Agricultural tax status rules attract scrutiny in Routt County
Steamboat Springs — The favorable property tax rates that are extended to owners of farm and ranch lands played a role in the real estate run-up of the past decade as well as in the preservation of open space in the wide-open Yampa Valley that is home to Steamboat Springs.
Now, there’s a significant chance the Colorado General Assembly will consider a bill intended to tighten up the qualifications for agricultural tax status and eliminate perceived abuses of the system. Some who are involved in the discussion caution that a well-intended effort to plug tax loopholes could wind up depriving traditional farmers and ranchers of important income they derive from doing the farm work on rural subdivisions.
“I think there’s a need to make the system more predictable for county assessors and boards of adjustment” who hear tax appeals, Routt County Commissioner Doug Monger said. “We need to get something in front of the legislature to at least get it discussed” in committee.
The legislature passed a law in 2010 that created a task force to study the issue and make recommendations.
The task force wrote in its report: “Some homeowners are claiming an agricultural classification without being a part of a bona fide agricultural operation on the corresponding land.”
Deciding what is a bona fide agriculture operation isn’t clear-cut, but having agriculture status makes a difference. You can see it in the Red Creek Subdivision near Clark where some property owners lease the portion of their 35-acre lots not occupied by their homes to a rancher for grazing. One 35-acre lot there was purchased for $47,000, a bargain at today’s prices, and is valued for taxes at $740. With agriculture status, the annual tax bill is $13.12.
Right next door, there is a 748-square-foot home on a 35-acre lot. The land, which does not have agriculture status, is valued at $470,000 for the taxes, and the one-bedroom home is valued at $122,000. The annual tax bill has averaged about $1,700 in three years.
In the same subdivision, there is a 3,400-square-foot home that sold for $900,000 in 2005. The land has agriculture status and is valued for taxes at $1,090. The annual tax bill is about $3,200.
Monger comes from a multigenerational Routt County ranch family and continues to work his cattle ranch east of Hayden. His background makes him concerned about the fallout farmers and ranchers might experience from a revision of tax regulations. At the same time, he’s the county’s representative at Colorado Counties Inc., an organization that is pushing for a bill.
“I’m worried that ag will lose in this process, but there are some abuses out there. I think we do pretty well in Routt County, but there are some places I feel better about than others,” Monger said.
The rub comes from rural property owners whose primary use of their land and buildings isn’t to raise livestock or grow crops, but engage in just enough agricultural activity to attain agricultural status and save thousands of dollars annually in property taxes.
Agricultural land in Colorado is valued for taxes not on its market value, but on its productivity. It’s the difference between a few hundred dollars and a few thousand dollars annually on 40 or 50 acres of pastureland near the ski mecca of Steamboat Springs.
Cattle ranching is one of the longest standing land-use practices here, and irrigation of hay meadows makes the Yampa Valley lush and green. Traditional family ranches now share county roads with hybrid operations — both modest and luxury home developments where full-time ranchers pay leases to graze their cattle and are hired to harvest hay crops on behalf of homeowners associations interested in qualifying for agricultural tax status. In some cases, agricultural conservation easements further legitimize their claims.
Jeff Temple, whose family has longstanding agricultural roots in Northwest Colorado, was the lead developer of two luxury home subdivisions, Storm Mountain Ranch and Marabou, where multimillion-dollar homes and estate lots intermingle with traditional agricultural practices.
“I know it’s a controversial issue, but I feel strongly that (agricultural tax rates) are a valuable tool for preserving open space,” Temple said. “There’s a reason you still see beautiful green open areas when you drive down Rabbit Ears Pass.”
Temple insists that Marabou, with a 1,300 remainder parcel where homes never will be built, where a ranch manager rotates red steers and all of the hay meadows have been reseeded, is as much a working cattle ranch as any in the valley.
“If there’s a legitimate ag classification, it’s Marabou,” he said. “We’ve rebuilt all of the fences, improved the irrigation and added water tanks up high. We’ve done a great deal to improve wildlife habitat, too.”
A Front Range issue
The genesis of this year’s legislative debate can be found in a bill it passed in 2010 to establish a nine-member panel to explore the issues and make recommendations. Its membership included county commissioners and county assessors as well as representatives of the agricultural community. The Land Assessment and Classification Task Force met four times in summer and issued a thick report in October.
The panel looked at 5-acre hobby farms on the edges of Denver and luxury rural homes near Telluride. One of the properties it focused closely on is a 4.33-acre vacant parcel just outside of Littleton. It is bordered on two sides by homes in a golfing community but is classified as agricultural land for tax purposes.
The property owner allows hay to grow without any fertilization or spraying for weeds and hires out the cutting and baling of his 4.33 acres of hay. With the agricultural classification, the value of the property in 2009 was $242 with an assessed value of $70 for a tax bill of a $6.85. The task force concluded that had the property been classified as vacant land other than agricultural, its market value would have been more than $565,000 with a tax bill of $16,000.
Those are the kinds of perceived abuses Colorado Counties Inc. would like the state legislature to tighten down on.
County assessor weighs in
Routt County Assessor Gary Peterson said he doesn’t fault people who benefit from finding ways to qualify for agricultural status.
“I don’t look at this as agricultural property abuse,” Peterson said. “They’re just doing what the law allows. I don’t want to say they’re abusing (the law); they’re working within the law.”
At the same time, he’d like to see the criteria for qualifying for agricultural status tightened. Regulations are vague and would benefit from established minimums for land parcel sizes and overall income derived from them before agricultural status is granted.
Monger is wary of minimums, saying a lack of flexibility could prevent local officials from recognizing atypical agriculture operators.
Cows and houses
Storm Mountain Ranch illustrates how a luxury home development near Steamboat can preserve open space and agriculture on the land while offering multimillion-dollar-home owners relief from taxes on the land and still significantly contributing to the county tax base.
Owners at Storm Mountain typically buy twin 35-acre parcels to afford them the right to buy a secondary dwelling on their land, Peterson said. At a particular ranch estate on Dreamcatcher Trail, the two 35-acre parcels are valued as agricultural property — just $3,010 each, though residential estates there sold for upward of $2 million. Annual taxes on the land are $800 to $900.
However, the owners still pay a large tax bill on their home.
“It’s not like these kinds of property owners don’t contribute to our tax rolls because they do,” Peterson said, “probably as much in a single year as owners of modest homes inside the city limits pay in a decade.”
On the other hand, he said, the tax breaks that rural homeowners, and for that matter, ranchers, enjoy by having agricultural status must be absorbed by other property owners to make up the overall tax levy.
In the case of the owners of the property on Dreamcatcher Trail, they have a 14,990-square-foot house with six bedrooms and 8.5 bathrooms included in 11,000 square feet of livable space. It is valued for taxes at $9.2 million, and property taxes in 2009 were almost $18,000.
Monger and Peterson agree that some media reports have mischaracterized the push to take a fresh look at the criteria for agricultural status as an attempt by local governments to grab new revenues to bolster sagging budgets.
“That’s not what it is,” Peterson said. “It’s about more equal distribution of the tax burden.”
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