Blessings Come With Responsibility
By Jim Palmer Jr.

Sellers are usually acutely aware of what tax designation their property is under and how much they are paying in taxes.  Agricultural land owners who are in the Current Use Program pay a much lower rate than those properties that are not in that designation.  The purpose of the program is basically to give farmers a tax break since their production efforts benefit the general public.  Because a sale triggers an audit and possible removal from this program, buyers have an important decision to make.  Do they wish to stay in the program or do they want it to be removed from that tax designation prior to their ownership.   A removal would cause the seller to pay up to 10 years of compensating taxes at closing, which could be thousands of dollars.

The benefit of low taxes is obvious and the effect of that is realized immediately, but for some buyers there is a risk since it may not be easy to produce enough income to pass the regular audits.  For properties of 20 acres or less, the owner must show income of $200 per acre, per year.  If they cannot maintain that production standard, the county will later remove it from the program, and make the buyer pay the compensating taxes, much of which had accrued under the previous owner.

In one case the buyer obligated themselves on a Purchase Agreement to sign a Continuance, but got cold feet once they realized they would have to be sure the hay was cut and processed.  They intended to travel a lot and didn’t want to be tied down to that type of stewardship and could not find a neighbor willing to harvest the hay.  They opted to pay the compensating taxes (approx. $3,500) for the seller to remove it from that tax designation instead of living with the obligation of the production requirement.

In another case, after several years of ownership, the buyer who had signed the Continuance was forced out of the program because he wasn’t a very good farmer and failed to produce enough income to remain in the program.  They paid the piper instead of the seller, because they had signed a Continuance at closing and it was no longer the seller’s obligation.

If you are considering the purchase of Ag land, be sure to consider that every blessing (in this case, low taxes) comes with a responsibility!