Five Steps to Getting Your Property Taxed as Farmland

In Farm by Alastair Ong1 Comment

So this is the post of all the posts that I was procrastinating on the most.  In examining the reasons for procrastination, it was for the following reasons:

  • I felt I lacked all of the information;
  • It required so many steps for me to complete;
  • It required visits to my local town hall; and
  • I was fearful of the result.

After doing my research, I found that I had all of the information within a simple internet search, there were not too many steps, and my local town hall is a friendly place and is near my home.  Being fearful is not really a reason for doing something or not doing something and is generally unfounded, so let’s dig in.

My town sits has three or four commercial stores in it.  Think Mayberry but smaller.  There’s a pretty good article in the New York Times about my town here. As that article states, the fact that there are no commercial businesses in the town is a mixed blessing.  On the one hand, there is little traffic.  I cannot tell you the relief I get after exiting the highway and turn onto the highway through my town.  There is never any traffic.  And by no traffic, I mean no cars. None.  Zilch.  Nada. Zero.  On the other hand, there being no businesses, the town is entirely supported by the residents (read: land taxes).  Real esate taxes in Connecticut are cheaper than New York, but nevertheless a big expense.  Particularly in a residential community, taxes are a necessary evil. Yes, necessary, but also evil.

img_20161026_153940My town is zoned at 3 acres residential, which means that any home must sit on and accordingly be taxed on 3 acres.  Since I have just over 5 acres, this meas that I have 2+ acres that I believed were taxed as residential that I could get reassessed as farmland to reduce my tax liability.  Those that know me, know that I take a great deal of pleasure looking for and finding ways to take advantage of the system.  Ever since buying this house, I thought that one of my first steps would be to reduce my biggest cost of this home, which is the land tax.

In preparation of my farm I began to review the easiest form of farming – most bang for my buck in terms of labor.  I searched for things that were not time-consuming and easy that yielded a high value product.  I reviewed all of the different products I could grow including wasabi root and ginger, to flowers and fruit.  After speaking with a number of folks in the agricultural space and much consideration, I settled on honey.  All I needed was a small investment in beehouses and hives, and essentially the bees do all of the work for me.  The first thing I did was buy three beehouses.  I will save my honey exploits for a later post, but stay tuned in the early spring, as I’ll have some good videos on relocating hives to my beehives (hopefully without getting stung – although if I do get stung, it will make for even better video).

The second thing I did was build a raised bed garden which you can read about by clicking here.  I thought, no farm would be complete without a vegetable garden.  The third thing I did was build a chicken coop and get chickens which you can read about here.  Now part of my procrastination was my inner belief system taking ahold of me and answered the question, “do three beehouses an apiary make?”  Deep inside, I suspected that the answer was no.  More on that later.

Residential Land Tax vs Farmland Land Tax

Residential acres are taxed at approximately $5,000 per acre.  Farmland assessed taxes depend on the grade of tillability (is that even a word?) or whether it is a pasture.  In Connecticut, like most states, the more tillable the land, the higher the taxes, but is still no more than $1,500 per acre.  This is a 70% reduction of annual tax expenses.  Let me repeat that.  Converting to farmland can save you 70% or more of your land tax and is a worthwhile exercise for anyone with land to engage in.

Amount of Land Needed to Qualify As a Farm

In New York, there is a state requirement of having at least seven contiguous acres to qualify as a farm.  If you have less than seven acres, you can still qualify as a farm by having gross revenues of $50,000.  Thankfully, I live in Connecticut, where there are no state requirements to having a farm – you could have 1/4 acre and could call it a farm.  I credit the Connecticut legislature with being “greener” than New York.  Essentially in Connecticut, farmland only requires the initial assessment.  Once assessed as farmland, there is no need for an assessor to revisit the farm.  Connecticut considers this a major savings in not having to send out a physical person to reassess your property.  Since this is essentially free for the tax assessor’s office, they pass their savings onto the farmers.  That being said, towns in Connecticut may use the state law as a guide and may make requirements more stringent.  My town of Easton, Connecticut has adopted a law that requires farms to be 5 contiguous acres. In speaking with experienced land use attorneys in my area, I could theoretically get the land my house sits on as residential and get the remainder of my property taxed as farmland.

Disadvantages of land taxed as farmland

There are at least two disadvantages of owning farmland.  The first one is discussed here.  The second one will be discussed below.

One of the confusing things of land being taxed as farmland in Connecticut is if you sell your farm within ten years of getting assessed as farmland.  This would relevant in the example that say three years from now I wanted to sell my home.  Obviously, I would have received a tax benefit in not paying land tax for the last three years.  The way that Connecticut claws back these monies is by applying a conveyance tax onto your property upon sale.  In year 1 the tax is 10%; year 2, 9%; year 3, 8% and so forth and so on until the tax disappears.  This means that in my example if I were to sell off my farm in year 3, I would be subject to a 7% conveyance tax on the total sale price of my home.  Interesting to note, you are subject to this tax even if you buy a farm and decide to sell before year 10 of ownership.

Visit to the local tax assessor’s office

The town hall in my town is less than two miles from my home.  The personnel in the town hall are extremely friendly and helpful.  My first visit was to the land construction office to get a copy of my surveyed property.  For $3 bucks, they will get you a copy of your surveyed property, although since their mimeo machine was broken, they copied it onto two large legal sheets which you can see in the photo above.

My second visit was down the hall to the my town’s tax assessor.  The appointed tax assessor is a amenable woman by the name of Teresa Rainieri and her helpful assistant Rachel Maciulewski.  I told them what I planned and started picking their brains as to the best way for me to go about getting my land reassessed.  If this office was making the decision, I thought it a good idea to prepare them for my application.  Teresa gave me a copy of the application (you cannot download it online) and mentioned in passing that 15 chickens would not qualify as a farm. Her explanation, “because everyone in town has chickens.”  According to PA490, the state guidelines for farm taxing land, she was wrong, but I held my tongue. I wanted to download as much information first and then reassess my options.   Also in passing Teresa mentioned that although 15 chickens a farm would not make, she did suggest raising and killing turkeys as a potential farm idea,  Huh?  Both Turkeys and chickens are both poultry, why the double standard?   Since wifey has implemented a no-kill policy on the farm, this was irrelevant.

Teresa suggested a good use would be Christmas tree farms.  My town has 8,000 people living in it.  There are several dozen farms in my town, and four Christmas tree farms.  I could not believe that she would suggest such a saturated market for me to begin.  Then I began to understand why.  Since being appointed, Teresa probably does not get applications for that many farms.  The ones she has approved were likely Christmas tree farms, so in speaking from experience, she knew that Christmas tree farms would pass muster.  Someone in the town must also have recently applied for and gotten approval for a turkey farm, hence her suggestion.  Christmas trees are an interesting farming element. Plant seedlings, and wait 4-7 years and harvest.  Aside from bees, I cannot think of an easier farming business model.

Teresea searched my property and told me, “You have three acres assessed as residential and the remainder assessed as wetlands.”  Huh?  What’s that?  Come again? Wetwha?  She explained that since I have a lake and a creek feeding that lake that the assessor has assessed these acres as wetlands.  Wetlands are taxed at one of the lowest rates on the Connecticut assessment schedule.  I think I am paying around $400 per acre per year for wetlands.  I could reassess the wetlands as farmland, but doing so would be going from a lower tax to a higher one.  The previous owner definitely knew what he was doing, paying so little for wetland-assessed property with no burden of having to farm.

2016-10-25_18-12-20

The image here is the 2010 tax assessment schedule for farmland in Connecticut.

In support of dissuading me from pursuing this, she suggested that I speak to a local apiary in town.  The town actually sells honey from this apiary, but the land where his bees and flowers sit is NOT taxed as farmland.  At first I did not get it.  Why pay residential rates on 10 acres of land where your 1,000 plus beehives sit?  Answer: because being assessed as farmland comes with other responsibilities and requirements.  To continue getting farmland rates, you must supply a Profit and Loss statement with the assessor’s office.  This is the second disadvantage of owning a farm.  Your local municipality may require you to fill out other documents and applications and in the case of my town, show your Profit and Loss to continue your assessment.

I suddenly got the ah-ha moment.  The apiary that sells the honey to the town hall is probably not filing tax or paying tax for the income that he makes on the honey.  10 acres times $5,000 per acre is $50,000 in annual land tax, which sounds like a lot until you do the math on the total tax savings.  Each beehive can generate on average 30 lbs of honey.  At $10 per pound, that’s $300 per hive. Multiply this by 1,000 hives is $300,000 in tax free income, which is at least a $50,000 savings vs paying the reduced farm land tax.

Conclusion:  To be a farm, your land does not need to be assessed as farmland.

 5 Steps to get your land assessed as farmland

  1. Research your state and local laws.  In Connecticut the relevant legislation is Connecticut’s Land Use Value Assessment Law Public Act 490 aka PA490.  You can find almost all of this information online;
  2. Speak to a good land use attorney.  You can find good land use attorneys by asking your local tax assessors office for those they have worked with in the past and are competent.  It is not in their best interest to recommend someone that is ineffective and abrasive.  It is at this stage that you and your attorney should calculate your savings and determine the burdens of owning a farm;
  3. Plan your farm according to the regulations researched in Step 1.  In Connecticut you can hand draw your farm modifications directly onto the survey.  Also, there are usually application dates and deadlines.  In Connecticut, the application deadline is October 31, 2016.  The assessment, even if approved is does not go into effect until two years later.
  4. Have a business plan (or an executive summary ready) complete with pro forma financial statements – these may be needed by the assessor’s office;
  5. Submit application, start farming and wait for tax assessor’s visit.

By the way, my fish grate passed inspection, and I should be getting my grass carp this weekend!

Comments

  1. Siggy

    How about “FLOWERS”; feed the bees, sell part of the crop, beautify the property,,, some may even be edible!

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