Farm tax bills to go down for now

Daily Reporter staff reports

HANCOCK COUNTY — After years of their property tax bills going up and up, farmers are set to get some relief.

New legislation introduced this year changed the formula for how farmland is valued for property taxes. Under the new law, those values can still go up, but not as much as in past years.

The impact is expected to be significant, especially in coming years. The value of an acre of farmland, which is used to calculate property tax bills, had been expected to reach $3,090 in 2019 under the old formula.

Now it’s expected to be $1,630 per acre by then, said Larry DeBoer, a Purdue University professor and property tax expert.

That tax relief will have an impact on other taxpayers, including home and business owners who will be charged more to make up for the loss and the local governments that will collect fewer tax dollars, he said.

“It shifts taxes from farmers to everyone else,” DeBoer said.

In most areas, the impact is not expected to be significant, but it could have a bigger impact in areas with more farmland, DeBoer said. Long term — during the next 25 years or so — farmers are expected to pay about the same amount they would have under the old formula. The year-to-year fluctuations will just be smaller, he said.

That could be a big help to farmers, he said.

Monty Zapf, who farms more than 2,000 acres on farms in Blue River and Jackson townships, as well as a few properties in Rush and Henry counties and owns more than 300 acres of local agricultural land, said the tax shift should lower his tax payments.

But he’s not sure just how much relief he’ll see, especially as crop values fluctuate, Zapf said.

In recent years, farmers across the state asked lawmakers to consider a change to the way their land was valued for taxes. Last year, lawmakers agreed to freeze farm values while they studied a solution. The solution was the new formula, which was approved during this year’s legislative session, DeBoer said.

Their concerns stemmed from a change in how farmland was valued that the state required when switching to a market-based formula a decade ago.

That formula considered several factors, including the price crops were selling for and interest rates. Farmland started at a value of $880 per acre and had jumped to $2,050 per acre by last year.

For farmers, that meant increasing tax bills each year. And those increases were coming at a time when crop prices were down; so farm incomes were down, but their tax bills were up, DeBoer said.

That got lawmakers’ attention, DeBoer said.

For the second consecutive year, lawmakers approved changing the formula used to calculate the value of farmland. Last year, the value of an acre of farmland was frozen and only allowed to increase a certain percent the next two years, while a committee studied what would need to change.

What lawmakers approved this year makes two big changes: getting rid of a four-year lag in the commodity prices used to help determine the value of farmland, and basing the interest rate used in the calculation on how much the value of land had gone up or down.

Now, those commodity prices, or the price of crops, such as corn and soybeans, will take into account more recent figures. Under the old formula, the calculation for tax bills last year would have only considered the prices up to 2011. The actual prices of crops now are significantly lower than they had been years ago, DeBoer said.

The other change bases the interest rate figured into the calculation on how much the land value went up from the year before. If it went up more than 10 percent, the interest rate will be adjusted to lower the overall value, DeBoer said. Those changes will help protect against large swings in the values from year to year, a complaint of farmers in recent years, he said.

Rep. Bob Cherry, R-Greenfield, said he hopes the changes will provide a long-term solution for farmers.

Farmers are particularly vulnerable to tax-rate increases, he said.

While some businesses can compensate for increased expenses by raising the prices of their products, farmers don’t have the same luxury, he said; if crop values are down, farmers often have no choice but to offload at market rate, losing out on profits.

“These changes have been a long time coming,” Cherry said.

The Daily Journal contributed to this report.