Stflirtf#. 1974
Tax Relief
I Continued from Page 1|
amendment in the 1973
primary election. If HB 1056
isn't signed into law this
year, it’s very likely that
more counties will be signing
up for Act 515.
Briefly, Act 515 requires a
farmer to sign a covenant
with the county, agreeing to
keep his land in agriculture
for 10 years. In return for
signing the covenant, the
farmer receives a tax break.
Shirk presented a purely
hypothetical example of the
tax break that might be
granted to a farmer. “Say
your old assessment was
$3OO an acre and your tax
rate was 40 mills. Your new
assessment might be $lOOO,
your millage might be 25 and
your tax would be $25. Under
Act 515, you might get that
assessment lowered to $6OO
which, with your 25 mill tax
rate, would mean a tax bill of
$l5 an acre, or a $lO saving.”
The philosophy behind
preferential tax treatment
for farmland is that fanners
in developing areas are
penalized by higher taxes
when their property values
go up. Although the property
may increase in value, it
doesn’t actually mean more
money in the farmers’
pockets, because they can
still only realize as much
farm income as the land is
capable of producing. Laws
such as Act 515 allow
municipalities to tax far*
mland on the basis of its
value as farmland, rather
than on its potential value as
a development site.
In return for this tax
break, the farmer must
agree to keep his land in
agriculture. If he should
decide to sell his land for
development or other non
agricultural use, he can do so
but he must pay a penalty.
The penalty is equal to the
amount of the taxes not paid
while under the covenant,
plus 5 percent interest
compounded annually.
Although the life of the
covenant is 10 years, the
penalty will never exceed the
amount of taxes saved in the
five years previous to the
sale, plus interest.
“A lot of farmers have said
they aren’t going to sign up
because they don’t like the
idea of having to pay a
penalty,” Shirk told the
audience. “But they’ve got
nothing to lose by signing up.
If they don’t sign up, they’ll
pay the higher tax rate,
anyway. If you sell your land
before the fifth year, you just
pay the taxes you would have
paid anyway, plus interest.
If you sell after the sixth
year, you still only pay the
difference for five years,
plus interest, which means
Associate Chester County Agent Glenn Shirk made
Act 515 tax relief provisions clear to a crowd of about
200 on Tuesday night at the Owen J. Roberts High
School.
you had a lower tax bill for
one year. And anything over
six years means an even
bigger savings. Selling after
10 years, for example, would
mean that you had a five
year tax break.”
Shirk pointed out that the
tax break could be an im
portant management tool.
“If you’d pay $2OOO under
regular tax rates, and $lOOO
under the Act 515 rate, you’d
have an extra $lOOO a year to
work with.
“And if you do sell”, Shirk
continued, “the extra taxes
and the interest you pay are
completely deductible. If you
sold the farm to another
farmer, you wouldn’t have to
pay any tax penalty at all. I
think it’s important to think
about these penalties in a
rational way, because they
aren’t that severe. The idea
of penalty gets a lot of
pebple upset, but I think
they’d feel better if they’d
reason it out a little more.”
One important feature of
Act 515, Shirk noted, is that
any parcel of land may be
excluded from the covenant.
For example, if a farmer is
planning to build a
retirement home or a house
for a married child, he can
exclude enough land for a
building lot. He’ll pay a
higher tax on that small
portion of the land, but when
the use of that portion of land
changes, he won’t be liable
for a penalty on his entire
farm.
hi order to qualify for Act
515, a fanner must have a
minimum of 20 acres in
agriculture. Other uses
which will also qualify are 25
acres of forest land, 10 acres
of water supply land or a ten
acre area of’ other open
space.
Shirk said landowners
could get fonns and more
information from the
Chester County Board of
Assessment Appeals,
Courthouse, Room 517, West
Chester, Pa. 19380. The
phone number there is 215-
696-9100, extension 213.
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