Agricultural Valuation: Fair property tax assessments for small, urban and diversified farms

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As the local food movement gains momentum, many Houstonians want to make their own meaningful contributions to the Houston region’s food supply, providing fresh, healthy produce and humanely raised meats and dairy products for themselves and others. The State of Texas has long held the principle that agricultural land should not be taxed the same as other land uses, but newer smaller operations are cropping up that do not fit neatly within existing law, leading them to often miss out on these tax benefits. Removing this barrier is important for increasing the number of beginning & small-scale farmers and ranchers who succeed. The Harris County Appraisal District has an interest in fairly valuing agricultural land and is willing to work with you to determine the proper treatment of your land.

Dr. Gary Underwood, with HCAD, met with the Houston Food Policy Workgroup on February 10, 2009. This white paper is a summary of that discussion.

“Farm Tractor Pulls Cotton Baling Machinery”: Old Shoe Woman: http://www.flickr.com/photos/judybaxter/46601993/

Ag Exemptions?
What you probably have heard of as “agricultural exemption” is not in fact an exemption, but a State law that instructs County Appraisal Districts to value agricultural operations according to the productivity value of the land, not the market value, which ultimately means greatly reduced taxes.

This category of exemptions in Harris County has very specific parameters generally referred to as either the 1-d, “agricultural use” appraisal or 1-d-1 “open space valuation” depending on whether the producer derives most of their income from the agricultural use or not. In general, horticulture operations must be at least 5 acres and must produce a reasonable amount of produce. Specific requirements are enumerated for various operations, including meat and dairy, grain, timberland, and others, and can be found at the HCAD website below.

In both cases, the land must generally be contiguous, unless the producer can prove that distinct parcels of land are in fact part of one operation and are in the general vicinity of each other. To qualify for this exemption, the land must be in continuous agricultural operation for 5 years before receiving the favorable valuation. If the land goes out of agricultural production, it is possible that the higher rates will be assessed retroactively.

HCAD will provide you with a standard application and assistance in filing the application properly for those seeking 1-d and 1-d-1 valuation. Click here for the HCAD’s help page on this.

Smaller than 5 Acre Agricultural Operations
The standard agricultural use or open space valuation will not apply to smaller operations, even if they are legitimately producing food in the urban area where 5 contiguous acres of land will be extremely difficult to find. For example, Last Organic Outpost is currently 2 acres but is making fresh produce available to a whole neighborhood and hundreds of families. Should they be paying taxes on the property value of their land?

HCAD is willing to work with you to perform a fair valuation in this situation. If a landowner can prove that they are in fact engaged in agricultural operation and intend to keep the land in that use, it is possible for HCAD to simply assess the value of the land given that restriction. The way to prove this is to set a deed restriction on the land for a period of at least 10 years to the intended agricultural use. Doing this, the landowner has in fact reduced the value of their land, as even if they sold it, the restriction would carry with the land, and the land actually only can be used for agriculture for that period of time. As this is not as codified as the 1-d or 1-d-1 valuations, HCAD will have to exercise due diligence to ensure the land is in fact going to be continually in agricultural use, but they are willing to work with urban agriculture pioneers to provide fair valuations.

If a nonprofit is involved with the project, that would help obtain the valuation. Also, if a college or university is involved with the project, it may be eligible as an ecological laboratory, which would make the process easier as well.

Community Gardens?
Many community gardens are housed on public land, such as those on City of Houston parkland and are thus already exempt from property taxes. However, it is possible that a community garden on private land could be valued for its productivity value instead of its market value as above. The land would need the same type of deed restrictions and HCAD would have to be satisfied that the property was truly being used for agricultural purposes.

Front Yard Garden?
Gardens in your front or back yard at your house are specifically barred from agricultural valuation in Texas. The homestead exemption is a more favorable reduction of taxes than the alternative valuation anyway. It is not expected that this will change and we are not working on it. Someone would need to make the argument and show how it can fairly be applied across the state. This would require a change to state law.

Changing Texas Law to Recognize Urban Agriculture
The Texas Legislature could enshrine such valuations into law to recognize the changing climate of food production and encourage more dynamic local agricultural economies. The Houston Food Policy Workgroup hopes to work with HCAD and other statewide partners to explore the potential for a statewide law that would take into account the emergence of urban agriculture and provide a fair system for all County Appraisal Districts to assess properties that do not fall under the traditional agricultural valuation law, but are genuinely being used for agricultural purposes.

We hope to prepare a fair proposal and educate legislators on this measure. Those interested in being involved, especially those with examples of legitimate agricultural operations that do not fit current law, are encouraged to contact the Houston Food Policy Workgroup.

Help?
Dr. Gary Underwood and others at Harris County Appraisal District are ready to help you find the fair valuation for your property. This paper is only intended as a primer and to inspire you that the project that you have been thinking about may actually be able to receive an alternative valuation for legitimate agricultural purposes.

Dr. Gary Underwood, Harris County Appraisal District
 Gunderwood@hcad.org713-812-5881 http://www.hcad.org 

To join this Action Group, sign up for the Ag Valuation email list.