Agricultural Land Taxable Values Down . . .

Economic Tidbits 12.18.17

The taxable value on agricultural land declined 2.77 percent in 2018 according to the Nebraska Department of Revenue.  Taxable value for all real property increased 0.96 percent, with residential and recreational property value growing 3.66 percent, and commercial and industrial property growing 6.94 percent. The decline in agricultural land values marks the second consecutive year taxable values have shrunk.  Prior to last year, the taxable value on agricultural land had not declined since at least 1993, and perhaps as far back as the late 1980s.  It may seem like a distant memory, but just three years ago, the taxable value of agricultural land statewide increased almost 20 percent.  Since then, market values for land have declined between 15-20 percent and these declines are now being reflected in taxable values.  Expect taxable values to continue to decline over the next few years due to the lag effect in how taxable values are set.  Values are set using data on sales prices from the three years prior to the tax year for which the taxable values are being set.

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Federal Tax Reform: Property Taxes Would Still Be Deductible . . .

Economic Tidbits 12.18.17

Lawmakers moved forward on federal tax reform after negotiators agreed to language in a conference report.  Both the House and Senate are voted on the conference report this week.  Many farmers and ranchers continue to ask whether property taxes paid on agricultural land, buildings, and equipment in their farm or ranch operations could still be deducted.  Yes—the conference report does not change the ability to deduct property taxes as a business expense by farmers and ranchers on Schedule F, Schedule E, or Schedule C.  The report does establish a $10,000 limit on the deduction for state and local income and property taxes, but the limit only applies to itemized deductions claimed on Schedule A filed by individual filers.  Even though most farmers file income taxes as individuals, business income from a farm or ranch is reported on Schedule F, E, or C, where property taxes can still be deducted as a business expense.

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Property Taxes Can Still Be Expensed . . .

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Last week the House Ways and Means Committee released its long-awaited federal tax reform proposal.  The proposal would change how farmers and ranchers are taxed both as individuals and as businesses.  Many farmers and ranchers are wondering if property taxes paid on land, buildings, and equipment could still be expensed as business expense under the proposal.  Yes-the ability to deduct property taxes as a business expense by farmers and ranchers on Schedule F would continue.

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SALT & Taxes . . .

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The Chairman of the House Ways and Means Committee, the tax writing committee of the House of Representatives, announced a draft of the federal tax reform bill will be released November 1.   Leaders in both the House and Senate have expressed hope a tax package could be passed by Thanksgiving.  One taxing concern on the minds of many farmers and ranchers is the fate of the deduction for state and local taxes (SALT).  The concern is especially acute in Nebraska given the large amount of property taxes paid by agriculture, roughly $1.3 billion in 2016.

 

Captiol at night

Under the unified framework for tax reform, the Trump Administration and Republican Congressional leaders said they want to simplify the federal tax code by repealing all itemized deductions, except deductions for home mortgage interest and charitable contributions.  Itemized deductions are claimed by individuals on Schedule A filed with Form 1040.  Most farmers and ranchers file taxes as individuals-the 2012 USDA Census of Agriculture showed 85 percent of Nebraska farms filed taxes as either an individual or family.  Additionally, only 28 percent of farmers and ranchers itemize deductions.  It is these operations who itemize deductions the loss of the ability to deduct state and local taxes could affect.  The average annual deduction for state and local taxes reported by farm sole proprietors on Schedule A for 2009-2015 (excluding 2013) was $128.4 million.  Presumably, the deduction is for state income taxes, property taxes on farm residences, and taxes on personal vehicles.  For these operations, the loss of the deduction could increase federal income taxes an estimated $18 million per year if not offset by other changes.

Corn harvest in Illinois - SeptemberFarmers and ranchers also deduct state and local taxes paid as a business expense for their operations, be it as sole proprietors, partnerships, or corporations.  It is here where most of the property taxes paid by agriculture on land and machinery are likely reported and losing the ability to expense state and local taxes would result in a significant increase in federal taxes.  Fortunately, according to the lobbyist for American Farm Bureau, the ability to expense state and local taxes as a business expense will continue.  Congressional leaders have indicated the repeal of the state and local taxes deduction would only apply on individual returns, and not affect the expensing of taxes by businesses.  But stay tuned, the reform discussions are now beginning in earnest, and no one can predict what might happen.

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Talking Personal Property Taxes . . .

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Personal property taxes in Nebraska have garnered increased attention in recent weeks due to a paper released by the Platte Institute.  The paper examines the features of personal property taxes and discusses different means of reducing or eliminating the tax.  Taxes levied on personal property in Nebraska amounted to $217 million in 2016, or 5.6 percent of total property taxes levied that year.  Of the total, $56 million in taxes were levied on agricultural machinery and equipment, 26 percent of the total.  Personal property taxes amounted to 4.1 percent of total real and personal property taxes levied on agriculture.  Owners of commercial property paid the most personal property taxes in 2016, $114.6 million, equaling 53 percent of the total personal property taxes levied.

The graph below tracks personal property taxes levied since 2006 by sector:  agriculture; commercial; railroad; and public service companies.  Taxes on agricultural machinery hit a peak in 2014, totaling $64.5 million.  Since then, they have fallen 13 percent, no doubt due to reduced machinery purchases by producers.  Total personal property taxes levied grew over the period and peaked in 2015 at almost $221 million, before falling 1.7 percent in 2016.

Personal Property Tax by sector

Source: NE Dept. of Revenue Property Assessment Division, History of Valuation & Taxes Levied by Property Sector, 2006-2016, 12/21/16

Personal property taxes are assessed on a property’s net book value minus a depreciation factor, which is set in state law.  The depreciation factor increases as the property ages, and the taxes levied eventually phase out.  The first $10,000 of value for a property is exempt from taxation. General fund and special levies (i.e. bond levies) apply to personal as well as real property.

If personal property taxes were reduced or eliminated, the spending decisions made by local governments would be key in determining the amount of tax reductions which might result. Local governments could decide to reduce spending by the amount of taxes lost, and overall taxes collected would decrease.  Local governments could also decide to maintain spending levels and raise the levy rate to offset the loss in taxes.  Under this scenario, overall taxes would not decrease as taxes levied on real property owners would increase.  And to complicate matters further, state aid to schools would change also affecting the taxes levied.  Thus, while repealing taxes on personal property would eliminated a tax, it might not result in a reduction in taxes.

 

 

Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Property Taxes Still Top Priority

steve corn head shotIn early June I had the opportunity to attend the 2016 Cattlemen’s Ball hosted by the Linemann Family near Princeton, Nebraska. The Ball is a tremendous event targeted to raising funds for cancer research. If you’ve never been, I’d encourage you to put it on your list of things to do and see in Nebraska. Congratulations to the Linemann family and all those who helped make this year’s event a major success!

Not only is the Ball a fun time for a great cause, it’s a good way to connect with people from across the state. During the Ball I had the chance to talk to many farmers and ranchers. Not surprisingly, property taxes and concerns about profitability in agriculture were the top two issues on people’s minds. As margins in agriculture have tightened, the squeeze of higher property tax bills have only added more financial pressure to farm and ranch families. With property valuation notices hitting mailboxes in June its only added to the seriousness of the need to address this issue.

I don’t need to repeat the numbers, but I will. Over the last 10 years property taxes collected on agricultural land statewide have increased 176 percent. Commercial and residential property taxes have also climbed by 49 percent and 35 percent, respectively. Nebraska’s three-legged tax stool of property, income and sales tax is out of balance. Property taxes now account for 48 percent of total collections of the three, with income taxes at 32 percent and sales taxes at 20 percent of statewide collections.

We have to bring balance to our tax structure and alleviate the over-reliance on property taxes. As we head into the heat of the summer, I want you as a Farm Bureau member to know this when it comes to the property tax issue:

Farm Bureau will continue to lead the charge to fix this problem. This isn’t an easy issue, but it is not an impossible one either. There are numerous ideas and approaches to better balance the tax burden and alleviate the pressure on property taxes. We’ve offered solutions in the past and we’ll continue to do so. We’re fleshing out new ideas, even as I write this. We are committed to this issue.

We have expectations of the Legislature. There are good people in the Nebraska Legislature who are interested in making sound tax policy for Nebraskans. The Legislature is still our first best means to solve the property tax problem. As we’ve always done, we will bring ideas to the legislature and work together with Nebraska senators to find solutions. With that said, the Legislature needs to act. Kicking the can down the road won’t cut it. We’ll continue to do everything we can to work with senators to make progress in the legislative arena.

We’re willing to be patient, but there must be a final destination. Baseball analogies are often used to discuss the property tax problem. I continue to hear the terminology “bunts and singles” when it comes to fixes for property taxes. “Bunts and singles” will not solve the problem unless you string enough of them together to score runs and ultimately win. I’ve testified before the legislature that if it takes multiple years to solve this issue, we’re willing to do that. But there must be a clearly identified end goal, with a plan for how that is accomplished.

All Nebraskans, not just farmers and ranchers deserve better. They say a rising tide raises all ships. While our farm and ranch members have been hit the hardest by property tax increases, we know many Nebraskans share those concerns and they’ve relayed those to their elected leaders. Our solutions to balance the property tax burden will work for all Nebraskans.

Doing nothing is not an option. I know you want this issue addressed. Many of you have reached out to the team at Nebraska Farm Bureau urging action. I also know some members are looking at alternatives beyond the legislature. As I said before, the legislature is our first best solution, but we are open to looking at all options to make the reforms needed to bring balance to our tax system.

As always, I want to thank you for being a Farm Bureau member. Farm Bureau exists to serve you and I always welcome your thoughts, input and ideas as we work together to address this critical issue.

 

Until Next Time,

Steve Nelson, President, Nebraska Farm Bureau

Belief and Engagement, Critical to Fixing School Funding Problem

steve corn head shotBefore I get to the heart of this month’s column I wanted to take a minute on behalf of the leadership and staff of the Nebraska Farm Bureau to wish everyone a safe and bountiful harvest season. As combines roll across the state, this time of year can be stressful, yet extremely rewarding. Please know here at Farm Bureau we wish you only the best as you work to safely harvest the fruit of your labors.

Speaking of harvest, we all know there would be a lot less to do in the fall if it wasn’t for the work done in the spring to sow the seeds for the coming year’s crop. The same holds true when it comes to addressing the number one issue we hear about from members, that being property tax relief.

Nothing worth having comes easy. To have a harvest you must first, successfully plant seeds. Over the past two legislative sessions Nebraska Farm Bureau has made providing property tax relief a top priority; planting the seeds and working to address the issue. Yet like many things, there is no simple fix. I’ve said many times that high property taxes in agriculture are the symptom of a larger problem with the way Nebraska funds schools. The reliance on property taxes and a diminished level of state support for districts with large agricultural land bases has created inequity in how schools are funded; and in who funds them. As you know all too well, much of the increased burden has fallen on farm and ranch families across the state.

The frustration I hear from members with the situation is growing in both size and scope. Yet at the same time, I sense some have doubts as to whether the legislature will do anything to address the issue and therefore there’s little reason to put forth the effort to fix the problem. As I think about the situation, a couple of quotes from some very successful coaches come to mind.

“You carry on no matter what are the obstacles. You simply refuse to give up – and, when the going gets tough, you get tougher. And, you win.” ~Vince Lombardi

“If you are going to be a successful duck hunter, you must go where the ducks are.” ~Paul “Bear” Bryant

To me, these two quotes provide great insight into how we must approach this critical issue. Leaders work to find solutions, not dwell on problems. Your Farm Bureau organization will head into the 2016 legislative session committed to finding solutions to the school funding issue, fully examining all of our options.

Having said that, engagement from members is also critical. As Paul Bryant points out, we have to take our message and our concerns to the people who can make a difference. That’s not just the rural contingency in the legislature, but all 49 state senators who have been elected to provide leadership and direction for our state. And that can’t be done just by Nebraska Farm Bureau staff. We need members to both believe in this effort and to engage to make a difference. The legislative process is a contact sport. We need to develop sound policy as we work through the policy development process this fall. And from there we need members to spread the message to elected officials and others who can assist in our cause. Your personal stories, experiences and voice carry weight.

This problem isn’t going away and it’s only going to get worse. Now is the time for us to roll up our sleeves and take heed of the message provided by Lombardi and Bryant who knew a thing or two about hard work and winning. As we head toward and through the 2016 legislative session there will be many opportunities for you work through Farm Bureau to make a difference. Farm Bureau is about engaging leaders for the betterment of agriculture. Never has there been a better time, or issue, for us to come together to show it.

Until Next Time,

Steve Nelson

NEFB President Steve Nelson Testifies at Legislative Hearing About School Funding and Tax Issues

On Thursday, Nov. 12th, the Legislature’s Education and Revenue Committee held a joint public hearing to hear testimony on school funding in the state of Nebraska.  The hearing is part of joint interim studies being conducted by the Committees (LRs 332 & 344) on funding of public schools.   The Committees hope to make recommendations for improving the funding of schools to be discussed during the 2016 Legislative session.  Nebraska Farm Bureau was invited to testify before the Committees and urged the senators to undertake fundamental reform of school funding to reduce property taxes and improve taxpayer equity.

Watch NEFB President Steve Nelson’s testimony here.

Imbalance in Property Taxes Nothing to Be Proud Of

Steve Nelson1I recently had the opportunity to travel across Nebraska to visit with Farm Bureau members to talk about our efforts to secure property tax relief during the 2015 Legislative session. It was the first of what I hope will be several trips to connect with members on taxes and other key issues.

This particular trip started in Hastings and went west to Sidney. Along the way, I stopped to do several radio, television and newspaper interviews to explain why property taxes are such a point of concern for farm and ranch families and to outline what we believe are possible solutions to relieve a growing property tax problem.

It was a great experience, but a very real reminder that we have a lot of work to do in communicating the need for property tax relief, whether that be to members of the media or to our elected officials who will ultimately vote on key tax relief initiatives.

In making our case, I often point out that while property taxes are too high in general, they are particularly challenging for farmers and ranchers because of the nature of our business. Land is basic to farming or ranching. No occupation requires as much land as agriculture does. I talk about the fact that taxes on agriculture land have increased 162 percent since 2004, while residential and commercial land taxes during the same time have experienced considerably smaller increases.

I also point out that while farmers and ranchers represent less than three percent of our state’s population, we are now paying nearly one-third of the total property taxes collected statewide. A fact that clearly illustrates our statewide property tax burden is completely out of balance.

I’ve actually had some people (not farmers or ranchers) indicate to me that they don’t see a problem with so few people paying such a large portion of the property tax. I don’t understand that line of thinking and I’m not sure why any Nebraskans should be proud of a tax system that places the responsibility for the majority of funding for local government and schools on the backs of a small group of people. I guess the idea of equity in the state’s tax system wasn’t something these individuals cared about.

Having said that, it points out that we in agriculture have much work to do in explaining why property taxes are of such great concern. Nebraska Farm Bureau will continue to lead the way to find solutions that provide equity in our property tax system and tax relief to farm and ranch families.

Until next month,

Steve Nelson, President, Nebraska Farm Bureau Federation

 

 

Fiscal Cliff Breakdown

Lawmakers finally broke a deal in the 13th hour of first day of 2013, below are details of the fiscal cliff deal that was passed by the House last night and signed into law this morning by the president. The deal prevents numerous taxes credits and the expiration of President Bush tax rates. However, the bill also sets the stage for continuing battles on spending for the duration of 2013.

U.S. Capitol night2

Income Taxes

  • Permanently extends the 10% income tax bracket
  • Permanently extends the 25%, 28% and 33% income tax rates on income at or below $400,000 for individual filers, $425,000 for heads of households and $450,000 for married couples filing jointly
  • Increases to 39.6% the rate on incomes above $400,000 for individual filers, $425,000 for heads of households and $450,000 for married couples filing jointly

Estate Taxes

“We encouraged Congress to extend 2012 estate tax provisions to preserve the $5 million exemption level and maintain a 35 percent tax rate to protect a significant number of Nebraska farm and ranch families from being subject to the death tax. Had Congress failed to act the exemption would have lowered to $1 million which would have broadened the reach of the estate tax to more Nebraska farms. Congress’ action to keep the $5 million exemption is a positive. However, Congress ultimately raised the rate to 40 percent which is a concern,” said Steve Nelson, Nebraska Farm Bureau Federation president.

  • Permanently extends the current exemption amount, exempting estates up to $5.12 million ($5 million indexed for inflation for years after 2011)
  • Increases the maximum rate to 40% — an increase from the current 35% rate — for estate values above the exemption amount
  • Extends gift tax levels of a $5.12 million ($5 million indexed for inflation) exemption and a 40% top rate

Capital Gains and Dividends

  • Extends the current capital gains and dividends rates on income at or below $400,000 (individual filers), $425,000 (heads of households) and $450,000 (married filing jointly)
  • Under current law, the capital gains and dividend rates for taxpayers below the 25% bracket is equal to zero percent. For those in the 25% bracket and above, the capital gains and dividend rates are currently 15%.
    • Increases the rate to 20% for both capital gains and dividends for income in excess of $400,000 for individual filers, $425,000 for heads of households and $450,000 for married couples filing jointly

Small Business Tax Credits

“We are pleased Congress included tax provisions to help small businesses, the backbone of America’s economy. Congress increased the maximum amount small businesses can expense for capital purchases up to $500,000 for next year while also extending the 50 percent bonus depreciation for the purchases of capital assets. Both provisions will help farmers, ranchers and other small businesses when they invest in new equipment and assets to improve their operations,” said Nelson.

  • Extends the provision to allow businesses to deduct from their taxes 50% of the value for property placed in service before the end of 2013 in addition to amounts that they could otherwise claim under depreciation rules. Bonus depreciation is allowed against both the regular tax system and the Alternative Minimum Tax.
  • Increases for 2012 and 2013 the Section 179 expensing limit to $500,000, with the phase-out beginning when investments exceed $2 million

Individual Alternative Minimum Tax (AMT) Relief

  • Increases the AMT exemption amounts for 2012 to $50,600 for individuals and $78,750 for married couples filing jointly and indexes the exemption and phase out amounts thereafter

Farm Bill Programs Extension

“Disappointing for Nebraska farmers and ranchers is the decision to include, but not fund, much needed livestock disaster programs, despite the fact that both Democrats and Republicans in the House and Senate supported re-authorization for these programs. Given the seriousness and impacts of the lingering drought, re-authorization and funding for these programs was critical, and now all we have is uncertainty and a reality that funding is highly questionable,” said  Nelson. “It is our hope that a new Congress will use 2013 to reevaluate the opportunities to address these issues through a new five-year farm bill.”

  • Extends through the end of FY 2013 (Sept. 30, 2013) most provisions of farm policy as they were in effect on Sept. 30, 2012, under the 2008 Farm Bill, including direct payments
  • Extends current commodity terms and conditions for all commodities for the 2013 crop year including sugar beets
  • Extends through Dec. 31, 2013, the Dairy Product Price Support Program and the Milk Income Loss Contract Program
  • Maintains the maximum enrollment in the Conservation Reserve Program at the same level (32 million acres) that has applied for fiscal years 2010 through 2012
  • Authorizes $30 million in discretionary funding for the beginning farmer and rancher development program, which received $49 million in mandatory funding in FY 2012
  • Authorizes funding, but does not provide actual dollars, for certain agricultural disaster assistance programs for FY 2012 and 2013, including:
  1. $80 million a year for livestock indemnity payment
  2. $400 million a year for the livestock forage disaster program
  3. $50 million a year for emergency assistance for livestock, honeybees and farm-raised fish
  4. $20 million a year for the tree assistance program
  • Authorizes discretionary funding for two programs under the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps). SNAP’s employment and training programs would be authorized at $79 million for FY 2013 (an $11 million reduction from the $90 million in mandatory spending it received in FY 2012).

What are your thoughts on the deal? Take action and contact your senator or representative.