August 24, 2015

Taxpayers Shortchanged by Agriculture Use-Value Assessment

Seth H. Giertz

Summary

One benefit touted in favor of fiscal federalism is that states can act as laboratories. Over time, states adopting better policies will be copied, bad policies will die and good policies will spread. A lesson from use-value assessment is that this is not always the case.

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The 1.6 million people living in Manhattan, New York, and the 56,000 people living in Manhattan, Kansas are well aware that land values in the two locations are dramatically different. In fact, Zillow lists a property in Manhattan, Kansas for less than $30,000 an acre, whereas, the New York Fed estimates that that same $30,000 would buy just enough space to park a scooter, or a 15 square foot undeveloped lot, near the Empire State Building. However, an acre of land in the two Manhattans would have the same assessed value for property tax purposes, provided the land is used for agriculture.

This peculiarity is the result of use-value assessment practices, which assess the value of agriculture land not based on market value, but rather based on the assumption that land has no development prospects (or locational advantages). This practice was first adopted by Maryland in 1960. By 1995, all 50 states had enacted some form of it for agriculture.

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