By Jacqueline Graves

A tax break which once benefited small land owners may be coming to an end. The tax break in question began in 1969. [i] The purpose of the break was to provide assistance to farmers wishing to protect their farmlands from the danger of urban development.[ii] The initiative was backed by the Kentucky Farm Bureau, urging voters to “help preserve our open spaces and natural resources.”[iii] Initially, farmers had to provide proof that their lands housed crops or animals.[iv] Furthermore, if the farm owner later decided to develop their land, they faced tax penalties for receding the agreement.[v] Yet, those requirements loosened in 1992 when the Kentucky General Assembly, again following the urging of the Kentucky Farm Bureau, passed HB 585.[vi]

Under this new law, virtually anyone that owned at least ten acres of land— including lands housing no crops or animals— could benefit from the tax break.[vii] Suburban homes with large lawns and large parcels of land used for commercial or residential purposes benefitted from the tax break.[viii] In a 2012 U.S. Department of Agriculture census of the Fayette County properties benefitting from the break, it was found that only one-third of those properties actually served as working farms.[ix] As a result, Fayette County forfeited $1.6 billion in taxable value in 2015 for 2,459 properties, covering 116,753 acres.[x] $11.8 million of the forfeited income would have benefitted the Fayette County Public Schools.[xi] It is estimated that several millions of dollars forfeited would have benefitted the local health department, Lextran, and other public services.[xii] Also , Kentucky waived $36.6 billion in property value for greater than 18.2 million acres of land deemed agricultural in the year 2015.[xiii]

However, due to a recent legal opinion from the Kentucky Department of Revenue, Fayette County Property Valuation Administrator David O’Neill predicts the tide has begun to change.[xiv] The legal opinion followed O’Neill’s request that the Department weigh in on the problem.[xv] In the legal opinion, the department declared that houses or buildings on lots could not be included in the ten-acre assessment toward the tax break.[xvi] As a result, many land owners owning exactly ten acres or slightly over ten acres, would no longer qualify for the break.[xvii] Furthermore, as of January 1st of 2016, those purchasing ten acres or more must prove the land is used for agricultural purposes before receipt of the break; homes, lawns, driveways, landscaping, and swimming pools would be excluded from that assessment.[xviii] At this time, there is no opinion as to whether or not the department will allow grandfathering.[xix] But eecause the opinion failed to define agricultural purposes, PVAs are left to the definition provided in the dictionary.[xx] Fayette County PVA David O’Neill believes the legislatures will ultimately be tasked with defining the phrase.[xxi]

University of Kentucky College of Law Professor Kathryn Moore has also weighed in on the issue.[xxii] She predicts that if the legislature fails to act, they may be forced to by a lawsuit claiming property assessments unfair.[xxiii] In Dolan v. Land, the Kentucky Supreme Court declared that a constitutional violation occurs “if the effective tax rate is not uniform and thereby results in an unequal tax burden.”[xxiv] According to Professor Moore, “[i]t seems to me that if two people have exactly the same property used exactly the same way and you give one the exemption and not the other, that’s not a uniform standard . . . I think there’s a good argument to be made there.”[xxv]

[i] Linda Blackford, Many Could Lose Agriculture Tax Break Under Revenue Opinion, Lexington Herald Leader (June 7, 2016), http://www.kentucky.com/news/politics-government/article82237327.html.

[ii] Id.

[iii] John Cheves and Linda Blackford, Tax Relief Intended to Save Kentucky Farms Helps Pave Them Instead, Lexington Herald Leader (February 18, 2016), http://www.kentucky.com/news/local/watchdog/article61171117.html.

[iv] Id.

[v] Id.

[vi][vi] Blackford, supra note i.

[vii] Cheves & Blackford, supra note iii.

[viii] Id.

[ix] Id.

[x] Id.

[xi] Id.

[xii] Id.

[xiii] Id.

[xiv] Blackford, supra note i.

[xv] Id.