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The application for property tax exemption of a farm residence lists a few types of exemptions extended to homes on farmsteads. Forum file photo

North Dakota broadens farm home tax exemption, but proof of ag income now required

FARGO — A popular property tax exemption for farm homes granted to more than 11,000 rural North Dakota residents has been changed to broaden eligibility but require annual farm income verification to qualify.

The tax exemption, which is granted to rural homeowners who meet the legal definition of a farmer, was created in response to the farm crisis of the 1980s.

The North Dakota Legislature changed the income test to qualify for the property tax exemption. Eligibility used to require that 50 percent or more of a farmer’s net income came from farming activities.

Under a law passed in the recently completed 2019 session, to claim the farm home property tax exemption, filers must show that 66 percent of their gross income is derived from farming activities.

The new law also strips a $40,000 limit for non-farm income, including a spouse’s salary, that officials said made many applicants ineligible for the exemption.

“We believe that more people likely will become eligible,” said Ryan Rauschenberger, North Dakota tax commissioner. "We did make that known, so legislators had that in front of them.”

Paul Fracassi, the director of equalization for Cass County, agreed that the new farm income standard will enable more rural residents to qualify for the property tax exemption on farm homes.

“It’s definitely going to make the exemption more favorable to qualify,” he said.

Last year, Cass County audited 375 farmers who were receiving the farm residence exemption. The review determined that 178, or 47 percent, did not qualify. The average home value was $219,000.

The 178 properties had a full and true value of $37.9 million and a taxable value of $1.7 million, Fracassi said. That amount equals the combined taxable value generated by the towns of Arthur and Davenport.

Because it will be easier to qualify once the new law takes effect in 2020, many of the Cass County taxpayers who were deemed ineligible probably will be able to take the exemption in the future, Fracassi said.

“I think it’s going to be kind of a one-year thing,” he said, his estimate of the period of ineligibility for those who failed to qualify under the audit.

Also, Fracassi said, “There’s going to be people who never qualified before who would qualify.”

A survey of North Dakota counties found that at least 11,756 rural residences were granted the property tax exemption last year. That likely is a significant undercount, however, since 14 of the 53 counties did not respond.

At the same time legislators decided to simplify eligibility, a separate law will require that those seeking the exemption file farm income documentation every two years in filings that the law also specifies will be kept confidential.

“It was fairly complex,” Rauschenberger said.

Based on survey results, Rauschenberger estimated that only about a third of North Dakota counties were requiring documentation of farm income. There is no statewide tally of the number of people who applied for the exemption but failed to qualify.

Throughout much of the state, he said, “It was absolutely the honor system.”

The effect of the law changes won’t be known until 2020 property taxes are assessed, Rauschenberger said.

If the number of people qualifying for the exemption jumps, he said, “The legislature might choose to take another look at this.”