As property taxes skyrocket in Montana, some say the state’s tax code gives tax breaks to luxury property owners meant to support farms and ranches. A long-standing policy provides significant tax savings for properties classified as “agricultural.” But critics say it may be too easy for expensive homes to qualify for the tax break. Montana Free Press Deputy Editor Eric Dietrich partnered with High Country News to dig into the issue, joining MTPR’s Austin Amestoy to explain.
Austin Amestoy Eric, tax policy is always complex, so let’s take it one step at a time. Why does this agricultural property tax reduction exist?
Eric Dietrich So the whole point of this Montana policy is that agriculture is good, and the state tax code is designed to help farmers and ranchers by paying them lower taxes than, say, the residential use of their property. It means we should make ranchers’ lives easier. etc. Most people I’ve talked to seem to at least broadly agree on that value. But the concern is that the current system could potentially qualify luxury properties, allowing their owners to receive tax breaks not available to homeowners in urban areas, for example. The challenge, of course, is how to write a tax code that draws a clear line between rural families and working farms. Because when you actually see how things are happening in the landscape, the lines can get a little blurry.
Austin Amestoy Now let’s break down the code a little bit here, Eric. How does this tax cut work in practice?
Eric Dietrich So if you own a house in town, it will probably be classified as residential property. This means that the building and the underlying land are valued separately and both are taxed based on market value. So, if you were to put the house on the market, how much would you sell it for? Agland is different. Buildings on land are still generally taxed based on market value, but a discount is applied to the underlying land. Instead, they are evaluated based on their productive value. How much money can you theoretically make by growing crops and grazing livestock? That’s a big difference. A typical residential property in the state typically sells for perhaps $200,000, but rangeland values are very commonly much lower, around $100 per acre.
Austin Amestoy So, Eric, if I own a large house on agricultural land and the neighbor next door is classified as residential, will I pay less in taxes because land taxes are lower?
Eric Dietrich Yes, we’ve looked at a lot of situations like that, especially involving multi-million dollar real estate. And in those situations, it’s very common for people to pay thousands of dollars less per year because of their farming status. One of the situations we looked at specifically was Governor Greg Gianforte’s Bozeman mansion (agricultural land), where his homestead sits on 11 acres, and our calculations show that a total of approximately $66. It turns out there is a payment. for annual land tax. And that’s less than nearly every urban residential property in the state pays. Of course, when I asked the governor’s office about this, they said some of the land is used to grow barley and alfalfa, and some is also used for horseback riding and dining.
Austin Amestoy So what do you have to do to qualify for farming?
Eric Dietrich For small acreages, it’s as simple as reporting $1,500 a year in farm income to the Department of Revenue. It is said that the threshold is quite low. For example, you’ve probably heard people talk about real estate in the Flathead that could be worth the income of a few cherry trees or a few acres of hay. And that $1,500 threshold hasn’t been updated since the 1980s either.
Austin Amestoy Yes. So this tax cut has been going on for decades at this point. But as Congress convenes this month, it appears lawmakers are paying close attention.
Eric Dietrich Well, there are several people in the state Legislature who are concerned about this for a variety of reasons. And they’ve been working on legislation that could tweak the system to make things more fair. For example, the details are quite wonky. But one example could be raising the exemption threshold to account for 40 years of inflation. So $1,500 could become closer to $4,000.
Austin Amestoy So what are the prospects for those changes?
Eric Dietrich It’s always difficult to predict the future, but people seem to expect these bills to face significant opposition. The main reason for this is that it is difficult for legislators to raise taxes on citizens, even those who are receiving benefits. What some people call a loophole. I spoke with the lawmaker who proposed one of these bills Tuesday morning, and at the time he said he was still working on fine-tuning the bill to get enough support to make it to the governor’s desk. I was told that there was.
Austin Amestoy Once again, Montana Free Press Deputy Editor Eric Dietrich shares his report with us. Eric, thanks for having me.
Eric Dietrich Thanks for having me.
