State Property-Tax Systems Make Little Sense to Struggling Farmers
Taxes on farmland bear little to no relationship to productivity and other economic measurements. Farmers in Nebraska, which ranks third in farmland tax revenue nationally, push back.
This article is republished from Stateline, a project of the Pew Charitable Trusts.
Doug Schmale’s family farm straddles the Great Plains in two parts: 4,500 acres in western Nebraska and a separate 160-acre plot in eastern Colorado. Schmale pays wildly different property taxes on either side of the border.
“The last time I ran the numbers, I was paying somewhere close to five or six times as much in Nebraska than I was paying in eastern Colorado,” said Schmale, a third-generation wheat farmer. “And the better land, and the better school system, is in eastern Colorado.”
Schmale’s situation illustrates the load that farmers carry in Nebraska: a heavy property tax burden that, on top of a poor farm economy, threatens their ability to earn a living. On average, Nebraska farmers pay $16,200 in property taxes per year, among the highest figures of any state. And the state relies heavily on that money: More than a quarter of its total property tax revenue, much of which pays for public education, comes from farmland.
In fact, Nebraska brings in more cash taxing farmland than any state but California and Texas.
But as farmland continues to increase in value, even amid declining farm prices and weather woes, and farmers see their tax bills rise, some in the Nebraska legislature want to give farmers some relief — even at the potential cost of state revenue.
There is no relationship, critics say, between how the land is taxed and landowners’ ability to pay for it, and Nebraska’s antiquated system reflects a time when property ownership was an indication of wealth and income.
“I wish more than anything else that I could leave the state of Nebraska and move my farm to another state,” Schmale said. “Almost any state would be better than here.”
Nebraskans are not alone in carrying a heavy tax burden on agricultural property in comparison with their profit margins, said Katherine Loughead, a policy analyst with the Washington, D.C.-based Tax Foundation. The Northeast region is notorious for its high property taxes.
Policymakers in Nebraska, Iowa and other agriculture-intensive Midwestern states prioritize property tax cuts, Loughead said. “But real, lasting property tax reform is difficult to accomplish, so these debates can take years to play out.”
The Nebraska Revenue Committee introduced a bill this week that would lessen the property tax burden for taxes levied by school districts. The multi-step plan would reduce the tax evaluation for agricultural property for school district taxing purposes from 75% of its taxable value to 55% over a two-year period. Residential and commercial properties would be taxed from 100% down to 85% over three years.
Nebraska also would use excess state revenue to increase state aid to K-12 education so school districts are less reliant on property taxes. In his budget address this week, Republican Gov. Pete Ricketts recommended putting roughly $500 million over the next three years toward property tax credit relief by controlling local and state spending. Ricketts increased the property tax credit relief fund by more than 20% last year.
A grassroots group also is collecting signatures for a ballot initiative to provide all residents a rebate on their property taxes.
Assessing a smaller share of a property’s value is a promising start, said Adam Weinberg, communications and outreach director with the Platte Institute, a free-market think tank in Omaha. But even as Nebraska is spending $275 million a year on direct subsidies for property taxes, they are at historic levels for agriculture.
“If you look at the share of property taxes relative to their income, there aren’t too many people who would pay 40 or 50% of their income to run a business,” Weinberg said.
The Nebraska legislature has tried before to tackle the issue based on past complaints, but tax revenue and a lack of economic resources have limited its ability to address the problem. In 2017, taxes on agricultural property, which are overwhelmingly drawn from the state’s rural areas, were 47% of the state’s net farm income.