Reconsidering Preferential Assessment of Rural Land (Land Lines Article)

Author(s): England, Richard W.
Publication Date: April 2012

6 pages; Inventory ID LLA120402; English

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Article

Reconsidering Preferential Assessment of Rural Land

Richard W. England

More than 50 years ago, a slowly unfolding but fundamental process began to transform property taxation in the United States. Because this process took place at the state and local, not federal, levels of government, and because the almost universal adoption of preferential assessment spanned several decades, most citizens are unaware that owners of rural parcels often enjoy such treatment of their properties. As a result, millions of acres of rural land are now assessed far below fair market value for purposes of local property taxation.

These modifications of the property tax began in Maryland in 1957, when the General Assembly enacted an agricultural use assessment law. This statute provides that farm fields and pastures can be assessed below market value as long as they are being "actively used" for agricultural purposes. As evidence of active agricultural use, an owner can document that the property had generated $2,500 or more of annual gross revenue from the sale of agricultural products during recent years.

Several factors prompted dozens of state governments to emulate Maryland and enact use value assessment (UVA) programs during the 1960s and 1970s. First was the massive expansion of U.S. metropolitan regions after World War II, which led to the conversion of tens of millions of acres of farm, ranch, forest, and other rural lands to residential and other nonagricultural uses. Alig et al. (2003) estimate that the nation's developed area more than doubled between 1960 and 1997, from 25.5 to 65.5 million acres. Rapid urbanization of rural land had come earlier to Maryland than other states because its populations in Montgomery and Prince George's Counties, near the fast-growing nation's capital in Washington, DC, quadrupled from 1940 to 1960.

Second, agricultural land on the fringe of metropolitan regions escalated in price during the postwar decades because of its development potential, causing some farmers to face escalating property tax bills because of higher land value assessments. From 1950 to 1971, for example, there was a 330 percent increase in the ratio of farmland prices to net farm income in Maryland (Gloudemans 1974). A study of the two-state, seven-county Kansas City region in the early 1960s found that the proportion of gross farm income absorbed by the property tax in the most urbanized county was four times greater than in the metropolitan region as a whole (Blase and Staub 1971). Hence, adoption of preferential assessment of rural land was often justified as a policy measure to protect family farmers and ranchers from financial stress or even ruin.

A third and more subtle reason for the adoption of UVA programs reflects how the property tax had been administered in many states before 1957. Until that moment in U.S. history, county and municipal assessors had frequently given de facto tax preferences to farmers despite state constitutional provisions requiring uniformity and equality of taxation. These informal assessment practices were intended to provide property tax relief to "deserving citizens," but often resulted in dramatic differences in assessment ratios among taxable properties within the same community.

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