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Farmers question tax audits
The farmers were noticeable not by their denim and muddy boots, but their expressions both somber and frustrated. They, and several other concerned citizens, took their turns sitting before the council at a special Lopez meeting on Tuesday and voiced their concerns relating to the Agriculture Current Use Taxation Program.
Their complaints were slightly varied, but one thing was clear – they were upset.
“Our community needs to wake up,” said one Lopez resident. She added that County Assessor Charles Zalmanek has a dramatic impact on landscape. “When people drive the valleys in the future they will see ranchette after ranchette because lands will come out of agriculture, and become developed with houses and corporate farms,” she said. She called the assessor's approach to the issues as “having the fat cow now, and no cows later.”
The Agriculture Current Use Taxation Program is under the Open Space Taxation Act, which was enacted in 1970 to allow property owners to have their open space, farm and agricultural, and timber lands valued at their current use rather than at their highest and best use.
In 2007, the Department of Revenue sent a report to the assessor's office, stating that because of the lack of internal controls on the administration of the Current Use Program there is a higher risk of abuse.
In 2008, the assessor's office sent a farm audit questionnaire to all San Juan County property owners enrolled in Current Use Farm and Agriculture Programs. Due to a software transition and budget and staff reductions, the auditor’s office was not able to follow up on the responses to the farm audit questionnaire until 2010.
In every budget proposal since 2007, Zalmanek has requested additional staffing to assist with monitoring these tax programs.
“Each year, the council wanted to know if the monitoring would generate income and how much, due to serious budget shortfalls created by the economic downturn,” he said. “I always responded that a major priority of this office is to administer a fair and equitable program of taxation.”
In 2010, Zalmanek took time away from other priorities to look for abuse in the programs. By the middle of the year, the assessor's office had collected more than $300,000 of compensating taxes, interest and penalties that are distributed to all taxing districts because those out of compliance have to pay seven years' worth of back taxes based on regular taxes.
“By then it had become very clear to me that there were a very significant number of non-compliant properties that included some worst case scenarios such as forest lands with no trees and farm lands that were completely forested,” he said.
That’s when a staff person was hired to help monitor and administer these special assessment programs. The audit is county-wide but is beginning on Lopez and the south end of San Juan.
Multiple farmers at the council meeting complained about the assessor changing the rules without prior notification to landowners and not being willing to work with individuals. They also stated confusion over requirements and concerns that the assessor is getting pushed by the council and the state to generate extra revenue.
“We are very concerned that lands that are being actively used for commercial agricultural purposes are being removed from the program, often at great expense to the landowner for payment of back taxes and penalties,” Agricultural Resources Committee Coordinator Peggy Bill said.
When the assessor is sworn into office, he or she agrees to support the laws of the State of Washington, Zalmanek said. Those laws include sections that require assessors to monitor compliance with Current Use, Open Space and Designated Forest Land Programs.
“There is no truth to claims that this independently elected assessor is motivated to create extra revenue,” he said.
Questions of gross income requirements
According to Bill, one of the biggest problems that farmers are facing is that state law has specific language for requirements for property less than five acres and up to 20 acres, but does not have reference to land over 20 acres. This leaves farmers wondering what is required.
Bill and other farmers said that Zalmanek has not been consistent about what specific income is required for land over 20 acres.
“First he said it would be $200 per acre and then every acre over 20 would require $1,” she said.
Bill and other farmers would like to see the requirement in writing.
Zalmanek said the law is silent on the gross income requirement for parcels over 20 acres, but this does not mean there is no gross income requirement for agricultural lands over 20 acres in size. He said the requirement is $200 per acre and then every acre over 20 would require $1.
Zalmanek also added that it's important for farmers to know the distinction between net income and gross income.
A farmer could have a gross income of 5,000, but cost to produce could be $4,500 and then the net income would only be $500, said Zalmanek. Gross income is written in the law.
Laws for leased land
Bill said the lack of consistency is just one part of the problem. The other issue is the expense of paying for property that is leased.
“Our tradition of leasing land, sometimes without payment, to a farmer for production of hay and/or seasonal grazing will no longer be allowed,” Bill said.
This tradition is a win-win for farmers and landowners especially when it comes to seasonal farming because land is used for free and the landowner is able to maintain their property for future agricultural uses.
“The law says that land has to be farmed by commercial purposes, the law is not for bartering,” Zalmanek said. “It was never an option.”
Bill admits that requiring compliance is always a difficult task and wants to work with Zalmanek to find a solution. There are ongoing meetings between ARC and the assessor.
She asked the council to set up a five-member committee to work with Zalmanek on reasonable requirements for land over 20 acres and for consistency in rules. She offered to have it formed as a sub-community of ARC.
According to WAC 458-30-345, the advisory committee shall not give advice regarding the valuation or assessment of specific parcels of land. However, it may supply the assessor with advice on typical crops, land quality, and net cash rental assessments to assist the assessor in determining appropriate values.
Her other recommendation to the county was to put the auditing process on hold until there is better clarification of what is necessary to be in compliance including written rules, and public notification.
Bill makes it clear that ARC does not want to support those in the program who are abusing the system, but that they want to support those trying to comply.
“It makes a huge difference for there to be a state-wide law to provide landowners and land use to have preferential taxes bases not using highest ad best use,” Bill said. “Production of food and fiber is important.”
She said that tax breaks can make or break a farm and that everyone benefits for the protection of the lands.
Bill says those opposed to the current use program say people abuse the program and that taxes are raised for the public. But her bottom line is the protection of farmland.
Zalmanek said his door is always open to the public.
“I have been and continue to be available to meet with anyone to discuss current use or appraisal issues,” he said.
The assesor will be at the next regular council meeting April 3 on Friday Harbor, visit www.sanjuanco.com, for more info.
For more information on these programs, visit http://www.sanjuanco.com/assessor/default.aspx.
For more on RCW 84.34, visit apps.leg.wa.gov/rcw/default.aspx?cite=84.34.
For more on WAC 458.30, visit www.google.com/search?client=safari&rls=en&q=wac+458-30&ie=UTF-8&oe=UTF-8.