INDIANAPOLIS, Ind. — Owners of Indiana farmland could save millions of dollars annually under a property tax relief bill signed into law last month.
The property tax changes were included in state Senate Bill 436, which addressed a variety of state tax code issues. The bill freezes the per-acre base rate for agricultural land for 2016 at $2,050, the same as this year. The base rate is expected to rise to about $2,170 by 2018.
Without the change, the base rate would have been $2,420 in 2016 and more than $3,000 by 2018.
Under the bill, farmland owners will pay $52 million less in property taxes in 2016, $87 million less in 2017 and $111 million less in 2018, according to an analysis by the Legislative Services Agency.
"It’s significant tax relief for farmland owners," said Larry DeBoer, professor of agricultural economics at Purdue University. "Farmland property taxes still may go up, but by much less than they would have."
The bill passed the Indiana House 98-0 and the Senate 49-0 near the end of the 2015 legislative session; it was signed May 6 by Gov. Mike Pence. The base rate the state uses to calculate property taxes was $880 in 2007, DeBoer noted. The Department of Local Government Finance recalculates the base rate annually.
"Rising commodity prices and low interest rates made for rapid increases in the base rate of farmland, which is the starting point for the assessment of farm acreage for property taxes," he said.
After next year, base rates will be calculated by multiplying the previous year’s base rate by the assessed value growth quotient, which is the percentage by which local governments can increase their maximum property tax levies yearly. Some version of the quotient has been used since 1979, DeBoer explained. The current formula was created in 2002.
The formula is "the six-year average of the percentage increase in Indiana non-farm personal income, which is estimated by the federal Bureau of Economic Analysis," he said. "The calculation ensures that property taxes won’t rise faster than people’s incomes over any six-year period. The (quotient) calculation excludes farm income because it can be so variable."
The bill is good for farmers and agricultural landowners, said Katrina Hall, director of state government relations for the Indiana Farm Bureau.
"This stops the extreme escalation of the tax bills that they’ve been seeing over the last few years," she said. "Farmers across the state want their taxes to go down. This will be a significant savings on what their taxes would have been."
The Indiana legislature will form a study committee this summer to look into a more permanent property tax solution.
"We know this bill isn’t everything we want," she noted. "We’re grateful for what happened (during the legislative session). This stops the bleeding and provides a backup plan. We know that farmland taxes are still high and are eroding farmer profits. We know they can’t sustain that."
While the law makes permanent the changes to the base rate calculation, the legislation probably isn’t seen as a permanent solution, DeBoer said.
"There’s more debate to come," he explained. "But the law means that, while the legislature is grappling with the issue, farm property tax increases will be much, much smaller."
The bill also clarifies the definition of "agricultural use" to add land enrolled in conservation programs administered by the USDA or its Farm Service Agency or Natural Resources Conservation Service.
Agricultural use is defined as land for such purposes as the production of livestock, commercial aquaculture, poultry, horticultural stock, fruits, vegetables, grains, timber, tobacco and bees. According to the legislation, agricultural use may not be determined by the size of a parcel or size of a part of the parcel.
