On January 1, 2010, a new state law went into effect requiring local zoning authorities to impose a conversion fee on farmland currently located in a farmland preservation zoning district. Despite strong opposition by the Wisconsin REALTORS® Association, which included a Call to Action to WRA members, the fee was adopted in the 2009-2011 state budget as part of a comprehensive package of new regulations (known as the Working Lands Initiative) designed to better protect farmland from development.
Calculating conversion fee
A property owner must pay a conversion fee when rezoning land out of a certified farmland preservation district. A "certified farmland preservation district" is defined as land that is currently subject to a farmland preservation agreement, or land that is located in an exclusive agricultural zoning district.
The conversion fee is equal to the greater of:
three times the assessed value of property, as determined by the Department of Revenue under Wis. Stat. § 73.03 (use value program), or
an amount specified by the county in its Farmland Preservation Zoning Ordinance.
If a county chooses to impose a higher fee, the county gets to keep the additional revenues generated. Therefore, a county has a financial incentive to impose a higher penalty.
Based upon the state’s average assessed value for farmland in 2009 ($270 per acre), the minimum fee that a property owner must pay when converting land out of a farmland preservation zoning district will be $810/acre in 2010. If the county chooses to impose a higher fee, the fee will naturally be higher.
Conversion fees are assessed based on the Wisconsin DOR Use Value Guidelines for Agricultural Land Assessment, which can be found at www.revenue.wi.gov/slf/useval/10useval.pdf. To determine the fee for each acre of land being rezoned, multiply the Grade 1 Agricultural Land Assessment value or highest class of tillable land by three. (Note: the conversion fee is assessed based upon the number of acres to be rezoned, not the entire parcel.)
Conversion fee vs. use value penalty
Although they both apply to farmland, the new farmland conversion fee is different from the use value penalty that has been in effect since 2003. The new farmland conversion fee applies only to property located in a farmland preservation zoning district, and only when the property is rezoned by the property owner. If the property is rezoned by the local unit of government as part of a comprehensive revision to the zoning ordinance, no fee is owed.
The use value penalty is owed any time a property owner changes the use of farmland to a non-agricultural use, which includes having the property lie fallow. The use value penalty is calculated by multiplying the number of acres converted by a percentage difference between the average fair market value of agricultural land in the county (based on the previous year’s sales of land that is larger than 38 acres and intended to be used as agricultural) and the average equalized value of agricultural land. The DOR calculates these figures and provides them to the County Treasurer each year. They are also available at www.revenue.wi.gov/slf/useval/uvindx.html.
Land can be subject to both the new conversion fee and the use value penalty if the land is (1) located in a farmland preservation zoning district, (2) rezoned to a different zoning classification and (3) converted to a non-agricultural use. Farmland converted for development purposes will often fall into this category.
Disclosure of new conversion fee
Although the new law does not specifically require the new conversion fee to be disclosed to prospective purchasers, a REALTOR® and seller should disclose this information to prospective buyers, even if the buyer is not planning to rezone the property.
For more information on the new conversion fee, visit www.datcp.state.wi.us/workinglands/index.jsp. See also 2009 Legal Update "Wisconsin Farmland Initiatives" at www.wra.ogr/LU0909. To help ensure that buyers are aware of the penalty, the WRA has included information about the conversion penalty in five of its disclosure forms: the Condition Report, the Seller’s Real Estate Condition Report, the Real Estate Condition Report — Farm, the Seller Disclosure Report — Commercial, and the Seller Disclosure Report — Vacant Land.
Tom Larson is Director of Regulatory and Legislative Affairs for the WRA.