Agricultural Land Tax Designation Requires No Business Purpose

The March 7, 2018 decision of the Wisconsin Court of Appeals in The Peter Ogden Family Trust of 2008 and The Therese A. Mahoney-Ogden Family Trust of 2008 v. Board of Review for the Town of Delafield, 2017AP516, has many communities frustrated. The decision clarified the standards by which real property is classified as agricultural for purposes of property tax assessments.  In this case, at issue was the interpretation of the Wisconsin statutes which governs land use designations for tax purposes.

Wis. Stat. § 70.32(2)(c)1g defines agricultural land as “land, exclusive of buildings and improvements and the land necessary for their location and convenience, that is devoted primarily to agricultural use.”  Further, the statutes clarify that agricultural use “includes the growing of short rotation woody crops, including poplars and willows, using agronomic practices.”  In applying those statutes to agricultural land designations, the court determined that a property assessor should look solely at the agricultural activity occurring on the real property being assessed, and not whether the activity constitutes a business.  In other words, if you think you are farming, you probably are!

Background

Prior to 2016, real property in Delafield, Wisconsin (the “Property”) owned by The Peter Ogden Family Trust of 2008 and The Therese A. Mahoney-Ogden Family Trust of 2008 (collectively, the “Trust”) had been classified as agricultural and agricultural forest land. The Property contained apple trees, pine trees, and hay crops. The Trust grew those crops with an eye towards their eventual sale.  Under such agricultural designation, the Property was valued at $17,100.  However, in 2016 the Property was reclassified as residential property, which caused the Property to be valued at $886,000.

The property assessor’s reason for this reclassification focused on the nature of the agricultural activity occurring on the Property. The assessor’s opinion was that what the Trust was doing on the Property was not for the purpose of making money.  In his testimony before the Board of Review for the Town of Delafield (the “Board”), the assessor explained that while crops were certainly growing on the Property, and the Trust may indeed sell or intend to sell the crops, he believed the agricultural classification was reserved for property used for farming purposes.  In other words, the assessor believed there was not adequate evidence that the Property was being used for agricultural business purposes, as the Trust failed to file a Schedule F on its tax return to report farm income, the Trust used personal checks for expenses relating to the Property, and the Trust did not keep accounting records for the sale of the crops harvested on the Property.

The Board agreed with the assessor’s evaluation.  It reasoned that land cannot be classified as agricultural without “minimal sales,” “valid economic activity,” and crops being “marketed for sale.”  Having found none, the Board sustained the Property’s designation as residential property for tax purposes.  The Trust filed an action in Waukesha County Circuit Court to challenge the Board’s decision.

The Court’s Analysis

The case went up on appeal.  Section 32 of chapter 70 of the Wisconsin statutes governs the valuation and classification of real property for the purpose of determining its taxability.  Therein, real property is assessed pursuant to one of eight classifications: (i) residential; (ii) commercial; (iii) manufacturing; (iv) agricultural; (v) undeveloped; (vi) agricultural forest; (vii) productive forest land; or (viii) other.  The Appellate Court’s review of the Board’s decision to sustain the residential assessment of the Property focused on “whether the Board acted according to law.” The Court’s analysis of the issue of whether the Property had been erroneously classified as residential thus concentrated on the foregoing statutory definitions of “agricultural land” and “agricultural use.”

The Appellate Court interpreted those statutes strictly and looked solely at their plain language.  Ultimately, the Court decided that “to qualify for agricultural classification, it is sufficient that the land be devoted primarily to growing qualifying crops, whether or not those crops are grown for a business purpose.”  The Court further reasoned that because the Property was being used to grow crops, and such crop production mirrored customary agronomic practices (such as the fact that the crops were grown in clean rows and not scattered), the Property had been improperly designated as residential, and ordered the Property’s redesignation back to agricultural.

Implications

So, in order to comply with the agricultural land designation for purposes of real estate classification, you do not need to sell crops as far as assessors are concerned.  In the case of Peter Ogden Family Trust, the property assessor’s belief that agricultural land classifications are reserved for farmland was improper for the designation.  The bottom line is that land used for growing crops pursuant to customary agronomic practices, whether or not such crops are produced with an intent to sell, qualifies for agricultural classification.

Axley is well-versed in tax assessment laws and agricultural use and has a great history of successfully reducing tax assessments across the State of Wisconsin.  If an assessor knocks on your door, knock on ours!