Getting the True Value of Farmland
It’s interesting when there are two wildly different takes on the same thing. For example, take me vs. the general public on Dances With Smurfs or Michael Burry vs. the rest of Wall Street on the value (or lack thereof) of sub-prime mortgage bonds. Another instance—one that is costing all of us—is the State Tax Commission vs. everyone else on the value of farmland. This difference can affect many our tax rates.
In a recent paper (H/T David Nicklaus), David Larson of the Bureau of Economic Analysis performed a valuation on all land in each of the lower 48 states for 2009. Based on his calculations, Missouri farmland is worth $64.236 billion. Based on my calculations, using data contained in the State Tax Commission’s 2009 Annual Report, the total value of Missouri agricultural property in 2009 would come out to $13.3 billion. That’s a gap of more than $50 billion!
A reason for this big difference is that, instead of assessing all agricultural land at a flat 12 percent rate, actively farmed land receives a different assessment rate depending on its productive capacity. This practice results in an effective assessment rate of around 2-3 percent.
Such low assessments erode the property tax base. Even if the true value of farmland in Missouri was half of Larson’s estimate, if it were assessed at a flat 12 percent rate, the state would have an agricultural property tax base nearly two-and-a-half times the size of its current base. This larger tax base either could allow property tax rates in some areas to be cut or some localities could see an influx of new revenue.
I don’t want farmers’ property tax bills to skyrocket. However, the truth is their property is under assessed to such an extent that governments are forced to rely on other more destructive forms of taxation (i.e., income taxes), which the rest of us have to pay, in order to fund essential services. We should value farmers for the work they do, but we should also properly value the land they work on lest we pay more than we should.