Agricultural and Horticultural Update: H ti lt l U d t Changes - - PowerPoint PPT Presentation

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Agricultural and Horticultural Update: H ti lt l U d t Changes - - PowerPoint PPT Presentation

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Agricultural and Horticultural Update: H ti lt l U d t Changes and Options Gordon Groover and Lex Bruce Department of Agricultural & Applied Economics f A l l & A l d Virginia Tech (540) 231 5850 (540) 231-5850 groover@vt.edu

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SLIDE 1

Agricultural and H ti lt l U d t Horticultural Update: Changes and Options

Gordon Groover and Lex Bruce f A l l & A l d Department of Agricultural & Applied Economics Virginia Tech (540) 231 5850 (540) 231-5850 groover@vt.edu (540) 231-4441 (540) 231-4441 lbruce@vt.edu

Web site: usevalue agecon vt edu Web site: usevalue.agecon.vt.edu

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SLIDE 2

Objectives Objectives

  • Current Status
  • Description of methods

Description of methods

  • Overview of agricultural and horticultural

use values use values

– What’s changed? I A h R l R A h – Income Approach vs Rental Rate Approach

  • Answer questions
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SLIDE 3

Real Net Farm Income

$25,000

Virginia $/farm

IPD Index 2005 100 BEA

$20,000

IPD Index, 2005=100, BEA

$10,000 $15,000 $5,000 $-

Data, Economic Research Service/USDA, years 1960-2009

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SLIDE 4

Current Status TY2011

  • Agricultural and horticultural: 92

counties/cities counties/cities

  • Forest: 75 counties/cities
  • Open Space: 53 counties/cities
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SLIDE 5

TY2011: Counties/Cities* with enabling legislation for use value taxation legislation for use-value taxation

Agricultural & Horticultural, Forest, and Open Space Agricultural & Horticultural and Forest Agricultural & Horticultural Open Space Open Space and Agricultural & Horticultural

Page Shenan

  • doah

Fredrick Clark Loudoun Fairfax Prince William Fauquier Rappa- hannock Essex Ki Willi Alexandria Arlington Warren

No enabling legislation Agricultural & Forestal Districts Only

Alleghany Bath Highland Rockbridge Augusta g Rockingham King George hannock Culpeper Madison Greene Albemarle Orange Louisa Caroline Spotsylvania Fluvanna Hanover Stafford Westmoreland Richmond Northumberland King & Queen King William Dickenson Buchanan Tazewell Bland Giles Craig Alleghany Rockbridge Roanoke Montgomery Pulaski Botetourt Bedford Campbell Prince Edward Appomattox Buckingham Cumberland Amelia Nottoway Powhatan Chesterfield Amherst Nelson Fluvanna Goochland Hanover Lancaster New Kent Accomack Northampton Henrico Middlesex Mathews Gloucester James City Charles City York Prince George Surry Lee Scott Wise Russell Tazewell Wythe Smyth Washington Grayson Carroll Patrick Floyd Henry Pittsylvania Halifax Mecklenburg Brunswick Lunenburg Pulaski Franklin Charlotte Dinwiddie York Newport News Hampton Norfolk Surry Sussex Southampton Isle of Wight Suffolk Chesapeake Virginia Beach Danville Greensville

* Counties/Cities are identified from annual use-value reports and may differ from actual implementation. Contact government

  • fficials in each county/city for the current use-value implementation. Not all participating cities are identified on this map.
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SLIDE 6

Overview Overview

Vi i i l t ti l i l ti

  • Virginia use value taxation legislation was

passed in 1972

  • Virginia law allows for the preferential

taxation of agricultural, horticultural, forestal, and open space land

  • Eligible land in any of these categories can

g y g be assessed at the land’s value in use (use value) as opposed to the land’s market value ) pp

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SLIDE 7

Overview (cont ) Overview (cont.)

  • State Land Evaluation and Advisory

Council (SLEAC) provides annual use value estimates for each jurisdiction in the program

  • Responsibility for final value of assessment

resides with the local assessing officer

  • Buildings and other improvements “on the

land” are assessed at fair market value land are assessed at fair market value

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SLIDE 8

Two Approaches Two Approaches

Capitalized:

  • Net income (Income Approach)

Net income (Income Approach)

  • Rental rates (Rental Rate Approach)
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SLIDE 9

Income Approach

The Composite Farm

Jurisdiction's composite farm Jurisdiction s composite farm

  • Considered only crops with 1 or more acres in

the composite farm for each jurisdiction

– Acres of crop ÷ number of farms ≥ 1 acre Acres of crop number of farms ≥ 1 acre

  • Net returns/profits are based on the totals for

th j i di ti ' it f the jurisdiction's composite farm

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SLIDE 10

Income Approach

Crops in Model

Traditional Added for TY2009/20010 Traditional Added for TY2009/20010 Alfalfa hay Peanuts Pasture Alfalfa hay Barley Corn Peanuts Tobacco Pasture Cucumbers Corn Cotton Hay (grass) Cucumbers Pumpkins Snap Beans Hay (grass) Potatoes Soybeans Snap Beans Sweet Corn Tomatoes Soybeans Wheat Tomatoes Watermelons

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SLIDE 11

Income Approach pp

Data Sources Only published secondary sources are used Only published secondary sources are used.

  • 2007 Census of Agriculture - composite farm acres
  • Virginia Cooperative Extension

budgets

  • Virginia Cooperative Extension – budgets
  • Farm Service Agency - Federal payments

USDA RMA i t d

  • USDA-RMA – crop insurance, net proceeds
  • USDA-NASS – yields and prices

i i i f i

  • Virginia Department of Taxation - tax rates
  • AgFirst – long and short interest rates
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SLIDE 12

Total Composite Estimated

  • 1. No. of Farms = 248

Acreage p Farm (Acres) Net Return ($/Acre)

  • 2. Corn

32,670 132 $15.72 3 Alfalfa

  • 3. Alfalfa
  • 4. Hay

555 2 $0.00

  • 5. Wheat

13,235 53 $36.34

  • 6. Barley
  • 7 So beans

36 928 149 $30 16

Reporting:

Table 2 Accomack

  • 7. Soybeans

36,928 149 $30.16

  • 8. Potatoes

1,568 6 $1,214.59

  • 9. Cotton
  • 10. Pasture

2,325 9 $21.43

Accomack

TY2011

  • 11. Peanuts
  • 12. Tobacco
  • 13. Snap Beans

1,839 7 $0.00

  • 14. Cucumbers

D

  • 15. Pumpkins

4 $0.00

  • 16. Sweet Corn

485 2 $13.66

  • 17. Tomatoes

D

  • 18 Watermelons

13 $0 00

  • 18. Watermelons

13 $0.00

  • 19. Double-Cropped

(-) 13,235 (-) 53

  • 20. Totals

76,387 307 $64.37

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SLIDE 13

Income Approach

Basic Formula

rate tion Capitaliza return Net value Use  rate tion Capitaliza

Net Return Variables: Capitalization Rate Variables: Net Return Variables:

  • Crop Prices
  • Crop Yields

Capitalization Rate Variables:

  • Long-Term Interest Rates
  • Local Property Taxes

p

  • Input Prices
  • Federal Payments

Local Property Taxes y

  • Crop Ins
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SLIDE 14

Rental Rate Approach Rental Rate Approach

  • National Ag Statistics Service (NASS)

National Ag Statistics Service (NASS)

– Collects annual cash rental rates for

  • Cropland non-irrigated

C op a d o gated

  • Cropland irrigated (very limited)
  • Pastureland

– Developed methods for TY2010 sent values to COR under my name – informational values – SLEAC approved values for TY2011 – Rental rate approach applies the same cap rates as the income approach

e Rat tion Capitaliza Rent Cash Use value 

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SLIDE 15

Income vs Rental Rate

TY2011

Jurisdiction

Cropland $/ac Pasture Land $/ac

Income

(Average I-IV)

Rent Income

(Average V-VII)

Rent

Accomack 850 790 190 480ep Accomack 850 790 190 480 p Albemarle 80 210 30 200 Loudoun 30 330 20 300 Northampton 1,290 810 240 470ep Pittsylvania 120 290 50 240 R ki h 430 650 150 450 Rockingham 430 650 150 450 Southampton 810 770 270 430 Warren 270 260 Warren 270 260 Washington 300 550 110 340

epEastern District Combined pasture rent $36 per ac

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SLIDE 16

Virginia’s Use-Value T i P

Farm Example

Taxation Program

  • Consider a farm in Cumberland County in TY2011 with 400

acres (150 ac cropland, 150 ac pastureland, and 100 ac timber land) timber land)

  • Comprised of

– 100 acres (Class I land), 50 acres (Class III) – 50 acres (Class III), – 150 acre (Class IV), and – 100 acres (Good forest) A th t th F i M k t V l f th l d i $1 500/ – Assume that the Fair Market Value of the land is $1,500/acre

  • Use-value assessment values are based on 2 approaches

– Capitalized income (Ag, hort, and forest) – Capitalized rental rates (Ag)

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SLIDE 17

Virginia’s Use-Value

TY2011 Values for

Income Approach 2011 E ti

t d l f i lt l l d ($/ )

TY2011 Values for Cumberland County

Income Approach: 2011 Estimated use values of agricultural land ($/acre)

Cropland Pastureland I II III IV AVG I IV V VI VII AVG V VII AVG I VII VIII I-IV V-VII I-VII W/Out Risk 190 170 130 100 140 80 60 40 50 120 10 W/Risk 180 160 120 100 130 70 60 40 50 110 10

Rental Rate Approach: 2011 Estimated use

values of agricultural land ($/acre)

Cropland Pastureland 300 220

values of agricultural land ($/acre)

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SLIDE 18

Income Approach Income Approach

Farm Example

Income Approach TY2011 Fair Market Value (E i d) (Estimated)

Class I 100 acres ($190/acre) = $19,000 Class III 50 acres ($130/acre) = $6,500 400 acres ($1,500/acre) = $600,000 Class IV 150 acres ($100/acre) = $15,000 Good forest land 100 acres ($471/acre) = $47 100 Good forest land 100 acres ($471/acre) $47,100

Total Assessment (using land classes) = $87,600 Total Assessment (using AVG $140/acre) = $89,100 Fair Market Value = $600,000 Total Assessment (using AVG $140/acre) $89,100 Fair Market Assessed Value Use-value Assessed (income)Value Deferred Value $600,000

  • $89,100

$510,900

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SLIDE 19

Rental Rate Approach Rental Rate Approach

Farm Example

Rental Rate Approach: TY2011 Fair Market Value (Estimated)

p

Cropland 150 ($300/acre) = $45,000 Fair Market Value $600,000 Pastureland 150 acres ($220/acre) = $33,000 Forest 100 acres ($471/acre) = $47,100 Total Assessment (Rental rates) and Good Forest = $125,100 Fair Market Assessed Value Use-value Assessed (rental) Value Deferred Value $ 600,000

  • $ 125,100

$ 474,900

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SLIDE 20

Deferred Taxes Deferred Taxes

Farm Example

Fair Market Value Income Approach Rental Rate Approach

p

pp pp

Total Values $600,000 $89,100 $125,100 Property Tax Rate $0.68/$100 Property Tax $4,080 $606 $851 Deferred Taxes for 5 years $3,474 $3,229

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SLIDE 21

Virginia’s Use-Value T i P Taxation Program

Farm Example

Note:

  • If the land contained farm structures, e.g., a poultry

p

house and/or grain bins, they would be taxed at their fair market value. Use-value assessment only applies to land land.

  • Farm dwellings and lots are taxed at fair market value.

Assumptions:

  • Owner meets all eligibility requirements for use-value

t assessment.

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SLIDE 22

Virginia’s Use-Value T ti P Taxation Program

Orchard/Hort Operations

  • Horticultural is defined as only apples

Orchard/Hort Operations

Horticultural is defined as only apples and other tree fruit (pears and stone fruit)

  • Add-on values apply to apples and other tree-

fruit

  • Method for estimating net returns to orchard
  • peration was developed in 1977
  • peration was developed in 1977
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SLIDE 23

Useful Reports Useful Reports

  • VA procedures manual 2011

p http://pubs.ext.vt.edu/446/446-011/446-011.html

  • See the Fall 2011 issues of the Journal of

Public Budgeting & Finance for an article on use value assessment

www.blackwellpublishing.com/journal.asp?ref=0275-1100

  • Economic Benefits of Farmland Preservation:

Evidence from the United States. Lori Lynch and Joshua M. Duke - WP 07-04

http://ageconsearch.umn.edu/bitstream/7342/2/wp070004.pdf

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SLIDE 24

Useful Reports Useful Reports

  • Why Use-value Estimates Differ: Comparing Halifax

Why Use value Estimates Differ: Comparing Halifax and Pittsylvania Counties

usevalue.agecon.vt.edu/publications.htm

  • Use-Value Taxation in Virginia: A Brief Discussion

usevalue.agecon.vt.edu/publications.htm

R l f h 2003 A l l d H l l

  • Results of the 2003 Agricultural and Horticultural

Use-Value Taxation Program Survey

usevalue agecon vt edu/publications htm usevalue.agecon.vt.edu/publications.htm

  • Measuring the Impact of Use-Value Taxation for

Northampton County, Virginia

usevalue.agecon.vt.edu/publications.htm

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SLIDE 25

Virginia’s Use-Value Taxation Program

  • Agriculture and Horticulture

– Lex Bruce (fbruce@vt.edu) Phone (540) 231-4441 Gordon Groover (groover@vt edu) Phone (540) 231 5850 – Gordon Groover (groover@vt.edu) Phone (540) 231-5850

  • Forest – VA Department of Forestry

C i (434) 9 6 – Dean Cumbia (434) 977-6555

  • Open Space – Department Conservation and

Recreation

– Sarah Richardson - (sarah richardson@dcr virginia gov) Phone 804- Sarah Richardson - (sarah.richardson@dcr.virginia.gov), Phone 804- 225-2048

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SLIDE 26

Thanks! & Questions? Questions? For more information see l t d usevalue.agecon.vt.edu