, 2016, will be taxed at their full value going forward.

O’Neill said he plans to host a town hall meeting at 5:30 p.m. Thursday at the Farish Theatre of the Lexington Public Library to answer questions and discuss the issue with concerned citizens.

This story was originally published March 1, 2016 at 6:43 PM with the headline "Lawmaker files bill to limit farmland preservation tax break to working farms."