Property Valuations

ISSUE

Introduced in 2023, LB 820 would enact the Agricultural Valuation Fairness Act to provide a more fair and uniform assessment of agricultural and horticultural land in Nebraska. It declares that sales of agricultural and horticultural land are influenced by uses other than agricultural or horticultural purposes and cause the price paid for agricultural and horticultural land to exceed the value such land has for agricultural or horticultural purposes. To achieve fairness, all agricultural and horticultural land will be assessed based on its capacity to produce income, called agricultural use value. The intent of this legislation is to be revenue neutral. The Nebraska Constitution, (Article VIII, Section 1, subsections (4) and (5)), authorizes this method of assessment.

BACKGROUND

Procedurally, LB 820 would create an Agricultural Land Valuation Committee to establish agricultural land values by Land Capability Groups (LCG) for agricultural land throughout the state. Land values are established utilizing a production approach to value. Gross income will be computed using eight-year average yield data, with the highest and lowest values removed. Gross income is reduced to net income by utilizing expense ratios. The net income is then capitalized to determine assessed value. The capitalization rate is also determined by the committee and is calculated to arrive at valuations within 69-75% of market value, ensuring assessed values are uniformly and proportionately assessed within the class of agricultural land.

LB 820 retains elements of local control by keeping the county assessor responsible for classifying land. County assessors currently inventory agricultural land on a productivity index, making the implementation of this bill simple at the county level. County assessors have representation on the Agricultural Land Valuation Committee created in this bill and have the option to petition the tax commissioner for alternative values they determine are not uniform and proportionate. In addition to the fairness in assessment resulting from this method, LB 820 also contains limitations to assure the resulting values for all agricultural and horticultural land statewide cannot be above the current market-based standard of 75% of value and cannot increase more than 3.5% over the prior year.

FARM BUREAU POLICY

AG LAND ASSESSMENT (2021). Nebraska Farm Bureau supports an income capitalization approach as the most equitable means of valuing agricultural land for tax purposes. The implementation of such an approach should use the best price, yield, expense, and landowner share data available; take into account the land’s location; and allow for obsolescence in order to assess the land based on its earnings capacity and remove influences outside of agriculture from the assessment process. The approach shall be implemented in a way to maintain landowners’ rights to appeal. There should be consideration of the formation of an advisory review commission to assist in implementation of an income capitalization approach and capitalization rates.

If an income capitalization approach is legislatively unattainable, we support lowering the current 75% of the market level of agricultural land value and increasing the number of years used to set assessed values. Under a market approach, we support giving county assessors the flexibility to give less weight to non-agriculture sales of agricultural land when determining countywide valuation adjustments. County assessors should have the primary decision-making authority on which comparable sales are used to determine market value.

Section 1031 exchange purchases should be reported to county assessors and not be used for valuation purposes. We support the exclusion of 1031 exchange sales for the purpose of comparable sales when assessing property.

We believe when agriculture land is sold and its primary use has changed from agriculture purposes to hunting and recreation, or the sale price is influenced by market forces other than agriculture, like preservation, those sales should not be used in the determination of the value of agriculture land. We support the use of market areas to differentiate areas of market activity for agriculture land and adjustments to market areas to obtain uniform values. Counties should have uniform raises or decreases in value among similar soil classifications outside of market areas.

We believe assessed values should be equalized between counties. Nebraska Farm Bureau supports the reform of the Tax Equalization and Review Commission. Farmsteads involved in active farming operations should be appraised similar to other active farmsteads, not as subdivided residential property. Agricultural land not used for agricultural purposes that is being mined for soil should be valued and taxed as commercial property and not as agricultural property. We support legislation that requires “no sales” with open, active bids at public auctions to be considered as the sale price for the market value of the land. We believe irrigated pasture should have its own tax classification. Annexations should not disqualify land for Special Use Assessment. Agricultural land operators should be notified prior to the sale of said land for land tax deficiency prior to the tax sale.

AG LAND DEFINITION (2019). We support changes to the definition of agriculture land to define parcels used primarily for the production of agricultural and horticultural purposes as agriculture land. Parcels could be defined as agricultural land if they are under common ownership and managed in conjunction with other agricultural land, are enrolled in federal or state conservation programs, or it can be demonstrated the gross sales from the parcel exceeds the USDA threshold for defining farms. We believe landowners should have notification and an opportunity for a hearing prior to change of classification of agriculture land for valuation purposes.

QUESTIONS

• Should Farm Bureau consider changing its policy to reflect a position on revenue neutrality?
  • Revenue neutrality means the amount of revenue generated statewide will not change, but there will be winners and losers across that state. Is that acceptable?
• Farm Bureau policy regarding the income capitalization approach does not have an explicit statement aimed at using such to reduce property taxes.
  • Should a statement to that effect be included in Farm Bureau’s policy?
• Farm Bureau policy supports changes to the definition of agriculture land to define parcels used primarily for the production of agricultural and horticultural purposes as agriculture land.
  • Should the definition of agriculture land be expanded to include barn sites, grain handling facilities, etc.?
• Should Farm Bureau have policy for reducing the valuation of all classes of real property (agriculture, residential, and commercial) with the intent being the reduction of property taxes for all property taxpayers?