Volume 8 - Opinions of Counsel SBEA No. 70
Agricultural exemption (agricultural production requirement/gross sales requirement) (Dairy Termination Program); Farm structures and buildings exemption (generally) (effect of participation in Dairy Termination Program) - Agriculture and Markets Law, §§ 305, 306; Real Property Tax Law, § 483:
Where a farmer participates in the Federal Dairy Termination Program, eligibility of land and buildings for agricultural value assessments and farm structures and buildings exemptions is contingent upon the property continuing to be used for agricultural production following the liquidation of the dairy operation.
Monies received from the Federal government as part of the Dairy Termination Program for non-production of milk may not be used to satisfy the $10,000 average gross sales requirement of Article 25AA, but monies received from the sale of the dairy herd may be counted toward that requirement.
Pursuant to the Food Security Act of 1985 (Public Law No. 99-198), commonly known as “The 1985 Farm Bill”, the Federal government instituted a “Dairy Termination Program” with the purpose of revitalizing aspects of the nation’s agricultural industry. We have been asked how participation in this program would affect entitlements to real property tax exemptions with respect to land receiving an agricultural value assessment pursuant to the Agricultural Districts Law (Article 25AA of the Agriculture and Markets Law) and with respect to buildings receiving a farm structures and buildings exemption pursuant to section 483 of the Real Property Tax Law (RPTL).
The “Federal Dairy Termination Program” is designed to limit milk production. In order to participate in the program, a dairy farmer must submit to the United States Department of Agriculture a bid which approximates the lower volume and price per/hundred weight of milk sold during either the twelve month period beginning July 1984 or the twelve month period beginning January 1985. If accepted, the Federal government will pay the farmer the total bid amount.
The farmer has numerous options in receiving payment, the most protracted of these being payment of one fifth of the total bid amount in equal installments over five years. In return, the farmer must sell his herd to a non-governmental entity for slaughter or for export within one of three specified six-month periods and may not engage in dairy farming for the next five years. The farmer is not barred during this time, however, from engaging in other agricultural activities, including the raising of beef cattle.
Agricultural Districts Law: requirements
The Agricultural Districts Law provides that certain “land used in agricultural production” is eligible to receive an agricultural value assessment, which may result in a partial exemption from real property taxation (Agriculture and Markets Law, §§ 305, 306; 9 NYCRR 194.10). Pursuant to section 301(3) of the Agriculture and Markets Law, land is considered to be used in agricultural production if: (1) it consists of ten acres or more; (2) it was used in the preceding two years to produce for sale crops, livestock or livestock products, generating an average gross sales value of at least $10,000 per year (regardless of whether $10,000 is actually earned in each of the preceding two years); and (3) it is located within an established agricultural district or subject to an eight year commitment to continued agricultural production.
Rented land may also qualify for an agricultural value assessment if it satisfies the above requirements or if: (1) it consists of ten acres or more; (2) it has been used for the production for sale of crops, livestock, or livestock products (exclusive of woodland products) for the preceding two years {a}; (3) it is being used under a rental agreement of five or more years in conjunction with other land which has been determined to qualify for an agricultural value assessment; and (4) it is located within an established agricultural district or subject to an eight year commitment to continued agricultural production (Agriculture and Markets Law, § 301(3)(a),(b)). All requirements must be satisfied annually, in each year for which the agricultural value assessment is sought.
Qualification for an agricultural value assessment: analysis
Before considering the effect that the Federal Dairy Termination Program may have on those farmers who participate in the agricultural value assessment program, it is first necessary to consider the aims of the State and Federal programs. The purpose of the New York program, as stated in section 300 of the Agriculture and Markets Law, is “. . . to conserve and protect and to encourage the development and improvement of its agricultural lands for the production of food and other agricultural products” (emphasis added). Thus, in order to be eligible for an agricultural value assessment, land must be used for the production of agricultural products (Agriculture and Markets Law, §§ 301(3), 305, 306). Since “[i]t is basic that a statute or legislative act is to be construed as a whole and that all parts of an act are to be construed together to determine . . . legislative intent”, the conclusion is inescapable that the New York State Legislature chose to implement its purpose by encouraging production of agricultural products (North Eastern Fruit Council v. State Board of Equalization and Assessment, 124 Misc.2d 67, 475 N.Y.S.2d 1010, 1012 (S.Ct., Albany County 1984), aff’d 115 A.D.2d 139, 495 N.Y.S.2d 925 (3d Dept., 1985), mot. for lv. to app. den. 67 N.Y.2d 603 (1986), citing McKinney’s Cons. Laws of NY, Book 1, Statutes, § 397; see, Transcript of N.Y.S. Senate Proceedings, 5/25/71, pp. 4327-4329). In contrast, the Federal program seeks to achieve its purpose by prohibiting production for a period of time.
It is apparent that Congress and the Legislature of New York State have chosen incompatible means to achieve similar ends. In the absence of legislative amendments to State law, participation in the Federal Dairy Termination Program may jeopardize real property tax exemptions otherwise available to farm lands and farm buildings under New York law.
For example, the Federal Dairy Termination Program leaves the participating farmer the option of abandoning the land or converting it to a non-agricultural use. If a farmer does either, no agricultural value assessment may be granted, because the land would no longer be considered to be used for the production of crops, livestock or livestock products (Agriculture and Markets Law, § 301(3); 9 NYCRR 194.1(k),(r)). Furthermore, if the land were actually converted to a non-agricultural use, additional tax liability would be incurred. {b}
However, the Federal Dairy Termination Program also allows the participant the option of using land for any non-dairy agricultural operation. There is no requirement under New York law that otherwise eligible farm land be used to produce the same agricultural product from one year to the next in order to qualify for an agricultural value assessment, and tax exemption statutes cannot be interpreted to include requirements where none clearly exist (Erie County Agricultural Society v. Cluchey, 40 N.Y.2d 194, 352 N.E.2d 552, 386 N.Y.S.2d 366 (1976)). Therefore, if the land is used for the production of other agricultural products, that land may be considered to be used for the production of “crops, livestock or livestock products” within the meaning of the Agricultural Districts Law.
Whether land participating in the Federal Dairy Termination Program will continue to receive an agricultural value assessment, or incur conversion liability must depend upon satisfaction of the requirements of the Agricultural Districts Law without consideration of Federal goals. Any determination as to whether participating land is used for agricultural production is, in the first instance, the decision of the assessor.
In addition to the issue of land use, there is the matter of whether payments made to farmers by the Federal government under this Program may be used to satisfy the $10,000 average gross sales requirement. The Agricultural Districts Law requires that agricultural products be “produc[ed] for sale” without further specification (Agriculture and Markets Law, § 301(3); 9 NYCRR 194.1(k)). Monies paid to farmers by the Federal government pursuant to this Program represent payment for the non-production for sale of agricultural products, and maintenance of land in a non-productive state, contrary to the requirements of State law. Therefore, such payments may not be used to satisfy the $10,000 average gross sales requirement.
We reach a different conclusion, however, with respect to the proceeds of the private herd sales conducted as part of this Program. Although the herd was originally intended to be used for the production of milk for sale, State law provides that income from the sales of other agricultural products subsequently produced on the land may also be used to satisfy the $10,000 requirement. Accordingly, proceeds from these herd sales may be used to satisfy the average gross sales requirement.
Farm structures and buildings exemption
Section 483 of the RPTL provides an exemption from real property taxation for qualified farm structures, as defined in subdivision 3 of that section, to the extent of their improvement value to real property, where the following requirements are satisfied;
1. the structures are essential to the operation of at least five acres of land which has been devoted to agricultural or horticultural production for profit for the preceding two years; and
2. the owner has filed an application for the partial exemption with the appropriate assessing unit on or before taxable status date and within one year of the completion of the construction or reconstruction of the structure.
Although the requirements for the farm structures exemption and those for an agricultural value assessment must be satisfied independently, our conclusion regarding agricultural production and potential penalties for conversion for purposes of the Agricultural Districts Law also apply to the farm structures exemption statute. Therefore, a farm structures exemption would continue if the buildings continue to be used in connection with at least five acres of land used for some commercial agricultural production during the preceding two years. If, because of the operation of the Federal Program, the buildings were no longer used in conjunction with commercial agricultural production, but neither the structures nor the land were actually converted to a non-agricultural use, no rollback liability would be incurred, but the section 483 exemption would be terminated. (Unlike the rollback penalties of the Agricultural District Law, the rollback penalties for purposes of section 483 extend to the entire period of the exemption (see, 4 Op.Counsel SBEA No. 119).)
In conclusion, whether participation in the Federal Dairy Termination Program affects the eligibility of farm land or buildings for exemption, or liability for conversion penalties, will depend upon how the owner uses the property once participation in this Program begins. However, as noted, Federal payments pursuant to this Program may not be used to satisfy the $10,000 average gross sales requirement.
Because the qualifications of the agricultural value assessment program and the farm structures exemption are independent of each other, it is possible that the taxable status of the land and buildings will differ, as a result of participation in the Federal Dairy Termination Program.
February 28, 1986
{a} We have construed section 301(3)(b) not to require an actual sale of agricultural products because this section was specifically designed to allow rented land used by a lessee to grow feed for his own dairy operation to qualify for an agricultural value assessment (Guide to the Agricultural Value Assessment Program (SBEA) (January, 1985), p. 27).
{b} If the land is located within an agricultural district, a “rollback tax” equal to the amount of taxes actually saved during the preceding five years on the converted portion is imposed (Agriculture and Markets Law, § 305(1 )(d); 9 NYCRR 194.15). If the land is subject to an eight year commitment, conversion of any part of it to a non-agricultural use will subject all of the land subject to the commitment to penalties equaling twice the taxes payable in the year following the conversion without the benefit of the agricultural value assessment (Agriculture and Markets Law, § 306(2); 9 NYCRR 194.16).
What constitutes a conversion is the same whether the land is in an agricultural district or subject to an eight year commitment; the liability is the only thing that differs. Land which has never actually received the benefit of an agricultural value assessment, regardless of its inclusion on an application, has never received any benefit from the program. Thus, there should be no liability in the event of a conversion. Also, no liability is incurred where land is involuntarily converted to a non-agricultural use (not including tax sales) or used for oil or gas extraction, development or exploration (see, 6 Op.Counsel SBEA No. 66).