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In recent weeks, many urban newspapers have spent significant time examining the property tax valuation provided to agriculture by the Texas Constitution. Many of these articles focus on the perceived abuse of this agricultural valuation by corporations. The recent media frenzy has made it clear that we must take action to ensure that members of Texas Farm Bureau have the information needed to combat the misinformation in these newspaper articles. Below is a list of talking points that can be used when visiting with legislators or others about the purpose of open-space valuation of agricultural land for property taxes. Please use this information, and more importantly, your own personal experience to explain why open-space valuation is critical to agriculture producers in Texas.
•The Law—Land Use vs. Landowner
Article 8, Section 1-d-1 of the Texas Constitution allows "open-space land" to be appraised based on its "productive value" as farm or ranch land. The land must be used for agriculture at the level of intensity typical for the local area to qualify. The law does not address who owns the land, only the use of the land. The purpose of the law is to keep land in agriculture regardless of who owns it.
•Enforcement—Appraisers Have the Power
According to the Texas Constitution, the Chief Appraiser in each county has the authority to decide if land qualifies as "open-space" under 1-d-1. In addition, the state comptroller provides a manual for agricultural appraisals if more clarity is needed regarding qualifications.
•The Income Test—It Doesn't Work for Agriculture Today
Section 1-d of the Texas Constitution, the original law adopted by the legislature to value agricultural land on its productive value, had an "income test" that stipulated the landowner must derive their "primary source of income" from agriculture to qualify their land for the "agricultural valuation." However, many agricultural producers could not meet the constitutional "income test."
As Texas has become more urban, many landowners are not deriving a majority of their income from agriculture production. Because many producers lease their land, the question arises: Is it fair to the tenant farmer or rancher to tie the valuation of agricultural land to the income of an absentee landowner who lives in the city?
To address these changing realities, the legislature decided the qualification for agricultural valuation should be based upon the legitimate use of the land for agriculture, not the land-owner's agricultural income. Thus, Section 1-d-1, which created an incentive for landowners to keep land in agricultural production, was adopted. And, a rollback tax was imposed to create a disincentive to take land out of agriculture. This "open-space" definition applies to most agricultural land in the state today.
•Market Value vs. Open-space Value—What is the difference?
Market value of the 144 million acres of agricultural land in Texas averages $624 per acre, substantially greater than the ag value of $80 per acre for the same land. These figures vary according to location, with some portions of Central Texas supporting ag valuations of less than 5 percent of market values, and other areas, such as the High Plains, where agricultural values represent about 50 percent of market value.
Without 1-d -1 valuations, property values for most lands would decline as the cost of land ownership increases. The long-term consequence would be a loss of asset value for most agricultural landowners, and institutions holding loans. The biggest impact would be in those areas of the state with the highest market values.
•The Bottom Line—No Open-Space Valuation, No Agriculture
The simple fact is that using land for agriculture is not profitable without the open-space valuation. It doesn't matter if you are a full-time producer, a "hobby" farmer, or a corporation. The ability of land to produce an amount equal to property taxes based on fair market value of land is marginal at best. If Texas is to continue as a national force with an agricultural economy, it must retain this vital tax incentive to keep land in agriculture.
Farm Bureau members should make every effort to explain the importance of Agricultural Use valuations to their State Representatives and Senators as the new Session begins.
