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Assessing Tax Assessments

Column by Hal Walter

Rural government – January 2001 – Colorado Central Magazine

A RECENT ADDITION to the neighborhood is a family of yaks who have taken up residence on a nearby ranchette. There’s no home on the property, just some electric fence, a stack of hay, feeders and a heated stock tank. And several yaks.

In a neighborhood of mostly cows and horses, the yaks really stand out.

I enjoy stopping to look at them when I am out for a run. While I have never seen a human tending these yaks, I recognize the fencing style from a nearby property where a very nice home looks out over a small horse operation that went in over the last couple of years.

[Yaks and cattle in Custer County. Photo by Hal Walter]

I’m all for small alternative ranching operations. I have one myself, and it’s one of the reasons I choose to live where I do. I keep donkeys and a horse and have plans to produce mules. This sideline gives me the enjoyment of raising animals and also the opportunity to make a few extra dollars every now and then when I sell an animal, or when one of my burros wins some prize money on the pack-burro racing circuit.

It’s like 4-H for a 40-year-old kid. It’s fun, and the process is more important than the financial reward. Good thing, too. For the past several years my operation, known to the IRS as the Out There Pack-Burro Training Facility and to my beleaguered and very conservative accountant as the Wet Mountain Center for Fiscal Irresponsibility, has barely made enough profit to keep the feds from calling it a hobby.

But it’s not enough to keep Custer County from calling it a hobby for land-tax purposes. Thus, we pay more taxes on our land than some neighbors whose property is assessed as agricultural even though they own no animals of their own. With Custer County’s recent passing of a $3.75 million school-bond issuance for new classrooms at the school, not to mention the steady decline of overstressed roadways in the area, this disparity in taxation will become even more poignant in the very near future.

Property taxation in and of itself is a complicated matter. At the basis is the property’s assessed valuation, determined by the assessor.

This is then multiplied by an assessment rate, set by the state — currently 29 percent for ag and vacant land, and 9.74 percent for residential land. This amount is then multiplied by the mill levies, set by the local school district, county government and other entities, to determine the amount of tax a person pays on the property.

While the state assessment rate is much higher for ag and vacant land, the assessed valuation for ag land is relatively low. For instance, property in Custer County that is assessed for hay production is valued for tax purposes at $300 to $500, a relatively high rate for ag land.

However, property that is assessed as “dryland grazing” is valued at only $15 to $25 per acre. For comparison, vacant and residential land is valued at market value, which is around $800 per acre. The assessor also uses various other factors to determine the property’s assessed valuation, including improvements such as homes and outbuildings, as well as the use of the property.

In order to be designated as ag land for tax purposes, land must be used for the raising of livestock for the purpose of making monetary profit. The animals must be raised for food or breeding purposes, and must not receive supplementary feeding but rather must be sustained by the productivity of the land. This is especially tricky given that the average grazing land in Custer County is rated at one animal unit per 50 acres — not what you’d call prime grass production.

SOME DEVELOPMENTS have taken advantage of this system. For instance, many of the larger subdivisions in Custer County have maintained agricultural status despite being chopped into smaller parcels, some of which have homes on them. This allows people who have invested in lots in these subdivisions to pay the lowest possible taxes on the property.

In addition, some owners of homes who have no domestic livestock of their own, while paying the full rate on their improvements, are still able to claim a lower agricultural tax rate on the bulk of their land.

For many this is only a matter of a couple hundred dollars, but for many of us who actually do have livestock on our smaller acreages, but still pay residential rates, that amount is not far from how much the new school classrooms will cost us, and that doesn’t seem fair.

It’s fairly simple for subdivision property owners to qualify for an ag assessment. For starters, the property was already ranch land before it was subdivided, and thus was already under ag status for taxes. To continue this status, ranchers, many of whom sold the land in the first place, sign a grazing deal with the property owners, who agree not to fence the property. In exchange the owner gets the lower tax rate.

In this way ranchers can have their development and graze it too. First they make big bucks when they sell the land. Then they continue to run cows on the property almost as they did before they sold it, throwing out salt blocks along the subdivision roads, herding the cows out of the shadows of ridgetop trophy homes when it’s time to bring them in each winter, and not paying a penny of property tax themselves.

Meanwhile, those of us who own animals on smaller fenced parcels with homes pay a higher residential rate. Here’s a rough example for comparison. My north fence-line borders a lot in the Dilly Ranch subdivision. The owners of that 35-acre lot are from the Denver area, and have no animals. Nevertheless, the property is assessed at the agricultural rate because they lease the property back to the rancher for grazing. For purpose of example (these are not exact figures), this dryland grazing property may be assessed at about $20 an acre. Multiply that times 35 acres, then factor in the state assessment rate of 29 percent, and you get a valuation of $203. Multiply that by last year’s total mill levy of 54.018 mills and you get $10.96 for the yearly tax bill. That’s pretty cheap.

MEANWHILE, on the other side of the rickety barbed-wire fence that separates Dilly Ranch from my subdivision, Peterson Ranch, the taxes are higher. Despite my five donkeys and horse, my land is assessed as residential property for tax purposes. My property may be assessed at “market value” which may be $800 an acre. Multiply that by 35, and then factor in the state’s 9.74 percent residential assessment rate and you get a valuation of $2727.20. That times the mill levy yields a tax bill for $147.31 just for the land. The house and other improvements cost a good deal extra.

My math skills are rudimentary, but when I figure in the new mill levy that will go in place to pay for the new school bond — 6.4 mills — this increase in my taxes, while not much, about $17, will be more than my neighbor now pays in total.

As growth for the sake of growth — what Edward Abbey called the ideology of the cancer cell — continues to run rampant in the rural west, the need for more amenities, and the need to pay for them, will continue to escalate. Many ranchers have benefited financially from subdividing their ranches, and I wonder why so many of these multi-millionaires still seem so interested in cows. Perhaps it’s that 4-H thing, or perhaps it’s just a way to hold on to tradition.

Regardless, there’s no reason the rest of us, especially those who continue the western tradition of raising livestock in smaller operations, should have to pay more for the amenities than the newcomers who lined the ranchers’ pockets. Things have changed drastically in the rural west in the last two decades. Now it’s time to change the way our property taxes are structured.

Hal Walter qualifies for farm plates for his pickup because he uses it to haul “supplemental feed” to his non-ag-ASSessed ranch in Custer County.