Local governments, like all governments, need funding. They need to pay police officers, provide us with services such as water and trash pick-up and fund public schools. In Austin, as in most cities, a large portion of that budget comes from property taxes.
In Texas, all “real property” — all land and improvements to land, including houses and other buildings — is subject to property taxes. Most property is taxed based on its appraisal value, the amount that it would sell for on the open market. In Austin, for example, property is taxed at a yearly rate of around 2.3 percent. So if your house would sell for $100,000, you are taxed around $2,300 per year.
The goal of a property tax is to provide revenue, but the way property tax law is written and applied changes the way people use property. The system we use has some advantages. Corporations and homeowners are less likely to hold on to property they are not using if they have to pay taxes on it. If we didn’t tax property, neighborhoods could fill up with boarded-up houses, storefronts and office buildings because the owners may want to hold onto the property to use later or to sell when the market is better.
It also has some disadvantages. Property taxes based on appraisal values can contribute to gentrification. As property values in a neighborhood go up, property taxes for long-term residents go up, too. This can force low-income families out of their homes.
One type of property that this tax never works well for is farmland. Farmers operate on tight profit margins, and farming is rarely the most profitable use for any given piece of land. If farmers were forced to pay property taxes based on the appraised value of their land, very few could stay in business. High taxes would force them to sell their property to developers who would use it to build malls and housing subdivisions, enterprises that make enough money to pay those high property taxes. This is especially true in rural areas near urban centers where property values are higher.
Although farming can’t always compete economically with other uses for land, farmers need land, and we need farmers. The state of Texas recognizes this, which is why it taxes agricultural land differently than other real property. Rather than taxing agricultural land based on the price it would receive on the open market, we tax it based on the net income it is capable of producing “under prudent management from the production of agricultural products.” So farmland is taxed based on its value as farmland, not based on its potential value as the site for a new mega-mall. For many farmers, this distinction means the difference between profitability and bankruptcy.
But determining what qualifies as agricultural land is not as simple as it may seem. Under current practices, some small, sustainable, urban or otherwise nontraditional farms have not gotten fair valuation as agricultural land. Most farmers in Texas receive agricultural valuation under a law known as the “open-space” law. To qualify, land must be “devoted principally to agricultural use to the degree of intensity generally accepted in the area.” There are also separate provisions for land that is actively used for wildlife management to qualify as open-space land. The “intensity” requirement is supposed to ensure that agricultural valuation is limited to land that is truly used for agriculture. A small kitchen garden surrounded by two acres of lawn, for example, should not qualify. But what does it mean for a chicken farm surrounded by cotton fields? What does it mean for a produce farm in the middle of the suburbs?
If land is being used primarily to grow food, it should be taxed as agricultural land. The law as currently interpreted is not sufficiently broad to encompass all types of food production. Texas HB 2084, known as the Local Foods Omnibus Bill because it addresses several issues important to small farmers, could help solve this problem. It lays down guidelines for the comptroller (the state official who writes manuals used by county appraisal offices) in cooperation with appropriate House and Senate committees, to determine whether urban farms, community gardens and organic, sustainable or otherwise unconventional farms qualify for agricultural valuation under the open-space law and to revise the requirements for agricultural valuation to better accommodate these types of farms.
Most of us regard taxes as a necessary evil, and sometimes they are. But tax law has the power to shape communities. We need to make sure that it’s shaping them in a way that’s consistent with our values.
<em>Clabby is an English senior.<em/>