Property Taxes and the Importance of Agricultural Special Appraisal Designation

By Chris Becker/CC Becker Property Tax Consulting 9/7/2019

Note: This paper is for general information purposes and does not include all aspects of the property tax code. Readers are encouraged to seek professional assistance from qualified personnel before making any decisions or taking any actions regarding property tax issues.

Table of Contents:
What is the “Ag Exemption”? 1-d-1 Open Space Land

1-d-1 Timber Land

1-d-1 Wildlife Management

Why is Agricultural Value so Important? What is a Rollback Tax?

How CC Becker can help you

What is the “Ag Exemption”?

Tax Code Section 23.51(1) defines qualified agricultural land as:” Land that is currently and principally devoted to agricultural use to the degree of intensity typical for the area and has been used for agriculture or timber for at least five of the preceding seven years”.

Although commonly referred to as the “Ag Exemption” in Texas, it is technically a special appraisal based on the “agricultural productivity” of the land. If you don’t understand what these means don’t feel alone, most people don’t until they must deal with it on their own property. There are several types of “special appraisal” in Texas. Much of the information provided here can be found online at the Texas Comptroller of Texas website comptroller.texas.gov.

Agricultural Appraisal
The Comptroller’s Manual for the Appraisal of Agricultural Land explains the eligibility requirements and the appraisal procedures for agricultural land, as provided by Tax Code Chapter 23, Subchapters C and D, and is adopted by the Texas Comptroller of Public Accounts under Comptroller Rule 9.4001 as required by Tax Code Section 23.52(d).
“Property owners may qualify for an agricultural appraisal if the land meets the following criteria.

• The land must be currently devoted principally to agricultural use. Agricultural use includes producing crops, livestock, poultry, fish, or cover crops. It also can include leaving the land idle while participating in a government program or for a normal crop or livestock rotation. Land used for raising certain exotic animals (including exotic birds) to produce human food or other items of commercial value qualifies. Cutting wood for use in fences or structures on adjacent agricultural land also qualifies.
• Using land for wildlife management is agricultural use if such land was previously qualified open-space land or timberland and is actively used for wildlife management. Wildlife management land must be used in at least three of seven specific ways to propagate a sustaining breeding, migrating or wintering population of indigenous wild animals for human use.
• Agricultural land must be devoted to production at a level of intensity that is generally accepted in the local area.
• The land must have been devoted to agricultural or timber production for at least five of the past seven years. However, land within an incorporated city or town must meet not only the criteria applicable to 1-d-1 land but also must meet one of the following additional criteria:
• The city or town must not provide the land with general services comparable to those provided in other parts of the city or town having similar features and population.
• The land must have been devoted principally to agricultural use continuously for the preceding five years.
• The land has been devoted principally to agricultural use or to the production of timber or forest products continuously for the preceding five years and the land is used for wildlife management.”
1-d-1 open space land as defined by the Texas Property Tax Code section 23.41 (a): “ Land designated for agricultural use is appraised at its value based on the land’s capacity to produce agricultural products. The value of land-based on its capacity to produce agricultural products is determined by capitalizing the average net income the land would have yielded under prudent management from the production of agricultural products during the five years preceding the current year. However, if the value of land as determined by the capitalization of average net income exceeds the market value of the land as determined by other generally accepted appraisal methods, the land shall be appraised by application of the other appraisal methods.”

Most appraisal districts determine the productivity value of the land by gathering information on leases of agricultural land and its related expenses. This is generally broken down into various types of land and various types of ag use such as livestock, hay, row crops, beekeeping, etc. Horses don’t typically qualify by themselves as agriculture use unless they are part of a bonafide horse breeding operation. The special appraisal only applies to the land, fences etc and does not apply to improvements such as barns, homes, etc. The appraisal district has an Agriculture Advisory Board made up of citizens in the county with agriculture knowledge and experience. The leases are averaged over a period of time, and the average is capitalized into a value per acre using a capitalization rate (cap rate) determined by the Texas Comptroller’s office. Here is a simplified example of the calculations:
Lease # $/acre Lease 1 $ 10.00 Per Acre lease 2 $ 12.00 Per Acre Lease 3 $ 7.50 Per Acre Lease 4 $ 8.00 Per Acre Lease 5 $ 10.00 Per Acre Average $ 9.50 Per Acre cap rate 0.10 Ag Value 95.00 Per Acre 1-d-1 Timber: Productivity value for timberland is based on land’s ability to produce timber products (productivity value) and is usually lower than market value. The Comptroller’s Manual for the Appraisal of Timberland (PDF) discusses the eligibility requirements for timberland to qualify for productivity appraisal and the methodology for appraising qualified timberland and is adopted by the Texas Comptroller of Public Accounts under Comptroller Rule 9.4011 as required by Tax Code Section 23.73(b).

The Comptroller further states:
“Eligibility Requirements for Timber Productivity Appraisal The Texas Constitution permits timber productivity appraisal only if the property and its owner meet specific requirements defining timber use. The land will not qualify simply because it has timber standing on it. In addition, timberland that is used principally for aesthetic or recreational purposes will not qualify. The Tax Code, Section 23.72, sets the standards for determining whether land qualifies: “Land qualifies for appraisal . . . if it is currently and actively devoted principally to production of timber or forest products to the degree of intensity generally accepted in the area with intent to produce income and has been devoted principally to production of timber or forest products or to agricultural use that would qualify the land for appraisal . . . for five of the preceding seven years.”
To qualify for timber productivity appraisal, landowners must meet each of the following six eligibility requirements.
• The land must be currently and actively devoted to timber production.
• The land must be used principally for timber production.
• The land must be devoted to timber production to the degree of intensity generally accepted for the area.
• The owner must have the intent to produce income.
• The land must have been dedicated principally to agriculture or timber production for any five of the preceding seven years.
• The property owner must file a timely and valid application form.

1-d-1 Wildlife Management:
“Section 23.51(2) Tax Code includes wildlife management in the definition of agricultural uses of land. Section 23.51(7) Tax Code defines wildlife management as: Actively using land that at the time the wildlife management began was appraised as qualified open-space land under this subchapter in at least three of the following ways to propagate a sustaining breeding, migrating, or wintering population of indigenous wild animals for human use, including food, medicine, or recreation: “
A. habitat control;
B. erosion control;
C. predator control;
D. providing supplemental supplies of water;
E. providing supplemental supplies of food;
F. providing shelters; and
G. making census counts to determine population.

In order the qualify for Wildlife Management, the state adds another layer of requirements:

“A chief appraiser must gather and consider all the relevant facts to determine if the land is primarily used to manage wildlife. Some important questions are listed below. • Is the owner implementing an active, written, wildlife management plan that shows he or she is engaging in activities necessary to preserve a sustaining breeding population on the land? An owner’s management plan is required and must be completed on a form supplied by TPWD for each tract of land for which qualification is sought. A plan is clear evidence of the owner’s use of the land primarily for wildlife management. A good plan will usually list wildlife management activities with the appropriate seasons and/or sequence of events • Do the owner’s management practices emphasize managing the population to ensure its continued existence over another use of the land? For example, does the owner refrain from allowing visitors on the land in years when the habitat is sensitive? • Has the owner engaged in the wildlife management practices necessary to sustain and encourage the population? In some cases, an owner must control predators and supply water when water is not adequate, supply shelter and food when natural food production is not adequate and establish vegetation to control erosion. In other cases, less active management may maintain and encourage the growth of wildlife. • Are there improvements—appropriate fencing, for example—necessary to control or sustain the wildlife population?”

The written Wildlife Management Plan is key to qualifying for the special appraisal. Many landowners hire a wildlife biologist or property tax consultant to design, write and implement the plan. To further complicate the wildlife management process, the Comptroller now requires landowners to file an “Annual Report” with the appraisal district that shows how the landowner is following the written wildlife management plan.

Why is agriculture value so important? You may be wondering why agriculture appraisal for property tax purposes is so important. If the land does not qualify for agriculture use, the property tax impact on the owner can be huge. If the land does not qualify for the Agriculture Appraisal designation, the land must be appraised by the appraisal district at fair market value. The difference in taxes between Ag use and Market value can be huge. In most counties and for most people that own land, it can be the difference between being able to own the land or not. For example: In July of 2019, John Doe buys 50 acres in Johnson County so he can run a few cows and spend some quality time with his family on the weekends. The previous landowner had qualified the land for ag use, and his taxes were based on an ag value of $95/acre. The total tax rate in Johnson County is $3.25 per $100 of value or .0325. The market value for this property is $4,500/acre. Here is the breakdown for ag value vs market value:

Ag value Market Value
# Acres 50 50
Ag Value/ acre $ 95.00 $ 4,500.00
Total Taxable Value $ 4,750.00 $ 225,000.00
Tax Rate 0.0325 0.0325
Total Taxes $ 154.38 $ 7,312.50

How Can CC Becker Property Tax Consulting Help Me? Many states have similar statutes and requirements to these. I hope this gives you some basic information regarding agriculture values for property taxation and the importance of making sure you are in compliance with the tax code, rules, and requirements, and that you respond promptly to any correspondence you receive from the appraisal district or assessor’s office. I recommend that a landowner find out who in the appraisal district or assessor’s office is responsible for managing this process, and develop a relationship with that person, and communicate regularly so that nothing falls through the cracks. Most of the time, property owners can go to the appraisal district office and meet with a staff member and head off any problems if he/she contacts them in early enough. I have found the great majority of appraisal district staff to be professional, courteous, and helpful. They are there to help you through any property tax issues you may have. However, the tax code clearly spells out hard deadlines and procedures and many times if the property owner does not respond to correspondence, and things get beyond certain deadlines, their hands are tied, and even though they may want to help you, they are prohibited by the rules.
Since John bought the land in 2019 the appraisal district leaves it in ag for the rest of the year. In January of 2020, they send him a letter and application for ag use and let him know the deadline for the application is April 30th. But John throws the letter in a stack on his desk, then forgets about it. In May, John receives his 2020 Notice of Appraised Value from the appraisal district and is shocked to see that the ag value has been removed and he is now going to be taxed for $7,300. To add to Johns’s problems, he soon gets another letter telling him that they are going to assess a 5-year rollback tax based on the difference between ag use and market value. That tax bill is going to be about $36,000. Now John is in full-on panic mode. Under this scenario, John still has a chance to get the land back in ag if he acts quickly but it’s going to cost him more money, time, aggravation and stress. But let’s take it one step further and say that John never opened his Notice of Appraised Value or the Rollback Letter. In October, he gets his tax bill and another bill for the rollback taxes. At this point, all possible remedies are closed off and he has no choice but to pay the bills. He can file for ag in 2021 and possibly get a refund of some of his rollback taxes but he has made some very costly mistakes. We have seen this scenario unfold more than once and it is heartbreaking when all deadlines have passed and there is nothing we can do.

What is a Rollback Tax?
Generally speaking, if the Chief Appraiser determines that the use has changed from agriculture use to a non-agriculture use on land that was previously taxed at the agriculture value, a “Rollback Tax” is assessed based on the difference between ag value and market value for the last 5 years + interest. A change in use could include pretty much anything that is not producing agricultural products or wildlife. Not using the land for anything, include agriculture, constitutes a change in use.

At CC Becker Property Tax Consulting, we can take the stress and worry off you, and minimize the risk of adverse actions by the assessor. We have computer systems and procedures in place to make sure applications get filed in a timely manner, notices and other correspondence is handled appropriately, and if necessary, appeals are filed, and you are represented by a professional who knows the property tax system. 

Appraisal districts commonly want to come to the property and visually inspect it to make sure it qualifies. We can meet with them onsite and guide them through the property and explain your operation to them in terms that they understand, saving you from having to take off work. We save you time, money, and heartache. I have built a career around developing good working relationships with appraisal district staff in Texas and other states, which makes the chances of success that much better. You can outsource your entire property tax component to us and know that your interests are being protected.

Please feel free to reach out to me at beckerconsultingtx@gmail.com should you have any questions or if I can help you in any way. Also, for more information, visit our website at www.ccbeckerpropertytaxconsulting.com.

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