Tax Information And Guide

Tax Software Millions of dollars in property tax breaks intended to preserve farmland are going instead to companies that bulldoze farms to build housing subdivisions, malls and industrial parks, an Associated Press investigation has found.

(5) month net earnings and earnings per share include $11.3 million and $0.27, respectively, for the curtailment gain, net of tax, and discrete cumulative tax benefits combined.

Software Tax It's happening from coast to coast, costing local governments badly needed revenue or forcing them to increase the taxes of other property owners. The breaks can be enormous. Without them, landowners would typically pay two to 400 times more in property taxes.

(4) month net earnings include discrete cumulative tax benefits of $5.5 million, or $0.13 per diluted share, and $6.6 million, or $0.16 per diluted share, respectively.

Every Landlord Tax Deduction In most states, the tax breaks date back to the 1950s and '60s, when lawmakers became alarmed at the rate at which farmland was disappearing under concrete and asphalt.

(3) month net earnings include discrete cumulative tax benefits of $1.0 million, or $0.02 per diluted share, and $4.0 million, or $0.09 per diluted share, respectively.

Tax Help But loopholes in the laws are producing unintended, though perfectly legal, consequences.

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Help Tax Here's what's happening: A developer buys land with the intention of building on it. During the years when he readies the property for construction -- preparing architectural plans, acquiring financing and permits, even building roads and laying water pipe -- he runs some cows or cuts some hay. Then he claims the tax break. Because of the loopholes, often even a pretense of farming can be enough to qualify.

Ernst Ernst Guide Guide Tax Usually, the tax break ends only after construction of buildings begins; sometimes, it doesn't even stop then.

Tax Return Some examples:

Return Tax # In Iowa, real estate developer Knapp Properties Inc. owns 239 acres near the Des Moines Airport. The land, close by a Wingate Hotel and a Federal Reserve check-processing plant, is subdivided for commercial development and is for sale at a total price of $7 million. But because Knapp allows local farmers to plant corn and soybeans on it, the company paid $14,345 in property taxes last year instead of $320,514.

Guide Guide Master Master Tax # In Denver, Delmer Zweygardt is building a subdivision called Deer Creek Farms. As the houses started going up, he grazed a few cows on the edge of the property. City officials pointed out that zoning laws don't allow cows in a subdivision, but the state Board of Assessment ruled that the presence of cows was enough to qualify Zweygardt for the tax break anyway. This reduced his total tax bill on 48 house lots from $22,000 a year to $60 until the subdivision was nearly completed in 2002, leaving no room for cows.

Tax Preparation # In Mobile County, Ala., Delaney's Inc. has planted pine seedlings on 54 acres left over after building a Hampton Inn., a Marriott Courtyard, a Lowe's and a Wal-Mart. This "tree farm" has been subdivided and laced with paved streets in preparation for development, and local officials insist the land is not suitable for growing timber. But the developer's lawyer pointed out that the law doesn't require Delaney's to be a good farmer -- just a farmer. The result: a 2003 tax bill of $152 instead of $64,230.

Preparation Tax Such cases are commonplace. The AP found scores of them throughout the country -- some with "Soon to Be the Home Of" signs heralding future malls, industrial parks or housing developments on property receiving tax breaks intended to encourage land preservation.

Employer Tax Guide In Polk County, Iowa, which includes the city of Des Moines, about 10 percent of those claiming farmland tax breaks are actually identified on the tax rolls as developers. Jim Maloney, county assessor, said most of the others are also developers and speculators.

Tax Services All over the country, local officials offered similar accounts

Services Tax "We have a lot of wannabe farmers who are out there trying to farm the system rather than the property," said Alaska State Assessor Steve Van Sant.

Master Tax Guide Every state offers some type of tax incentive to protect land from development. In some states, only working farms are eligible. In others, the breaks apply to agricultural land whether it is being farmed or not, and some also include timberland or other open space.

Tax Attorney "The whole idea was to encourage people to keep their land in agricultural use," said Talbot D'Alemberte, who sponsored the law as a member of the Florida Legislature in 1972.

Attorney Tax One factor driving development was property taxes, legislators throughout the country thought. Encroaching development increases land values, causing property taxes to rise. This, in turn, increases pressure on cash-strapped owners to sell to developers.

Guide Law Tax States tried to relieve that pressure by taxing threatened land according to what it is used for rather than what it could sell for. Although the tax breaks have been a welcome relief for working farmers, they have done little to slow the pace of development, according to numerous studies by think tanks and universities.

Tax Accountant For example, Jane Malme of the Lincoln Institute of Land Policy in Cambridge, Mass., reviewed farmland tax breaks in all 50 states and found that they have done little to preserve farmland.

Accountant Tax Many local officials have reached the same conclusion. Broward County, Fla., has lost 62,000 acres of agricultural land to development since 1972, and has only 7,600 acres left. There, the land-preservation tax break "has not slowed development an iota," said Gaylord Wood, attorney for the appraiser's office. But it cost the county $13 million in taxes last year.

Circular Employer Tax Guide To discourage owners from taking the tax break and then developing their land, some states back-bill landowners at the normal tax rate, sometimes tacking on interest, if they develop the land.

Income Tax But 20 states, including Florida, don't back-bill at all. In eight others, back-billing is limited to three years or less of back taxes -- but developers and speculators often hold land longer than that before building.

Us Master Tax Guide Texas back-bills five years and tacks on 7 percent in annual interest. That hasn't deterred Hewlett-Packard from taking the tax break on 175 acres of woods across from its 9,000-employee complex in Houston.

Property Tax The company says the land may eventually be developed, and local officials are convinced it will. For now, Hewlett-Packard manages the property as a tree farm, saying it produces a "nominal" income. Thus, it qualifies for the agricultural land tax break, saving the computer giant about $500,000 a year. While the county may eventually recover five years of that with interest, Compaq, which Hewlett-Packard absorbed in 2001, began receiving the tax break 14 years ago.

Irs Tax Form Other large corporations also take advantage of land preservation laws to reduce the cost of owning land they may eventually use for expansion.

Form Irs Tax For example, in Osceola County, Fla., Walt Disney World receives the farming break on 1,600 acres of pasture, timber and nurseries where it grows plants for its theme parks. The land, worth $194 million, is taxed as if it were worth $12.3 million, according to the county land records office. Disney spokesman Jacquee Polack said the company keeps a buffer of undeveloped land around the park, but she acknowledged some of this property will be developed.

Tax Guide For Trader Of course, many property owners who receive the tax breaks have no intention of developing their land. President Bush, for example, receives the agricultural tax break for his 1,582-acre ranch in Crawford, Texas, saving $23,679 last year on what would otherwise have been a $44,617 tax bill.

Online Tax Developers are unapologetic. "The way they tax is what you use it for," said Bob Schroder, vice president of Arlinghaus Builders. "It's not who owns it or what you might do with it someday. It's what you do with it now."

Guide Tax In Boone County, Ky., Arlinghaus leases 1,000 acres it plans to develop to farmers who grow hay and tobacco on it. That qualifies the land for the agricultural tax break, reducing the property tax bill from $53,070 to $5,100.

Tax Deduction Every tax dollar lost through loopholes must be made up somehow-- either in reduced services or in higher taxes for other property owners. The amount lost nationwide cannot be estimated, in part because property taxes are assessed by thousands of local jurisdictions. But even solid estimates for individual counties are unavailable.

Deduction Tax What is clear is that the total cost of land preservation tax breaks -- regardless of their merits -- is enormous.

Guide Master Tax Us In Wisconsin, which didn't adopt its agricultural tax break until 1996, more than $644 million in property taxes promptly shifted from farmland owners to other property owners, according to a study by the Wisconsin Taxpayers Alliance.

Sales Tax In Lafayette County alone, the assessed value of farmland dropped by $75 million, reducing tax revenue by $1.5 million. To compensate, the county increased the tax bills of non-farmers by as much as 40 percent and imposed a sales tax.

Federal Guide Tax Joshua Duke, a University of Delaware agriculture expert, said there has been a lot of talk about reforming laws governing land-preservation tax breaks, but that not much happens.

Federal Income Tax Few members of the public seem to realize how little the tax breaks do to slow development, how much they cost, or how widely they are misused, many assessors and land experts said.

The Real Estate Investor Tax Meanwhile, those who benefit from the tax breaks are a large and vocal constituency.

State Tax "Change this law?" said John Zimple of Arkansas' Assessment Coordination Department in Little Rock. "There probably would be a civil war."

Ernst Young Tax Guide By Allen G. Breed and Martha Mendoza
Associated Press - 4/3/2004

Topic: Sprawl

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