Could court ruling allow investors to harvest huge tax savings by labeling vacant land as farms?
6:56 AM, Apr 30, 2012
11:31 AM, May 1, 2012
LIBERTY, Mo. - Imagine your property tax bill being chopped from thousands of dollars per year down to mere pocket change. It happened to a Kansas City area landowner after he recently won a lengthy legal battle against the government.
The issue stems from Missouri's definition of a farm. Where some people might see a vacant piece of commercial property, others are seizing an opportunity to harvest huge tax savings.
But in a 41 Action News investigation, critics warn the outcome of the court case could come at a big cost to school districts and taxpayers.
Is it vacant land or a farm?
On a busy Northland street, hundreds of drivers pass by a vacant piece of land every day, located just east of 169 on Northwest 68th Street and straddling the Kansas City and Gladstone city limits.
The three-acre property is zoned for commercial use. It sits across the street from a Quik Trip and strip mall. A hospital is its next-door neighbor. Many people likely assume the vacant land will eventually be replaced by some sort of development.
Bob Bateman thought the same things when he bought the property in 1997. However, more than a decade later, he is still holding onto the land while waiting for an appealing offer. Meantime, he sees the property as his three-acre farm.
It took a long time for the law to agree with that assessment.
Legal battle begins
Several years ago, Bateman was frustrated by the amount of his property taxes in Clay County. The investor scrutinized Missouri's tax laws and he noticed a section that defined agricultural property. Specifically, he focused on the phrase that reads, "Devoted primarily to the raising and harvesting of crops."
It planted an idea.
"I decided to get into the hay-baling business," Bateman said.
In 2007, Bateman let the grass grow and then paid to have it mowed and baled. He did not make a profit on the sale, but felt he had found his cash crop in the form of a huge tax break. Bateman snapped photos and took his evidence to the Clay County Assessor to request that his property's assessment value be changed to productive use agriculture.
What was the reaction from county officials?
"They were totally against it," Bateman said.
Clay County Assessor Cathy Rinehart explained why Bateman's argument was not taken lightly.
"The tax bill changes dramatically," she said, while noting the possible implications for other vacant parcels in Clay County.
Clay County's Board of Equalization denied Bateman's request, but he took his property debate to the State Tax Commission, which ruled in his favor.
However, Clay County appealed and Circuit Judge Larry Harman reversed the decision.
"If grass growing on land is automatically an agricultural use, then there would be no vacant and unused land," wrote Harman in the decision. "In the instant case where the cost to have the grass cut and baled into hay is 20 times the sale price, there is no legitimate business interest in doing it."
Harman also noted that zoning ordinances in Kansas City and Gladstone prohibit growing grass more than 10 inches high.
"Victory for property rights" cuts tax bill by thousands of dollars
Bateman did not waste any time letting the Circuit Court know what he thought about the ruling. The very next day, he placed a large, handmade sign on the property that read, "Bad Judge Harman."
"I think it's important people do speak out," said Bateman, who is known in the area for launching other legal battles against the government about property rights, zoning classifications and taxes. He estimates this particular case cost him about $20,000 in legal fees.
Clay County has 732 parcels of vacant agricultural land that total about $19.6 million in assessed value. If all those properties applied for productive use value, the county said it would cut the value by 99 percent.
After the ruling, other investors also asked for the lower tax rate. One piece of land is visible from Interstate 35 in Liberty and sits next to a Ford dealership and a hotel. The land owner told 41 Action News he has baled hay on the property for years.
According to Clay County, the commercially-zoned property had been assessed at $4.3 million, but the new rate will drop that value to about $9,300.
Since the ruling, Clay County reports more than $11 million of reduced assessed property value, thanks to other property owners following in Bateman's footsteps.
School districts concerned about implications
Those big numbers have area school district leaders on edge because a huge chunk of their funding comes from property taxes.
"North Kansas City Schools is concerned about the potential impact this decision could have on our long-term revenue, since we already are operating on a tax base that is below 2004 levels," said spokeswoman Mary Jo Burton. "Any further erosion for our tax base will make it difficult to sustain quality programs and services for our students."
41 Action News contacted assessors in Platte, Jackson and Cass County, who said they would be paying attention to see if there is an increase in the number of vacant land owners applying for the productive use value.
The issue has been around longer in Kansas, but has become much more visible after the downturn in the housing market.
Will law be changed?
Clay County State Representative Myron Neth, whose family has a background in the agricultural business, said he can't blame a property owner for trying to lower his taxes.
However, he said lawmakers need to find a happy medium. He understands Bateman wanting property tax relief for a piece of property that is not producing income. But he thinks paying $5 per year is taking advantage of the situation.
"I think it's very legitimate for us to look at some definitions and see if we can do something to stop the loophole," said Neth.
Neth said he favors the idea of a tax rollback. When property classified as agricultural use is sold, the owner would pay back the difference between the low rate and the higher fair market value, going back several years.
"We want to make sure we are not impeding on legitimate farmland, but we want to make sure the law isn't being abused at the taxpayers' expense," said Rep. Mike Talboy of Kansas City.