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In these days when companies and local governments face increasingly tight budgets, one source of revenue might be dropping through the cracks.
It’s dropped so far through the cracks, no one even knows how much money is involved. However, Jeff Bluske, director of the La Crosse County Zoning, Planning and Land Information Department, thinks it could be significant. Even if it’s not, he said, every penny counts.
In 1995, in an effort to preserve farmland and reduce the property tax burden on farmers, Wisconsin law shifted $10.4 million in property taxes from agricultural taxpayers to residential, commercial and manufacturing taxpayers. By 2002, $212 million had shifted to the non-agricultural sector.
The 1995 Act 27 significantly reduced the tax burden for farmers, whose annual property taxes are now assessed based on use value and not market value, a significant savings.
The law also implemented a use-value conversion fee as a property tax assessment when the use changes from agricultural to residential, commercial or manufacturing.
“Nonagricultural taxpayers have agreed to take on higher taxes to protect the farmer,” said Dave Jelinski, director of land and water resources for Wisconsin Department of Agriculture, Trade and Consumer Protection.
“If you’ve benefited from land in agriculture and decide to take it out, you have to pay a penalty because the rest of Wisconsin residents have paid to allow you to keep it in agricultural use,” Jelinski said.
The conversion fee (some call it a tax penalty) varies by county, acreage and soil grade. In La Crosse County, the highest fee is $294 per acre for changes in use to 10 acres or less. Current law requires the conversion fee be assessed the year when actual improvements on the property are made, such as pouring a foundation for a home.
When improvements are made on a rezoned property, the municipal assessor is required to make note of the change of the use and report to the county treasurer that the property is subject to the use-value conversion fee. The county treasurer then sends a bill to the property owner. The paid conversion fee is then split 50/50 between the county and the municipality where the property resides.
While many municipalities are seeing more and more requests by farmers to rezone their land so they can sell it, mostly to developers, they aren’t seeing much in the way of the conversion fee coming back to them.
According to Donna Hanson, La Crosse County treasurer, she collected $5,792 for seven properties in the city of Onalaska for conversion charges in the 2008 tax year. For tax year 2007, the county collected $6,718 for two property owners in the town of Bangor, seven in Farmington, two in Holmen, four in Greenfield and one in Washington.
For tax year 2006, Hanson collected $25,862 for six property owners in Farmington, four in Hamilton, three in Holland, 12 in Greenfield, two in Holmen and two in Shelby.
Should more have been collected? It depends. In 2006 in the town of Holland, for example, there were 15,984 acres zoned agriculture or other zoning in which owners receive the farmland use tax benefits.
In 2008, that number decreased to 14,722 acres, a loss of 1,262 acres. Part of that (900 acres) went into the village of Holmen as part of annexation.
When a developer changes the use of the land, putting in a foundation for residential use, for example, then the use-value conversion fee applies.
During the same period, residential acreage increased from 1,660 acres in 2006 to 1,890 acres in 2008, a 14 percent increase.
If all of the acres that were once farmland were now used as residential, the county should have collected $371,028 in conversion fees. Half would have been kept by the county and the other half would have gone to the town of Holland.
In the town of Burns, there were similar changes from agricultural to residential. In 2006, there were 26,179 acres of lands zoned in agricultural or other protected class. In 2008, there were 25,904 acres, a reduction of 275 acres.
However, the assessor for Burns, Peter Post, said he only had one property that might have been subject to the conversion fee in 2007. Since that was transferring ownership from a father to a son, that property was exempt from the conversion fee.
Of course, it’s not that cut and dried. First, the fee is based on the soil grade of the property as well as the acreage. The $294 per acre is always applicable.
Secondly, there are numerous delays pushing the payment of conversion fees out several years. Land might be rezoned in 2006, but a developer might not start building until two, three or more years later.
After the board of review, usually held between May and August, the assessor can notify the county to issue a bill for the conversion fee to the property owner, who is usually an unsuspecting homebuyer.
According to Bluske’s numbers, his department issued 118 zoning permits in 2008, most of them in the towns of Holland (27), Onalaska (19), Farmington (12) and Hamilton (12).
Those 118 permits could have been for land that had been rezoned from agriculture to residential five years ago and finally had some building started on it in 2008. The assessment for the conversion fee is payable the year the building improvements were made, not the year it was rezoned from agricultural.
To muddy the waters even more, the county treasurer doesn’t know any of this unless the assessor notifies her to send out a conversion fee bill.
In the meantime, farmers have been reaping the benefits of paying a lower tax bill. According to their Web site, the Wisconsin Farm Bureau Federation estimates farmers statewide paid about $40 million under the farmland preservation tax benefits in 2007, $500 million less than if farmers would have paid taxes at market value.
Bluske said he thinks the bureaucracy is creating loopholes so the conversion fee doesn’t get paid. He said there is no coordination between the two county departments — zoning and treasury — and there is no enforcement to make sure assessors are doing their job.
Post agreed somewhat. “Some assessors see it as an unfunded mandate,” he said. “Just another thing to do. But it’s an easy thing to do.”
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