(Replaced by STC Bulletin 4 of 1997)

This version of STC Bulletin.10 of 1995 has been modified to facilitate posting to the web.

State Tax Commission Bulletin 10 of 1995

February 23, 1995

Qualified Agricultural Property

TO: Assessing Officers

Equalization Directors

FROM: State Tax Commission

RE: "QUALIFIED AGRICULTURAL PROPERTY" EXEMPT FROM 18 MILLS OF LOCAL "SCHOOL OPERATING"LEVY

Act No. 237 of the Public Acts of 1994 was signed by Governor Engler on June 30, 1994 with immediate effect. This act covers many aspects of the qualified agricultural property exemption from the 18 mills of local school operating taxes. The Qualified Agricultural Property millage exemption must not be confused with the "homestead" exemption which may apply to some agricultural properties which are used as primary residences or are adjacent to primary residences.

This bulletin addresses those aspects of the act which deal with the provisions effecting the administration of the exemption for Qualified Agricultural Properties only. State Tax Commission Bulletin 12 of 1994 addressed aspects of the Act which deal with the provisions affecting the operation of the July and December Boards of Review.

"Qualified Agricultural Property" is defined in Act No. 237 as follows:

"Qualified agricultural property" means unoccupied property and related buildings classified as agricultural, or other unoccupied property and related buildings located on that property devoted primarily to agricultural use as defined in section 2 of the farmland and open space preservation act, Act No. 116 of the Public Acts of 1974, being section 554.702 of the Michigan Compiled Laws. Related buildings include a residence occupied by a person employed in or actively involved in the agricultural use and who has not claimed a homestead exemption on other property. Property used for commercial storage, commercial processing, commercial distribution, commercial marketing, or commercial shipping operations or other commercial or industrial purposes is not qualified agricultural property. A parcel of property is devoted primarily to agricultural use only if more than 50% of the parcel's acreage is devoted to agricultural use. An owner shall not receive an exemption for that portion of the total state equalized valuation of the property that is used for a commercial or industrial purpose or that is a residence that is not a related building.

The following is the definition of "agricultural use" from section 2 of Act No. 116 of the Public Acts of 1974 which is referred to in the definition above:

"Agricultural use" means substantially undeveloped land devoted to the production of plants and animals useful to man, including forages and sod crops; grains and feed crops; dairy and dairy products; livestock, including breeding and grazing; fruits; vegetables; Christmas trees; and other similar uses and activities.

It should be noted that this definition of agricultural use does not require that the property be classified as agricultural.

In this bulletin, qualified agricultural properties will be divided into 2 groups. The first group consists of those properties which are classified by the assessor as agricultural. The second group consists of those properties NOT classified as agricultural.

The main differences between the two are:

1. Properties NOT classified agricultural must be devoted primarily to an agricultural use.
2. Owners of property NOT classified agricultural must file an affidavit (Form T-1063) with the local assessing unit by May 1 in order to qualify.

1. Property Classified as Agricultural

Unoccupied property and related buildings which are classified on the assessment roll as agricultural as of May 1 shall be exempt from the 18 mills of local school operating tax. This includes property assessed to the department of Natural Resources which is classified as agricultural.

Related buildings include a residence occupied by a person employed in or actively involved in the agricultural use if that person has not claimed a homestead exemption on other property.

NOTE: Property is NOT required to be contiguous to the homestead in order to qualify for this exemption. Land is NOT disqualified when it is being leased or rented.

Qualified Agricultural Property does NOT include the following:

1. Property which have already been granted a "homestead" exemption.
2. Buildings on the property unrelated to the agricultural use.
3. Residences on the property occupied by persons who are NOT employed in or actively involved in the agricultural use.
4. Residences on the property occupied by persons who claim a homestead exemption on other property.
5. Property used for:

1. commercial storage
2. commercial processing
3. commercial distribution
4. commercial marketing
5. commercial shipping
6. any other commercial or industrial purpose.

If a property which is classified agricultural includes one or more of the uses described in #1 to #5 above, it will be necessary for the assessor to estimate the percent of the value of the property which qualifies for the exemption. This percentage is calculated by dividing the value which qualifies for the exemption by the total property value.

When the assessor thinks that a property might include structures which do not qualify for the exemption, the assessor may mail a copy of the affidavit (Form T-1063) to the property owner.

1. Property NOT Classified Agricultural, But Devoted Primarily to Agricultural Use as Defined in PA116 of 1974

Unoccupied property and related buildings which are NOT classified as agricultural on the assessment roll bur ARE devoted primarily to agricultural use, as defined below, are exempt from the 18 mills of local school operating tax provided an affidavit (Form T-1063) is filed with the local assessing unit by May 1 of the current year. A property is "devoted primarily to agricultural use" when it meets the 50% Test described later in this section.

Related buildings include a residence occupied by a person employed in or actively involved in the agricultural use if that person has not claimed a homestead on other property.

NOTE: Property is NOT required to be contiguous to a homestead to qualify for this exemption. Land is NOT disqualified when it is being leased or rented.

The following is the definition of agricultural use as found in section 2 of Public Act (PA) 116 of 1974.

"Agricultural use" means substantially undeveloped land devoted to the production of plants and animals useful to man, including forages and sod crops; grains and feed crops; dairy and dairy products; livestock, including breeding and grazing; fruits; vegetables; Christmas trees; and other similar uses and activities.

This definition of "agricultural use" does NOT include growing timber or any commercial or industrial use. "Agricultural use" DOES include land used for growing nursery plants and bedding plants including green houses used for this same purpose. A greenhouse used primarily for marketing plants is not an "agricultural use."

PA 237 of 1994 states that a property is devoted primarily to agricultural use if more than 50% of the parcel's acreage is devoted to agricultural use. IF 50% OR LESS OF THE ACREAGE IS DEVOTED TO AN AGRICULTURAL USE, NONE OF THE PROPERTY QUALIFIES FOR THE EXEMPTION.

EXAMPLE OF 50% TEST:

In order for an 80 acre parcel to pass the 50% test, MORE than 40 acres must be used for an agricultural use. If only 38 acres are being used for agricultural use and the remaining 42 acres are being used for other uses such as commercial, industrial or growing timber, NONE of the property would qualify for the exemption.

Once a property passes the 50% test, the assessor must then consider whether the property gets a 100% exemption or less than 100%. The following uses do not qualify for exemption and would cause the exemption to be less than 100%.

1. Property which have already been granted a "homestead" exemption.
2. Buildings on the property unrelated to the agricultural use.
3. Residences on the property occupied by persons who are NOT employed in or actively involved in the agricultural use.
4. Residences on the property occupied by persons who claim a homestead exemption on other property.
5. Property used for:

1. commercial storage
2. commercial processing
3. commercial distribution
4. commercial marketing
5. commercial shipping
6. any other commercial or industrial purpose.

If a property which is devoted primarily to an agricultural use includes one or more of the situations described in #1 to #5 above, it will be necessary for the assessor to estimate the percent of the value of the property which qualifies for the exemption. This percentage is calculated by dividing the value which qualifies for exemption by the total property value.

THE FILING OF THE ATTACHED AFFIDAVIT FORM (Form t-1063) IS REQUIRED FOR PROPERTIES WHICH ARE NOT CLASSIFIED AS AGRICULTURAL. The assessor does have the authority and the duty to deny an exemption if he/she has reason to believe that the property does not qualify even though the form has been filed. The assessor may also use a qualifying percentage of value different from what is reported on the affidavit.

1. (Form T-1063) Affidavit Form for Claiming Qualified Agricultural Property Exemption

There is a difference in the procedure required by PA 237 regarding the filing of the affidavit form for properties classified by the assessor as agricultural versus those not classified as agricultural.

The owner of property classified as agricultural is not required to file an affidavit form claiming the exemption from the 18 mills unless requested to by the assessor.

The assessor may request the owner to file an affidavit form to determine whether the property in question includes structures that are not exempt under the law. Please see part "A" of this bulletin for a listing of these type of structures.

2) Property NOT Classified Agricultural

The owner of property not classified by the assessor as agricultural is required by PA 237 to file an affidavit in order to receive the exemption for qualified agricultural property.

Starting in 1995, this form must be filed by May 1.

3) Assessor Retains Qualified Agricultural Forms

The assessor should keep the affidavits filed for the qualified agricultural property exemption. THE QUALIFIED AGRICULTURAL AFFIDAVIT FORM (T-1063) SHOULD NOT BE SENT TO THE MICHIGAN DEPARTMENT OF TREASURY.

1. Form for Rescinding the Exemption (Form T-1072)

If all or a part of exempted property is no longer qualified agricultural property, the owner shall rescind the applicable portion of the exemption by filing a rescission form with the local assessing unit. This form must be filed not more than 90 days after the property or a part of the property is no longer qualified.

Beginning October 1, 1994, an owner who fails to file a rescission form is subject to a penalty of $5 per day up to a maximum of $200. The count of days for the penalty starts 90 days after the property is no longer qualified.

The penalty of $5 per day shall be collected by the Revenue Division of the Michigan Department of Treasury and shall be deposited in the state school aid fund. This penalty may be waived by the Department of Treasury.

 

1. Appeal Procedures For Qualified Agricultural Property Exemption

1. March Board of Review

 

The 1995 March Board of Review DOES have the authority to consider and act on appeals regarding the exemption for qualified agricultural properties for 1995 but may not reach back and adjust the 1994 Qualified Agricultural Property Exemptions. If an assessor believes that a property for which an exemption has been granted in a previous year is not qualified agricultural property in a current year, the assessor is obligated to deny or modify the exemption. If so, the assessor must notify the owner in writing and mail the notice to the owner not less than 10 days before the second meeting of the Board of Review. A taxpayer may appeal the assessor's determination to the March Board of Review. The Board of Review's decision may then be appealed to the Residential and Small Claims Division of the Michigan Tax Tribunal by June 30 of the current year.

As stated above, the assessor has the authority and the duty to deny or change the percentage of the property exempted. The Board of Review has this same authority. See parts "A" and "B" of this bulletin for an explanation of situations which would cause a property to receive less than 100% exemption.

The March Board of Review has NO authority to act upon a prior year's exemption.

1. July or December Boards of Review

Properties which meet the requirements of the qualified agricultural property exemption as of May 1 of a current year shall be exempted by the assessor from the 18 mills starting with the current year's tax bills.

1. If the assessor denies a current year's (1995) exemption because the property does not qualify as of May 1, the assessor must notify the owner of the denial and state the reason for the denial and inform the owner of his or her rights to appeal to the July or December Board of Review. The owner may appeal the denial to the July Board of Review if there is a summer levy or to the December Board of Review.
2. An owner of property that is qualified agricultural property on May 1 of the current year who claims to have filed an affidavit but does not receive the exemption on the current tax roll may appeal to the July 1995 or December 1995 Board of Review.

The July or December Board of Review has NO authority to act upon a prior year's exemption. For example, the 1995 July or December Boards of Review can't reach back and correct a 1994 Qualified Agricultural Property Exemption.

An owner or assessor may appeal a decision by the July or December Board of Review regarding an exemption for "qualified agricultural property" directly to the Residential and Small Claims Division of the Michigan Tax Tribunal as provide for in MCL 211.53b(5) within 30 days of the Board of Review action.

Legislation is pending that would give the July and December Boards of Review the authority to correct 1994 errors regarding Qualified Agricultural properties.

1. Term of Exemption Thru 1998 Unless Rescinded

The qualified agricultural property exemption shall exempt property from the local school operating tax (usually 18 mills) through the 1998 tax year or until December 31 of the year in which an owner rescinds the exemption.

Owners of Qualified Agricultural Property will be required to file new claims for exemption in 1999 and every 4 years thereafter.