U.S. farmers fret as property taxes soar amid souring incomes
Collapsing prices for U.S. corn and soybeans have made it harder for some farmers to pay their property taxes, at a time when these tax bills are soaring and the rate of farm bankruptcies is growing.
Over the past three years, farmland property taxes have jumped as much as 400 percent in parts of the United States, according to state and federal government data. One farmer in Ohio said his property tax bill has skyrocketed to more than $100 an acre from less than $20 seven years ago.
Farmers say the problem, in many cases, is rooted in the reversal in the grain market. They now are scrambling to come up with the money to pay tax bills based heavily on incomes they enjoyed when crop prices were booming in 2012.
Back then, their taxes were much less because they were based partly on previous years when crop prices were lower.
Now farm incomes are falling due to cooling export demand and plummeting grain prices. In the Midwest, Chapter 12 farm bankruptcy filings in the first quarter of 2016 soared 60 percent from the same period in 2013, according to court data. In the nation as a whole, Chapter 12 filings are up 18 percent over the same period.
"I hear a lot of, 'It's your fault for not saving enough,'" said Aleta Crowe, whose family farms about 2,500 acres of grain crops in southwestern Indiana. "If your property taxes doubled or tripled, would you have thought a few years ago to save money for taxes?"
Farmland is typically appraised at rates below true market value to keep levies affordable for farmers. In addition, many Midwestern states base farmland appraisals on a formula of current agricultural use value (CAUV), or the income a farmer can expect to earn, based on factors including commodity grain prices, farm rental rates, production expenses and interest rates.
These often use a rolling average aimed at balancing volatile swings in crop prices. But farmers say the formula was skewed by the historic rollercoaster ride taken by grain prices and farm incomes from 2010 to 2015.
Record-high crop prices in 2012, and all-time-high farm incomes in 2013, are now factoring in to property tax appraisals in some states. Meanwhile farm incomes plummeted 27 percent in 2014 from the year earlier and likely by another 38 percent in 2015, according to U.S. Department of Agriculture forecasts.
Midwestern farmers and ranchers have lobbied local and state lawmakers in Nebraska, Ohio and elsewhere for relief since grain prices began to fall off 2012 peaks, but have seen only modest legislative movement. Critics say farmers benefited from property tax breaks for decades and should have been better prepared.
The farming community did get some relief in Indiana, which enacted a law this spring to shift more than $100 million in tax burden off farmers by 2019.
Still, the economic strain is setting in.
Ceres Partners, a Indiana-based firm that handles a farmland fund with nearly $500 million in assets, has seen taxes squeeze its margins. The fund's farmlands saw average property taxes jumped nearly 56 percent per acre in Indiana and 170 percent in Ohio between 2013 and 2015, said Brandon Zick, director of acquisitions and portfolio management.
Taxes are also stalling land deals. Farmland Partners Inc , a farmland real estate investment trust (REIT) with approximately $600 million in farmland assets, has dropped out of deals in Ohio and Nebraska over the past year because property taxes were too onerous.
"You look at the taxes and you think, 'Holy cow, we can't buy that farm'," said Chief Executive Officer Paul Pittman. "We would be doing more deals in Nebraska if the property taxes weren't so high and unpredictable."
The disconnect between taxes and revenue had people like Ohio corn farmer Bruce Kettelle trying to use every possible inch of his 200 acres to boost income this season.
If the weather holds, he expects his profit to be a little over $100 per acre. The tax bill due this autumn could be as much as $105 per acre.
Seven years ago, Kettelle said, his farm's profit was $205 an acre - with a tax bill of $19.50 per acre.
"The formula now is trying to catch up with us, but it's never been tested at the levels of profits we saw" in recent years, said Kettelle, whose farm has been in his family since the 1870s. "I'm a frugal farmer. And I don't know how I'm going to survive this."
Such fears have prompted a group of farmers and landowners to sue Ohio, claiming farmland owners were overcharged billions of dollars in property taxes. According to the state court filing, the average current agricultural use value tax collections from 2005 to 2013 jumped 374 percent, from $1.8 billion a year to $6.8 billion a year.
The case is expected to go to trial next year. Ohio state taxation officials declined to comment on the case.