By ANN HINCH
Assistant Editor WINCHESTER, Ind. — If that property tax bill for your back 40 is higher than it was in 2007, chances are it’s because a state formula determined three years ago is at work.
Fred Stephan is a retired Randolph County farmer. He owns four parcels, one of which is 100 acres on which corn and soybeans are grown. On those four parcels this year, he was billed about $1,100 more than his approximate $4,000 tax bill from 2007.
Nearly $2,100 of what he owes for 2008 (based on assessment from March 1, 2007, according to Randolph County Assessor Bev Fields) is for his ag parcel alone. He said last year his assessed value on that 100 acres was just less than $100,000 – this year, it’s $126,800, or up in value almost $300 per acre.
Stephan, 85, bought the land 48 years ago for $24,000. He was surprised by the nearly 30 percent jump in value in a single year.
He suspects the source of the increase was because the state legislature voted earlier this year to lower caps on residential properties; therefore, his county government was charging higher assessment on other land to make up for the lost local income.
He may not be the only one who thinks so. Monte Cowen, managing broker of the Century 21 real estate office in Winchester and a Greensfork Township trustee, said Randolph County farmers were hit hard in 2008 with some of their property tax bills doubling last year’s.
Stephan rents the 100 acres to his son, Ron.
“If he makes money, I do,” Stephan said. “If he don’t, I don’t.”
And, if the farmers make money, so does local government – in the form of use value assessment. Acting Indiana Agriculture Director Ken Klemme explained that work was done in 2005 in the state legislature to address farmland assessment because of related lawsuits.
He said any tax increase on farmland this year is not the result of the property caps the legislature enacted, but instead, this farmland assessment formula.
The use value for Indiana farmland for the last two years was $880 per acre; this year, it has gone up to $1,140 per acre, or almost 30 percent – which may explain the increase in assessed value for Stephan’s 100 acres.
The formula is based on a six-year average of Hoosier farm income and expenses that ends four years before the year of payment, explained Purdue University agricultural economics professor Dr. Larry DeBoer in his essay What’s Happening to the Assessed Value of Farm Land?
“Rather than have the value gyrating wildly (by being based on only one year), the process uses a six-year average,” Klemme added.
For example, tax bills due this year are based on 1999-2004. DeBoer writes that next year, the use value assessment will cover 2000-05 and will rise to $1,200 per acre. In 2010 it will go up to $1,250 and in 2011, to $1,350. The formula is calculated with data from the USDA, the Federal Reserve and Purdue.
Klemme said the values are based on net income, not gross, since operating expenses are also factored in – this means even if grain prices, for example, stay up or continue to rise, they should be offset somewhat by rent, fuel, fertilizer and other higher commiserate expenses.
On the other hand, farmers may pay taxes based on a string of good years, while stuck in a year that’s not so good.
“It would take time for those lower prices to show up in the formula,” Klemme admitted.
According to Ryan Kitchell, director of the Indiana Office of Management and Budget, the real property tax caps enacted earlier this year do include agricultural land. But Fields pointed out the first cap for ag land does not yet apply.
“None of the caps were effective for this year, payable this year,” she said.
The first one goes into effect next year, at 2.5 percent, Kitchell noted; in 2010, it goes down to 2 percent.
Even with an increase, Stephan doesn’t complain much.
“I know they’re high,” he said of his taxes, “but I’d sooner pay a little more here than send it to the federal government.” |
