Qualified agricultural property exemption not necessarily tied to property classification

By the first Monday in March each year, local assessors are required to classify all real property in each unit of government and agricultural property is no exception.

The Michigan State University Extension news article Zoning district, tax assessor classifications not the same thing describes the difference between a property’s classification for assessment/tax purposes and the property’s zoning district for permitted (and prohibited) land use activities. While the article provides a basic understanding of property classification, the article mainly focuses on the relationship between property classification and the qualified agricultural property exemption.

As the State Tax Commission details in the Qualified Agricultural Property Exemption Guidelines, “The qualified agricultural property exemption is an exemption from certain local school operating millages for parcels that meet the qualified agricultural property definition.” The property tax exemption amounts to the same tax reduction afforded properties under the principal residence exemption (also commonly referred to as the homestead exemption). The criteria for each exemption are different, but both exempt property from up to 18 mills of local school operating millage.

To be eligible for the qualified agricultural property exemption, the local assessor must determine that a parcel meets the criteria of qualified agricultural property, which can be satisfied in one of two ways. One possibility is that a parcel is classified by the local assessor as “agricultural” (with possible sub-classifications 101-160) on the current assessment roll. The other possibility is that a parcel is classified something other than agricultural, but more than 50 percent of the parcel is devoted to agricultural use as defined by law (for the definition of agricultural, see MCL 324.36101 of the Natural Resources and Environmental Protection Act – PA 451 of 1994).

So, whether a parcel has the qualified agricultural property exemption or not, may or may not be dependent on the property classification of the parcel. This is a common misunderstanding about property taxes and the subject of many protests to the local Board of Review when a landowner’s property classification is changed from ‘agricultural’ to something else (see MSU Extension news article ‘March means spring is around the corner, but not before your township board of review’). Often, the landowner believes he/she will lose the agricultural exemption from local school operating taxes when the property classification is changed and, as a result, the property taxes will go up. This is not necessarily the case, since the property can still qualify for the exemption if more than 50 percent of the land area is still devoted to agriculture (however, the landowner must submit Form 2599 to the local assessor by May 1). Or, the landowner’s fear might be that the change in classification limits his/her right to farm. This is never the case and the classification of property has nothing to do with one’s ability to farm or one’s right to farm.

Keep in mind that assessors have a statutory framework they must follow when determining the appropriate property classification (see MCL 211.34c of the General Property Tax Act – PA 206 of 1893). The State Tax Commission has prepared a document called Property Classification that outlines the framework for making such decisions. Concerning determinations for the Agricultural property classification, page 5 of the document states, “If the property is in an area of heavy residential or recreational use and the market for agricultural property is limited or nonexistent, the residential classification may be determined as the most appropriate.” It is also the case that the classification can change back to agricultural if conditions and practices warrant so in the future.

If you have questions about your property’s classification contact your local assessor, as indicated on your property tax bill or annual assessment. Also, bear in mind that property classification can differ from property use, which can and often does differ from zoning.

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