BISMARCK, N.D. -- Average North Dakota farmland values, for purposes of taxation, have increased 29 percent. Property taxes on that land should not automatically be allowed to increase by the same amount, and that's what will happen if local governments don't reduce their level of taxation accordingly.
Taxpayers will need to be looking over the shoulders of local boards and commissions during budget-making this year, to make sure schools and counties do not get a tax windfall courtesy of farmers and ranchers.
Agricultural land values across the state increased 19 to 38 percent, depending upon the county.
To their credit, North Dakota Tax Commissioner Cory Fong and North Dakota Agriculture Commissioner Doug Goehring have given everyone a heads-up about the increase.
Why the rise?
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Fong and Goehring also provided a complicated reason for the increase. It involved the Legislature letting a statutory minimum capitalization rate for agricultural land lapse. As a result, the Tax Department calculated values using a capitalization rate based on a 10-year average of mortgage rates on North Dakota farmland loans. It lowered the rate, which in turn increased the value of farmland.
Other factors changing the value of agricultural land were production data (annual gross returns) and a cost of production index. Taken together, the result was a nearly 30 percent statewide average increase.
Local governments use mill levies to figure taxes. For illustration purposes, if a single mill, applied to agricultural land in a county, brought in $10,000 in 2011, then this year, it would bring in $13,000. Agricultural land values, for tax purposes, are developed differently than residential and commercial rates.
Of course, no board or commission of elected officials would needlessly tax its citizens. But there's always some unmet need, some good that needs doing, which results in an edging up of taxes on property. Some would say it has gotten out of hand -- so much so that there's an initiated measure on the ballot to eliminate the property tax. If that measure passes in June, the increase in farmland values is moot.
The truth about property taxes is that they represent the actions of local government responding to citizen desires. When they get too high, the citizens let their elected officials know at the ballot box and the taxes get reined in. It's democracy at the grassroots level.
When it comes to increased value for agricultural land, those taxpaying landowners need to be aware come budget time. They need to talk to their commissioners and board members. Everyone has been given a heads-up.
