Property Tax Strain For Indiana Farmers Worse After Heavy Rains, Lower Crop Prices

Dec 4, 2015

West Lafayette farmer Kevin Underwood surveys the equipment in his barn.
Credit Charlotte Tuggle / WBAA

Second-generation West Lafayette farmer Kevin Underwood has been collecting model tractors since grade school. 

But he can’t afford to replace the tractors he makes a living with because of the perfect storm of too much rain and a property tax structure that charges him based on what he pulled out of the ground three years ago.

“Because of that, we’re having to hold off on a lot of those purchases that we really hoped we’d be able to start back up on again and so we’re making those kind of decisions to try to just keep from adding additional loan expenses as we move forward,” Underwood says.

Underwood says his taxes alone are around $50,000 - $55,000 and they’re projected to grow 15-plus percent next year. He says even if he tried to sell his $1.5 million worth of land, he’d get a depressed rate because other farmers aren’t expanding and demand is low. Plus, he’d be out of a job.

“You’re kind of in this vicious circle that because that’s the tie that is to the taxes, you’re in this no-win situation,” Underwood says.

The formula Indiana uses to determine farm taxes takes three-to-four year-old numbers to assess how much the land is worth. Last session, lawmakers froze what’s known as the soil productivity factor so it couldn’t go up, but the “fix” is temporary.

Rep. Don Lehe (R-Brookston), who serves as Chairman of the House Agriculture and Rural Development Committee, says permanent fixes are being studied, but he’s seen no concrete plans yet.

“At this point, unfortunately, there’s really not a whole lot of news that we can really point to that indicates that we’re going to make any significant changes in the upcoming session,” Lehe says.

Indiana Farm Bureau President-elect Randy Kron calls the freeze a “success” for farmers, but says it doesn’t solve the problem.

In Ohio, farmers are facing a similar situation. That state also uses a complex formula to determine taxes. A 1972 amendment to the Ohio Constitution installed what’s called the Current Agriculture Use Value formula as a way to conserve farmland. But many farming operations have seen a 100-to-300 percent tax increase in the past three years, so the Ohio legislature is proposing bills to bring down any coming increase.

Rep. Brian Hill (R-Zanesville) is sponsoring the bills and says the goal is to cut out two functions that unnecessarily inflate the tax rate. First is the appreciation value assigned to the land, which he says doesn’t account for crop prices. The other is the stipulation that the more equity a farmer has in the land, the more valuable it is.

Hill says he wants to see fair ag land taxing before the taxes start shutting down Ohio’s farm operations.

“Once this land turns to concrete, it never comes back,” Hill says. “And that’s what’ll happen – we’ll force farmers to sell off some of this land that’s not as productive, or even highly productive. Taxes will be so high that they’ll have no choice.”

But Hill says conservation is still crucial – there’s also a push is to value farmland at the lowest level allowed on land where there’s been at least three years of conservation efforts.

Hill says the Ohio Farm Bureau has had ongoing discussions with state departments, including the Ohio Department of Taxation, which cut a 2-to-3-year lag in valuations to 12 months.

Back on the Hoosier side of the state line, incoming Farm Bureau President Randy Kron says his members will be vocal at the Statehouse, sharing how the taxes affect them personally – especially after this year’s drenching rain.

“On our personal farm, we farm in the Wabash River bottoms,” Kron says. “We had 400 acres that went under water and we harvested zero crops from, so there wasn’t a kernel of corn or soybeans that came off of that farm, but we still have to pay our property tax.”

And Kevin Underwood says he knows of some older farmers who have shut down their farms -- choosing to just retire, rather than pull through the price squeeze. On the other end of the age spectrum, he says the high cost of entry plus the property tax situation discourages young people from farming.

He contends reducing taxes is the best way to make farmers whole after a rough 2015 unless crop prices rise dramatically. And he says because of the lag in the formula, next year is going to hurt, too.

“That’s about the best scenario that I can think of – somebody gets laid off because they were hospitalized for whatever and then they see the big hospital bills, but they can’t go back to work yet,” Underwood says. “And you’ve got this kind of snowball effect going on and that’s really kind of what we’re dealing with.”

Underwood says all he can do is ride out the situation – much like he had to ride out the summer storms -- and hope legislators change the system.