Volume 11 - Opinions of Counsel SBRPS No. 102
Agricultural exemption (gross sales requirement) (community supported agriculture) - Agriculture and Markets Law, §§ 305, 306; Real Property Tax Law, § 481:
Consumer pre-harvest crop payment contracts under a community supported agricultural program may be included in gross sales for purposes of determining eligibility for an agricultural assessment provided those making the payments have no ownership interest in the farm.
We have received an inquiry concerning the agricultural assessment program (Agriculture and Markets Law [AML], Article 25-AA; Real Property Tax Law, § 481). The question is whether moneys derived from so-called community supported agriculture [CSA] may be counted toward the statutory gross sales requirement.
That is, in order to qualify for an agricultural assessment, land must be “used in agricultural production” as that phrase is defined by AML, section 301(4) (AML, §§ 305(1)(a), 306(1)). Generally, agricultural land that is so eligible must consist of “not less than seven acres . . . used as a single operation in the preceding two years for the production for sale of crops, livestock or livestock products of an average gross sales value of [$10,000] or more” (AML, § 301(4)).
The farmer-applicant’s purported agricultural income appears to be derived from sales to local consumers who pay for their crops prior to the start of each growing season and then on a weekly distribution day pick up their portion of the harvest at the farm. Whether such CSA contracts involve the “sale” of a “crop” for purposes of AML, section 301(4), depends upon the nature of the legal relationship created by such agreements between each “shareholder” or “member” and the farmer.
The particular contract provided to us is denominated as a “CSA 2007 Summer Share Application.” {1} The attorney for the landowner/applicant has described the document as a postcard application used by the farm for accepting payments for crops prior to each season.
It is possible that the aforementioned document might be construed as satisfying the following statement in an Article posted on the Internet by the National Agricultural Library of the United States Department of Agriculture concerning CSA agreements:
Growers typically contract directly with customers, who may be called “members,” and who have agreed in advance to buy a minimum amount of produce at a fixed price, but who have little or no investment in the farm itself.
The New York State Department of Agriculture and Markets has described CSA agreements in a similar manner:
Consumers enrolled in a CSA not only receive fresh produce, they also gain satisfaction from being more directly connected to their food source, knowing more about how it was produced. As members, they share in the risks of farming, including reduced harvests due to unfavorable weather or pests, but also reap the bounty during a good season.
(Press Release of April 5, 2007)
Such a categorization of these “pre-harvest payment contracts” might be applicable if the applicant can show that the “postcard agreements” do not create a partnership between the signers and the farmer, notwithstanding the possibility that such signers may not receive any crops in return for their “prepayments” due to weather or infestation (see, the aforementioned Press Release of State Agriculture and Markets). If that is the case, the applicant should be able to provide the assessor with financial or accounting records that document that such contract payments were reported to the Internal Revenue Service [IRS] as part of its income in 2005 and 2006 from the “[s]ales of livestock, produce, grains, and other products you raised” (see, 2006 Schedule F (Form 1040), line 4, which applies when a farm operation, using the “cash method,” reports its annual farm income to the IRS). {2}
“Generally, the burden of proof lies with the taxpayer who is seeking to have a real property declared tax exempt” (New York Botanical Garden v. Assessors of the Town of Washington, 55 N.Y.2d 328, 334, 434 N.E.2d 703, 705, 449 N.Y.S.2d 467, 469 (1982)). Therefore, the applicant has the burden of proving that such agreements constitute an eligible “sale” of a “crop,” rather than a different type of business relationship, such as the payment of a return on a capital investment.
April 23, 2007
{1} This document includes a box where the signer may indicate that “I wish to purchase a share for the 2007 summer season (June-Sept) $500” or, alternatively, a box for the statement that “I wish to purchase a combined summer/winter share (June-Dec) $700.”
{2} However, IRS Publication 225, which is entitled “Farmer’s Tax Guide For [U]se in [P]reparing 2006 Returns,” does not mention CSA “pre-harvest” payments in chapter 3, which discusses “Farm Income.”