When it comes to saving money on property taxes in Colorado, a temporary handful of sheep or a bit of weedy hay can make a big difference.
Now, as the state faces plunging tax revenues, there is a movement to change that.
A statewide task force recently completed a study of agricultural property-tax designations and has passed suggestions on to the Colorado legislature to ensure that those receiving the tax breaks are farmers and ranchers and not simply financial opportunists.
Croplands and grazing pastures make up most of Colorado’s estimated 33 million acres of agricultural lands.
Also on the reduced-tax rolls are prop erties such as a field in a golf community near Littleton, a mountain lot with a 9,500-square- foot mansion outside Telluride and a high- roller Aspen-area subdivision.
“In some cases, it’s just pure deceit to get out of paying legitimate taxes,” said Pitkin County Assessor Tom Isaac.
Colorado allows land used for farming and ranching to be taxed based on its production value rather than market value.
For example, a 1.2-acre vacant commercial lot in Highlands Ranch worth $425,000 on the market is valued at $38 if a few cattle graze on it for less than three weeks every year.
The property taxes drop from an annual $11,739 to 95 cents, according to the task-force report.
The report shows the taxable value of 35 acres around a San Miguel County mansion drops from $1.7 million to $6,900 if sheep have the run of the grounds for two to four days a year.
Break is easy to qualify for
Because of the way the laws are written, assessors are hard-pressed to turn down agricultural tax designations even when the reported farm operations raise eyebrows.
There is no minimum acreage, no duration for grazing, no minimum agricultural income and no primary-purpose criterion to establish which lands should be classified agricultural for tax purposes.
“Colorado’s Constitution and statutes are extremely generous,” said Colorado State Assessor JoAnn Groff.
Groff and other members of the Land Assessment and Classification Task Force are quick to stress that they don’t want to make any changes that will hurt Colorado’s legitimate farms and ranches. But they do want to close loopholes used most often by developers and second-home owners.
They point out that few questionable tax classifications are occurring in Colorado’s top agriculture counties, including Weld, Yuma, Morgan and other Eastern Plains counties.
There are, however, hundreds of examples in Douglas County and in resort areas, including Pitkin and San Miguel counties, where land values are so high that agricultural tax designations can result in substantial savings.
If a request is granted for agricultural status on 168 vacant lots in the gated Golf Club at Ravenna in Douglas County where goats have been grazing, the value of that land for tax purposes would go from $29.2 million to $2,460, resulting in a $1.2 million tax decrease.
The task force also looked at the example of a 4.3-acre vacant parcel in the Columbine Valley golf community near Littleton that would be valued at a half-million dollars if the owner did not hire someone to cut and bale hay on the field behind a retail center and between two residences. The hay cutting has dropped the value enough that the tax bill is $6.85 a year rather than $16,056.
Horse breeding’s big payoff
In Montrose County, it’s not just the nebulous nature of the agricultural tax laws that are a bother. It’s also the quirkiness.
Montrose County Assessor Brad Hughes, who is chairman of the task force, uses an example of two 3.5-acre lots with homes on them to illustrate that point.
One property is classified as agricultural because the owner cuts grass hay and sells it to pleasure-horse owners. That owner pays $34 a year in property taxes. The other lot does not qualify for an agricultural designation even though two pleasure horses graze there.
Growing hay for pleasure horses is good enough for an agricultural classification, but having such horses is not — unless they are used for breeding. The horse owner pays $408 a year in property taxes.
Isaac said some high-end subdivisions in Pitkin County with common areas for pleasure horses qualify for reduced taxes by using some of the horses for breeding. Having common corrals and barns extends the tax breaks to all the properties in the subdivision.
Other second-home property owners lease out their acreages for cattle grazing for a couple of days a year as the herds are moved from high pasture to lower ground. They qualify for the agricultural designation.
“We have to value the property by use rather than who the owner is,” Isaac said.
He pointed out that the opulence of the mansions on these properties also cannot be taken into account.
Isaac estimates that of 387 properties with agricultural exemptions in his county, not many more than a dozen are primarily farm and ranch operations.
Groff said there are no statewide tallies for how many agriculturally designated properties are, in her words, “on the bubble.”
The task force, made up of five assessors and commissioners from Front Range and Western Slope counties as well as four representatives of the agriculture industry, grappled with the agricultural-classification issue all summer.
The result was a 157-page report that highlights examples of problems and ends with suggestions for how the legislature might make changes.
The crux of the task force’s ideas follows what some other states do by taxing land under residences at residential value rather than at the agricultural value of surrounding acres. That would happen only when the residences are not integral to the farming operation.
Terry Fankhauser, executive vice president of the Colorado Cattlemen’s Association, said his group will keep an open mind but is opposed to changes that undermine the general premise of the agricultural-classification laws that were created in the acknowledgment that farming and ranching are low-margin businesses.
Tax increase or tax fairness?
Douglas County Assessor Teri Cox said she doesn’t think the task-force recommendations go far enough. She suggests changes should also include requirements for the duration of time agricultural use must occur to qualify for a reduced-tax designation and for the establishment of agricultural use as a primary purpose on land that gets the tax break. These elements are included in the laws of some other Western and Midwestern states.
“I am pleased to see the legislature is looking at this,” Cox said. “But I would have liked to see a little more.”
Whether any legislators will step forward to carry an agricultural-tax- changing bill is still in question.
Republican state Sen. Greg Brophy, a Wray farmer and a member of the legislature’s agriculture committee, views suggested changes in the tax negatively.
“I think the real effort here is to have the state reclassify a bunch of land in one fell swoop instead of forcing the assessors to do the work one parcel at a time,” he said. “It is clear that some of the mountain communities want to raise a lot more tax revenues from the McMansion ranchettes.”
Nancy Lofholm: 970-256-1957 or [email protected]
