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Tangled up over tax breaks: Part II

In recent years, local assessors have been spurred by the Department of Revenue to scrutinize applications and monitor continued eligibility for the four property tax current use programs related to farmlands, timber, timberlands and open space.

Efforts by Assessor Richard Zalmanek and other county tax assessors to enforce the law and remove outliers have caused county councils and the state legislature to address the process by which the exemptions are granted and the monitoring of continued eligibility by exemption holders.

Property taxes have been a source of friction between tax assessors and property owners since the assessment reduction programs were enacted by constitutional amendment and implemented by the Legislature in 1971. Now legislators in Olympia and in rural counties are caught in the middle between owners of tracts of property, especially larger tracts, who want to reduce their taxes and assessors seeking to minimize “tax shifting” to people who cannot avail themselves of the exemption programs.

That friction generated heat in San Juan County recently, when the County Council inserted two special provisions in the 2014 county budget, one of which withheld eight percent of the assessor’s 2014 budget until the assessor provides a comprehensive written report detailing the administration of the current use farm and agriculture program and the criteria used by the assessor in deciding continued eligibility.

The other proviso requires the assessor to provide quarterly reports “showing the status of new construction valuation” in the county. Zalmanek has blamed delays in updating assessments for new construction on budget constraints.

San Juan County Prosecutor Randy Gaylord refused to give the usual “approved as to form” imprimatur to the 2014 budget because of the process the county used in passing the provisos. But Zalmanek says he will nevertheless comply with the provisos and provide the council with the required information.

Zalmanek views the “tax shift” problem as a reason the county should devote more resources to verifying the eligibility of the participants in the four programs. To make the assessment of taxes “fair, uniform and equitable” - a tax collection mantra that is a Zalmanek favorite – the Assessor since 2009 has been working to verify the eligibility of participants in the four programs.

In one fifteen-month period in 2011-2012, 23 landowners were removed from the four special assessment programs, with only two appeals filed. Four removals were at the owner’s request.

Responding to taxpayer complaints, local 40th District state Representative Christine Lytton introduced House Bill 2306, which seeks to liberalize eligibility rules for the current use farmlands program

After a fiscal note by the Department of Revenue on a related bill predicted a five million dollar tax shift from favored taxpayers to ordinary property owners during the first year after enactment, both bills were stymied. HB 2306 was then amended into a “study bill” requiring the Department of Revenue to report to the Legislature on the property tax exemption program. Both proponents and opponents of the original bill welcomed the study, but passage now appears unlikely.

Both the County Council and the Assessor say they only want to enforce the law to ensure that qualifying property owners can participate in the current use programs. Neither wants ineligible property owners to take advantage of unfair reductions.

“Fair, uniform and equitable administration of property taxes requires the assessor to enforce the law,” said Zalmanek. He points out that a 2007 audit of his office criticized enforcement of the law, and a current informal legal opinion from the Attorney General confirmed his interpretation that ineligible property owners be removed “promptly” from the program.

“I disagree with the Assessor’s interpretation,” said San Juan County Council Chairman Rick Hughes, who welcomes the Legislature’s interest in the Open Space Law.

Because millions of dollars in tax benefits are potentially at risk, legislative and county council action is likely.

What will be done and when is uncertain.

 

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Part I:

Four property tax breaks for agricultural, timber and “open open space” have recently become an issue for voters, the County Council, San Juan County Assessor Charles Zalmanek and the Washington State legislature.

The tax breaks are important to the property owners, especially the growing number of small farmers in the county trying to make a living from agriculture or forestry. Both the assessor and the county council are clear that they don’t want to make things more difficult for small farmers.

The four tax programs reduce the property tax assessment on land from the usual fair market value of the property to the current use value for agricultural, forestry or simple “open open space.”

These tax preferences were enacted by the people in 1968, when a whopping 68 percent of the voters approved the Open Space Taxation Amendment to Article VII of the Washington Constitution.

The tax benefits from the programs are generous. The “current use” value of agriculture land in the county is only 4.6 percent of fair market value of that land. The property taxes on land in the timber programs are calculated on an even lower average, six-tenths of one percent of fair market value.

Of the 110,142 acres of properties in San Juan County, only some 56,000 acres, or under 51 percent, are assessed and taxed at the “highest and best use,” which is the fair market value of land and improvements.

Current use agriculture, open space and forestland acres comprise 27.8 percent of the land and 4.4 percent of the owners. 21.5 percent of the land is exempt from taxation altogether.

Part two of this story will review the friction that has developed regarding these tax programs between the San Juan County council and the assessor.

The story will also review suggestions for changes in San Juan County and in state law to make the four tax exemptions more fair and more productive.

 

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