Farmland fields

Changes in farm property-tax expense vary significantly across states. Some states are experiencing large almost unbelievable increases.

The previous week’s post was a look at the trends in farm property-tax expenses. Consistent with what producers have been telling us, property-tax expenses in recent years have been historically burdensome by a couple of different measures. Of course making the situation more challenging has been declining farm income. This week’s post considers how trends in farm property taxes have varied by state.

Farm property-tax expense varies widelyAs we saw in the previous post, property-tax expense increased in the mid-2000s. Figure 1 shows how state-level changes in farm property expense have played out. Specifically the map shows how the change in the early 2000s — average of 2000 through 2004 — compared to recent years — the average of 2015 through 2017. To clarify, those changes are for inflation-adjusted dollars and, unfortunately, 2017 is the most recent data for those state-level estimates from the U.S. Department of Agriculture.

The first observation is that changes in farm property-tax expense have varied significantly across states. Some states experienced large almost unbelievable increases.

  • Nebraska increased 135 percent.
  • Nevada increased 105 percent.
  • Arkansas increased 83 percent.

Remember a 100 percent increase is doubling the expense. On the other hand some states saw little change. Real property tax expenses were unchanged in Wisconsin, and actually less in Illinois — 6 percent less.

Broadly speaking those hit worst by increased property-tax expenses were the Great Plains states. That makes some sense given farmland values increased the most here. That said, some Great Plains states mostly escaped increased property-tax expense. Consider North Dakota. Farmland values also soared in North Dakota — similar to what was observed in South Dakota and Nebraska. But the change in property taxes was much smaller in North Dakota.

Nebraska stands out, which is a theme throughout this post. Changes in farm property expenses in Nebraska outpaced its neighbors dramatically. Colorado and Iowa observed small changes, while Kansas and South Dakota had modest increases.

Taxes considered relative to farm productionA second way of considering farm property taxes is relative to the value of farm production. This past week’s post had a similar measure for national-level trends but considered property taxes relative to net farm income.

The first observation is a clustering of similar property-tax expenses by neighboring states. The northern Great Plains states are at levels about 4 percent of the value of farm production. Meanwhile the central Corn Belt states are at levels between 2 percent and 4 percent of the value of farm production. The eastern Corn Belt and the Northeast states again have increased rates. While there are wide differences across the United States, one does not find a state that stands out as wildly more or less than its neighbors. It seems that state- and county-level property taxes are driven in part by what neighbor states are facing.

That said, Nebraska again stands out. Property-tax expense in 2017 accounted for 5.9 percent of the value of farm production. Said differently, property-tax expense was $6 for every $100 of value of production. That’s the most seen throughout the entire Midwest. Similarly neighboring state South Dakota is also more at 5.5 percent. Those levels are almost double what producers in Missouri and Iowa faced. One must look at the Northeast to find worse relative property taxes. For every $100 of agricultural value produced, those in Nebraska have a worse property-tax expense than producers in California or New York.

Outside of the Midwest, producers generally experienced lesser relative property-tax expense.

Taxes considered relative to paymentsIn the previous post the relationship between property-tax expenses and the direct payments producers received — net transfers — was considered. At the national level those payments have been about equal at various times in history. In recent history, prior to 2019, producers paid slightly more in property taxes than they received from direct payments.

Figure 3 shows a measure for net transfers at the state level. Specifically the average annual direct payment received from 2015 to 2017 was divided by the average annual property-tax expense during the same period. Values of more than 100 percent mean producers received more direct payments than they paid in property taxes. Conversely values of less than 100 percent is when the property-tax expense exceeded direct payments received.

While those payments were about equal at the national level during those years, net transfers at the state level are not about equal. Take North Dakota for example. The relative measure in that state was 168 percent for the years considered, meaning direct payments received were much more than property taxes paid. Specifically every $100 in property taxes paid was, effectively, offset by $168 of direct payments received.

In South Dakota the measure was about 100 percent. Further south Nebraska producers faced property-tax expense more than the direct payments they received. With a relative measure at 65 percent, producers received $65 of direct payments for every $100 of property-tax expense. That’s a different scenario than the one faced by North Dakota and South Dakota producers. It’s also worth noting that eastern-Corn Belt producers have a similar situation to that in Nebraska, albeit to a lesser degree. But in the central Corn Belt states of Iowa, Illinois and Missouri, the measure is more than 100 percent.

Outside of the Corn Belt, property taxes in the Southeast account for a smaller burden relative to the value of farm production. Producers there have, at least in recent years, received direct payments much larger than the property taxes they face. In the Northeast property taxes are much larger than government payments. In California, which has a smaller relative tax burden but also has less traditional direct-payment crops, a producer receives only $19 in direct payments for $100 in property-tax expense.

Wrapping it UpFollowing up on the previous national-level look at trends in property-tax expense, this week’s post found a wide variation in what has occurred at the state level. The change in property taxes since the early 2000s has ranged from an increase of 135 percent in Nebraska to a decrease of 17 percent in Illinois.

When one considers property-tax expense relative to the value of ag production, variation also occurs. States are often similar to their neighbors, creating pockets or clusters of similar rates. But those clusters can vary within a region. South Dakota and Nebraska have property-tax expenses equal to more than 5 percent of the value of farm production. Meanwhile the neighboring states of Minnesota, Iowa, Missouri and Kansas all have substantially lesser rates, less than 4 percent.

The interaction between direct payment received and property-tax expense had a notable relationship at the national level but is variable at the state level. Some states, especially in the Southeast, have experienced significantly more direct payments in recent years than paid in property taxes. Within the Corn Belt, central-Corn Belt states have received more direct payments than paid in property taxes while eastern-Corn Belt producers have experienced the opposite.

In summary the impact that property-tax expense has on a producer budget and cash flows can be greatly variable across the country. Variability among neighboring state can even be quite large.

Moving forward we’d expect the attention and concern about property-tax expense to continue into the near future — especially if net farm income remains stubbornly depressed. That said the level of producer frustration — and pain — will be variable. Expect producers in Nebraska, South Dakota and parts of the eastern Corn Belt to look for relief.

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Brent Gloy and David Widmar are agricultural economists with Agricultural Economic Insights.