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The basics of use-value assessment


 Cori Lamont  |    February 15, 2021
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Okay, so property assessed as agricultural under use-value is not limited to property used solely for chickens or livestock. As a matter of fact, agricultural property assessed as use-value could be property being utilized to grow crops, trees or other vegetation. 

The reality of use-value assessment is simple. The state of Wisconsin rewards property being used agriculturally by assessing it for property tax purposes on its agricultural productivity rather than its fair market value or potential for development. This known as the use-value assessment method. 

However, if the property is changed to nonagricultural purposes, the owner must pay a conversion charge, or a fee. Additionally, once changed to a nonagricultural purpose, the land will then be reassessed removing the property from its use-value assessment. 

Conversion charge 

The use-value conversion charge can be found under Wis. Stat. ¬ß 74.485. And it is complicated ‚ÄĒ the number of acres converted is multiplied by the county‚Äôs prior year average fair market value of an acre of agricultural land. The Wisconsin Department of Revenue (DOR) provides the fair market value. That number is then subtracted by the county‚Äôs prior year average equalized value (use-value) of an acre of agricultural land. The DOR provides the use-value.

The charge must be paid within 30 days to the county treasurer after the conversion charge assessment. 

County treasurer role 

The county treasurer is responsible for administering the conversion charge, based on reporting by the local assessor that certain land changed use. The assessor must identify the person who made the change, and the number of acres previously assessed as agricultural that changed use. The treasurer will assess a conversion charge to the person who changed the use. Some counties may say conversion takes place once the property ceases to be used for agricultural purposes, while others may say it is not converted until a residential property is built and an occupancy permit is pulled.  

Disclosing use-value 

Wis. Stat. § 74.485(7) requires sellers of agricultural land to notify buyers of all the following:

1) That the land has been assessed as agricultural land under Wis. Stat.§ 70.32(2r).

2) Whether the seller has been assessed a penalty related to the land per Wis. Stat. § 74.485(2).

3) Whether the seller has been granted a deferral related to the land under Wis. Stat. § 74.485(4).

Failing to disclose this information may lead to seller liability. 

These items have been incorporated into the Real Estate Condition Report (RECR) under item ‚ÄúF10‚ÄĚ and the Vacant Land Disclosure Report (VLDR) under ‚ÄúE10.‚ÄĚ The language in both forms states:¬†

‚ÄúThe use value assessment system values agricultural land based on the income that would be generated from its rental for agricultural use rather than its fair market value. When a person converts agricultural land to a non agricultural use (e.g., residential or commercial development), that person may owe a conversion charge. For more information visit https://www.revenue.wi.gov/Pages/ FAQS/slf‚ąíuseassmt.aspx or (608) 266‚ąí2486.

a. Are you aware of all or part of the property having been assessed as agricultural land under Wis. Stat. s. 70.32 (2r) (use value assessment)? 
b. Are you aware of the property having been assessed a use‚ąívalue assessment conversion charge relating to this property? (Wis. Stat. s. 74.485 (2))¬†
c. Are you aware of the payment of a use‚ąívalue assessment conversion charge having been deferred relating to this property? (Wis. Stat. s. 74.485 (4))‚ÄĚ

What is a deferral?

Wisconsin state law (Wis. Stat. s. 74.485 (4) allows for a conversion charge deferral. According to the DOR‚Äôs 2020 Agricultural Assessment Guide for Wisconsin Property Owners, ‚ÄúIf a conversion charge is due under sec. 74.485(2), Wis. Stats., the county treasurer may defer the payment if the land will be used as agricultural under sec. 70.32(2r), Wis. Stats., in the next tax year. If the land is not in an agricultural use in the next tax year, the owner who received a deferral must pay the conversion charge plus one percent interest per month from the deferral date to the date of payment.‚ÄĚ

Helpful resources  

The DOR has the most thorough resources including a series of FAQs: 

Consumer questions

If the buyer or seller have questions about use-value assessments ‚ÄĒ such as what should the buyer do if they want to change the property currently assessed as use-value, how much will the buyer be reassessed, or how much will the conversion charge be¬† ‚ÄĒ refer them to the county assessor and treasurer as well private legal counsel.

Use-value assessments are fraught with legal challenges. For instance, Peter Ogden Family Trust of 2008 v. Board of Review for the Town of Delafield highlights just one example of how a property owner had to defend against an assessor attempting to reassess the property because the property was not used for a business purpose. 

If you become aware of a situation in which a property is owner defending the use-value assessment of their property, please encourage them to reach out to the WRA‚Äôs Legal Action Program, an advocacy arm of the association supporting REALTORS¬ģ and landowners involved in legal matters that have significance for the WRA membership and the real estate industry. Learn more about the WRA‚Äôs Legal Action program at www.wra.org/LegalAction.

Peter Ogden Family Trust of 2008 v. Board of Review for the Town of Delafield 

Property doesn’t have to make money to be an agricultural use

The Ogdens (Ogdens) own three parcels in the town of Delafield. However, only two of the lots are at issue in this case. The smaller of the two lots is 4.46 acres and the larger is 7.76 acres. From 2012 through 2015, the lots were characterized as ‚Äúagricultural land‚ÄĚ and ‚Äúagricultural forest land‚ÄĚ and had a combined assessed value of $17,100.¬†

However, in 2016, the lots were reclassified as ‚Äúresidential,‚ÄĚ and the assessed value jumped to $886,000. The Ogdens objected to the reassessment. At the Board of Review for the Town of Delafield hearing, the Ogdens maintained the lots were used primarily to harvest apples, alfalfa and Christmas trees. The Ogdens provided evidence, including several photographs showing the pre- and post-harvest hayfield as well as orderly rows of Christmas and apple trees.¬†

At the hearing, a local farmer, Lloyd Williams, testified he and the Ogdens had farmed the lots since 2012 and that three-acre hayfield produces approximately 150 bales per acre totaling approximately 450 bales of hay for the entire field. 

The assessor apparently did not want the lots classified as agricultural unless the lots were producing an economic benefit to their owners. Further, the assessor seemed to suggest that people were taking advantage of loopholes in the agricultural use classification and its corresponding tax rate. 

The Town of Delafield Board of Review vote ended in a tie. Therefore, the assessor’s classification of the property as residential was sustained. 

The Ogdens appeal to the Waukesha County Circuit Court was dismissed. The Ogdens appealed the dismissal, and the court of appeals reversed. The court of appeals concluded that a business purpose was not necessary for land to be classified as agricultural land for property tax purposes. 

The Town of Delafield Board of Review appealed the holding to the Wisconsin Supreme Court. The Wisconsin Supreme Court concluded the board was in error when it determined that a business purpose was required for land to be classified as agricultural land.

Terms relevant to the case:

  • Agricultural land: ‚Äúland, exclusive of buildings and improvements and the land necessary for their location and convenience, that is devoted primarily to agricultural use.‚Ä̬†
  • Agricultural use: ‚Äúagricultural use as defined by the Department of Revenue by rule and includes the growing of short rotation woody crops, including poplars and willows, using agronomic practices.‚ÄĚ

(See Wis. Stat. § 70.32.)

Cori Lamont is Senior Director of Legal and Public Affairs for the WRA.

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