The Kentucky Department of Revenue and Fayette County Property Valuation Administrator (PVA) have revised the guidelines and various policies involving agricultural property assessments for the tax year beginning January 1, 2017.
We strive to make the administering of agricultural assessments as fair and equitable as possible for all citizens. However, even with the stricter interpretation of existing statutes as outlined below, the current laws, which can be seen here and here, are inadequate and highly ambiguous. The Kentucky General Assembly has recently signaled that they do not anticipate revisions to the statutes at this time. If you believe changes should be made beyond those outlined below, we encourage you to contact your state legislators.
1. The PVA will request an application from property owners and use best efforts to continually verify agricultural use
Prior to 2017, only agricultural capability was required to receive an agricultural assessment on non-commercial property of 10 acres or more. The Kentucky Department of Revenue has revised this policy, requesting that county PVA offices require actual agricultural use, not simply agricultural capability. Accordingly, an application form (which will be distributed about March 1) will be instituted for those seeking an agricultural assessment. This application will allow property owners to easily outline the agricultural activity taking place on their property and ensure rightful access to agricultural assessments for those engaged in agricultural activities. The Fayette County PVA will use best efforts to ensure compliance, however legislative action should be taken to better define “agricultural use.” Inadequacies in the current statutes have resulted in widespread inconsistencies in how agricultural assessments are administered throughout the Commonwealth.
2. Removal of agricultural classification on properties transferred on or after January 1, 2013
The Fayette County PVA no longer automatically grants agricultural classification on properties transferred on or after January 1, 2013. It is the responsibility of new owners to request an agricultural classification through the application process. Failure to apply will result in loss of the agricultural classification effective January 1, 2017.
3. Land used for the owner’s residence will be excluded when determining if the property meets the minimum acreage requirement per KRS 132.450
Only properties consisting of a minimum 10 acres after subtracting acreage used for personal pleasure (for example, the area of land used for a residence, lawn, swimming pool, driveways, etc.) will be eligible for the agricultural classification. If a tract no longer meets the 10 acre threshold after subtracting land used for personal pleasure, the agricultural classification will be removed. The Department of Revenue specifically prohibits grandfathering of properties below the minimum acreage requirement.
The image below has been widely used in both print and social media to highlight a longstanding loophole, which allows 10 acre tracts to retain agricultural assessments without current agricultural activity. One common misconception is that properties like the example in this illustration pay less total property tax than an average homeowner. This is not correct. For all such properties, the house, garages, all other buildings, and the land beneath are taxed at 100% fair cash value. Only the remaining unimproved acres of vacant land are taxed at an agricultural value.
Once the square footage of the residence is removed from the total acreage of the tract, it may fall below the 10 acre threshold required to receive an agricultural classification.
4. Publicize criteria for when development land loses the agricultural classification and publish an annual list of potential development tracts currently receiving agricultural assessments
There has been no change, or indication of future change, in the law or guidelines for how agricultural classifications are administered for potential development land. The Fayette County PVA will make transparency in these cases a top priority. The office will publish a list of properties slated for future development that continue to receive agricultural assessments until the actual “use” of the property changes. This list will be published when the annual tax roll is published, generally around April 15 of each year.
Nearly all development land transitions at some point from agricultural land to a new classification, usually “commercial” in the case of a shopping center or “residential” in the case of a new neighborhood subdivision. Property tax is not based on a property owner's assumed intent, but rather its current use.
Current statutory guidelines require that development land receive an agricultural classification until the use of a tract actually changes, which occurs with one of these two events:
An approved final plat is recorded in the Fayette County Clerk’s Office
Work begins at the development site
When the tract’s use changes, the Fayette County PVA will remove the agricultural classification at the first legal opportunity, which is January 1. Once the agricultural classification has been removed, the following year’s tax assessment will be based on 100% fair cash value.
It is important to note that a property’s use, classification, value, condition, ownership, etc., can only be changed for January 1 of any given year. This is a fundamental component to property taxation and applies to all property – even automobiles – not just farmland. All government offices involved in property taxation adhere to a strict annual tax calendar. This schedule allows time for property owners to conference with the PVA and possibly appeal their assessments to the Board of Tax Appeals before the tax roll is certified. Once a tax roll is certified changes cannot be made until the following January 1.
The Summit at Fritz Farm, shown below, is a mixed-use development at the corner of Nicholasville Road and Man O War Boulevard, and is a high profile example of land transitioning from farmland to development site. The tract was assessed as agricultural land on January 1, 2015. It was purchased by the developer in June, 2015 followed shortly by the filing of a final plat and the commencement of site work. On January 1, 2016 the agricultural classification was removed and it was assessed at 100% fair cash value of $19 million.
The Summit at Fritz Farm Has Never Been Inappropriately Assessed
As the Kentucky Department of Revenue found after a thorough review, and as the image illustrates, the Summit at Fritz Farm has always been assessed accurately and appropriately. The Summit developers (current owners) never received the benefit of the agricultural classification.
Kentucky voters approved a constitutional amendment that created preferential property tax assessments for land used for agricultural production. This constitutional amendment was enacted after 4 million acres of Kentucky farmland was lost to commercial and residential development in the preceding decades.
Under the original 1969 agricultural assessment legislation, property owners had to meet several requirements to qualify for a reduced assessment:
In addition to the above requirements, the legislation subjected property owners to a rollback provision. In the event that the use of an agricultural property changed, property owners would owe deferred taxes from the two previous tax years.
In the event a property qualified for an agricultural assessment using the above guidelines, the valuation of the property was to be based on its income-producing capability.
Following the 1969 creation of agricultural property tax assessments, the Kentucky General Assembly enacted HB 585, which removed most of the seemingly-obvious requirements previously necessary to receive an agricultural assessment. After enactment of the 1992 statute revisions, property owners were no longer required to submit an application, were no longer required to provide proof of agriculturally-derived income, and the rollback provision was removed.
With the removal of the income-producing requirement as part of HB 585, and the lack of any quantifiable minimum production of “agriculture” in the statutes, PVAs across the state have had limited tools to ensure agricultural assessments were merited. As a result, Kentucky Department of Revenue guidelines and precedent established by the Kentucky Board of Tax Appeals established the minimum standard used in most jurisdictions today of a 10-acre minimum tract with agricultural income capability regardless of actual use.
Please take a moment to review the legal documents surrounding agricultural assessments:
If you were unable to find the agricultural assessment information you were looking for on this web page or if you have any questions involving agricultural assessments please contact the Fayette County PVA Office at (859) 246-2722.