Agricultural Tax Stabilization, finally

Back in March of 2021, Thetford residents voted by simple majority to support the following Article: “Shall the town vote to give the Selectboard general authority to enter into tax stabilization contracts with owners, lessees, bailees, or operators of agricultural or forest property, open space land and alternative energy-generating plants, pursuant to 24 VSA § 2741(b)(1)?”

This authorized the Selectboard to enter into contracts that stabilize taxes for farming, logging, etc., but didn’t specify which.  The purpose of such agreements, according to statute, is “to encourage public interests.”

The thought behind this initiative was to avoid any loss of Thetford businesses, which was a real concern in 2021 in the midst of the COVID pandemic. There was also the hope that it would encourage new agricultural enterprise when the economy reshaped itself after COVID, while promoting the Town’s rural character. The ability to stabilize taxes is one tool used by municipalities to stimulate economic development, be it conventional businesses or farming.

After two years and comparing the tax stabilization policies of other Vermont towns, the Selectboard has finally drafted — and on May 1st 2023 adopted — Thetford’s Agricultural Tax Stabilization Policy.

The document lays out what and who is eligible. It defines “farm” as land used for producing crops, including fruit, or for sustaining livestock. Also qualifying is land occupied by greenhouses that produce food or “horticultural commodities,” but not greenhouses used for fabrication or display of wreaths, bouquets, etc. (as defined in 26 C.F.R. §48. 6420-4, Manufacturers and Retailers Excise Tax). A house site that is part of the farm is not included. There is no minimum acreage requirement; thus if a farmer can make two thirds of their income on one acre, they would qualify. The farmland does not have to be contiguous nor need it be owned by the farmer. More and more, as house lots creep into arable land, farmers have to rent land here and there to amass enough acreage for a viable operation.

A farmer is defined as an individual or corporate entity who derives at least two-thirds of gross family or corporate income from farming. This should be verified annually by reference to the farmer’s (or corporation’s) tax returns. If farmland is added, traded, or sold off during the duration of the contract, the farmer must notify the Selectboard “in 30 days,” and the amount of tax stabilization will be amended.  

If, after contracting to stabilize taxes, a farmer fails to make two-thirds of their income from farming in a subsequent year, the selectboard may waive that requirement if they “determine that such a requirement would place an unreasonable burden on a beginning farmer.” However, the period of tax stabilization would be reduced to three years if income from farming remains at a lower level. Otherwise the contract has a non-renewable, five-year duration.

Farmers commonly obtain relief from taxes by enrolling in the Vermont current use program.  Under this program, farmland is taxed based on the land’s agricultural value (or use value) rather than its much higher assessed value as a building site or other non-farming use. It applies to farmland that is 25 acres or more. Current use plays an important role in preserving Vermont farms.

The Town is compensated by the state for the loss of tax revenue due to current use through the Hold Harmless payment. This is designed to “hold the municipality harmless” from loss in municipal revenue resulting from the assessment of property at its use value.

If a farmer enrolls in current use after contracting for tax stabilization, the town can elect to end the stabilization agreement or renegotiate it so that the reduced valuation under current use is reflected in the amount of tax stabilization.

Only Town property taxes may be reduced under tax stabilization. The contract does not extend to the State Education Tax (Homestead tax). Reducing the Education Tax is not easy. The Town would first have to seek the approval of the Vermont Economic Progress Council, and then the state would have to be party to any agreement to stabilize (reduce) the education tax on a property.

So what’s the bottom line?

Formula to Be Used for Determining Taxes to Be Paid:

• Year 1: 10% of Fair Market Value
• Year 2: 20% of Fair Market Value
• Year 3: 40% of Fair Market Value
• Year 4: 60% of Fair Market Value
• Year 5: 80% of Fair Market Value

Some other towns stabilize the assessed value to a flat rate of 50%.

In 2023 a hypothetical piece of farmland assessed at $100,000 would pay $875.42 in Town taxes (using the figure from the 2022 Town Report). If stabilized at 10% the Town taxes would be $87.54, a savings of $747.88 in that first year, but less with every year after that.

While that is not a lot, it would purchase, for instance, about 190 gallons of diesel fuel. At the “average” Vermont farmland price of $8,135 per acre (according to the LandSearch website), this hypothetical piece of land valued at $100,000 would be only 12.29 acres. That’s too small to be eligible for current use. It seems that such small farms might be tempted to apply to stabilize taxes. Big farms already enjoy the more lasting benefit of the current use program.

Photo credit: Li Shen