(Editor’s Note: The following
article was prepared by a team of
Penn State agricultural
economists, Donald Peter
H. B. Norton ’and William M.
Carroll.)
A referendum on the ballot for
the May 15, 1973 primary elec
tion, if supported by a majority,
will result in an amendment to
Pennsylvania Constitution which
will authorize the General
Assembly to establish standards
and qualifications for agriculture
reserves and land actively
devoted to agricultural use, and
make special provision for tht
taxation of agricultural land.
Possible Effects On
farmers’ tax bills.
A study conducted at The
Pennsylvania State University
examined some possible effects
of use-value assessment of far
mland on the tax burden of
farmers. The study, which was
summarized in the October 1972
issue of Farm Economics, lead to.
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The Farm Land
the conclusion that in the short
run there will be great variation
in impact between counties and
between farms within any given
county. There were 170 farms
studies in 8 different counties of
Pennsylvania. The study looked
at what would happen to the tax
bill of each of these farms if it
were assessed according to a
hypothetical use-value
assessment system, similar to
the one used in New Jersey.
If this use-value assessment
were introduced for farmland
without any changes in the
assessment of other properties or
any changes in the tax rate, the
effect on farms would vary
considerably. One farm in the
study would pay only 2 percemt
of the present tax bill if it were
„ assessed according to
agricultural value. Another farm
would pay 482 percent more than
the present taxes. The average
change in the amount of taxes
paid per farm ranged from a
in
I r * \ ,• f *
decrease of about $360 for Bucks
County farms to an increase of
over $l,OOO per farm in Lan
caster County. Most of the farms
studied in the area near
Philadelphia would experience
decreases in their taxes, although
some did show an increase under
the conditions assumed by the
study. In other areas of the state
most farms would experience an
increase in taxes if use-value
assessment were used. This
indicates that present farmland
assessment is below agricultural
value in many areas of the
Commonwealth.
A more recent analysis of
farmland sales in all counties of
the Commonwealth in 1970 and
1971 shows that farmland is
presently assessed at a smaller
percentage of its market value
than is residential property in 52
of our 67 counties. Agricultural
land is assessed at a significantly
lower ratio than commercial
property in 45 counties. It seems
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Tax Issue
likely that reassessment in
counties such as these would
result in increased farmland
assessments. In some cases use
value assessment may reduce the
taxes paid for farmland after
reassessment that ' would
otherwise have an increase in its
assessment.
Participation might
be voluntary.
If the constitutional amend
ment is approved, the effect of
any Agricultural Use-Value
Assessment Act that the
legislature might pass would
depend on whether use-value
assessment was voluntary with
the individual farmer or whether
it was mandated throughout the
Commonwealth. If participation
is voluntary, the farmer who sees
that his taxes would increase if he
participated would be unlikely to
join. Another variation that
might be considered is that of
allowing individual counties to
choose whether they participate
or not. Those counties where it
would be of benefit to a
significant number of individuals
might participate whereas other
counties might delay their
participation. The important
thing to note is that the effect
may vary depending on the type
of actual law passed if the
amendment is approved.
. Agriculture accounts
for relatively small share.
For the Commonwealth as a
whole, agriculture accounts for
over 818-million dollars of real
estate assessment - about 4
percent of the total assessed
value of taxable properties in the
Commonwealth (see Table 1).
Thus, even though agriculture is
an important industry in Penn
sylvania, it accounts for a
relatively small portion of the
total .taxable real estate in the
Commonwealth. Residential,
commercial, and industrial
properties each account for a
larger portion of the total base.
This percentage varies from one
county to another. No county,
however, has more than one-third
of its assessment in agricultural
land. Most of the leading
agricultural counties have less
than 10 percent of their real
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>rM 2171973 —
•state assessment base in
igriculture.
The counties where
agricultural use-value
assessment might result in lower
tax payments for farmers are
principally in the Philadelphia
area. If the reduced assessment
found in the sample of farms in
the Penn State study were to hold
true for all farms in the county, it
is possible to calculate the
reduction in property tax base
that would result. For the three
counties in the Philadelphia
area (Bucks, Montgomery, and
Chester), such a change would
result in a reduction in tax base of
less than 1 percent in Mon
tgomery County, about 2 percent
in Chester County, and about 3
percent in Bucks County. The
variation between townships and
school districts within a county
may show that some would have
a greater reduction in their
property tax base while others
would have less than the county
average. In any case, the
amounts involved are relatively
small when compared to the total
assessment base of the county.
The effect of use-value
assessment in reducing the tax
base might be even further
lessened if the particular
assessment procedure passed by
the Legislature included a tax
roll-back 163110*6. Under these
provisions any property that
switches from agricultural to
non-agricultural use would pay a
penalty to the municipality
equivalent to the reduction in
taxes for a specified number of
years, usually somewhere bet
ween three and five years. This
roll-back tax payment reduces
the tax-base reduction that
comes about through agricultural
use-value assessment. Again, it is
very important to note that
differences in possible acts that
might be enacted by the
Legislature makes it difficult to
predct an exact effect of such a
program.
General conclusions
It is possible, however, to make
some general conclusions on the
basis of evidence available. (1) It
(Continued on Page l\2)
11