Property taxes can feel like an ever-increasing inevitability. And while they certainly aren’t avoidable, property taxes fluctuate year after year based on the same calculations for landlord net income as decided by Kansas state statutes.
During a Kansas State University Agricultural Economics department webinar, professor Allen Featherstone broke down the factors contributing to landlord net income calculations, in hopes of limiting some of those yearly tax frustrations.
“A lot of times there is a paradox between what's been going on with regards to income from land and the property tax appraisals,” Featherstone said. “Sometimes you'll have a situation where farming returns are going down and landlord net income for property tax continues to go up and sometimes you'll have the converse.”
Evaluation & Computation
Landlord net income is determined on a county-by-county basis for both irrigated and non-irrigated cropland, and on a regional basis for pastureland. The main challenge, Featherstone said, is simply obtaining cash rent information for each county, a task accomplished by the National Agricultural Statistics Service.
“Basically it's done on a share income perspective, so it's the share of net income from various land classes normally received by the landlord,” Featherstone said. “The net income normally received should be determined by deducting expenses normally incurred by the landlord from the share of gross income normally received by the landlord.”
There are a few key guidelines for ingredients that contribute to landlord net income.
• Yields are adjusted by soil quality normalized to the county average
• The crop mix is made up of crops with 5% or more of the total planted acres across the county
• Government program payments and crop insurance proceeds and expenses are excluded
Currently land rent data within the above guidelines is combined in an eight year moving average. The type of average used is significant because coming legislation could propose a change from a moving average to a simple average, he said.
“What’s currently done is basically an eight year average of an eight year average because yields are so variable from year to year and from county to county,” Featherstone said. “Essentially, the previous eight years are used in an eight year average for the return to the landlord and the thought behind this is to essentially have more of a smooth process.”
Currently, the moving averages places weight on the middle years in the group to help stabilize overall property tax numbers and allow easier budgeting for county-funded entities likes schools.
The full calculation protocol for Kansas counties is contained in K.S.A. 79-1476.
Year-End LNI Summary
Data collected by the Kansas Farm Management Agency helps reveal the changes in landowner net income and property tax values across Kansas counties.
Featherstone gave a basic example of Barton County, where landowner net income values decreased by 1.7% from 2019 to 2020, with landowner net income moving from $46.10 per acre to $45.33 per acre.
“We were pretty high approaching 11% [increase] from 2014 to 2015, but since then, with no other peak years, you're seeing this thing level out,” Featherstone said. “The last year of increase in Barton County was 2018 to 2019, where there was a 1.3% increase.”
Pastureland saw an across the board increase with costs in every region but west central Kansas going up.
“One of the things you can end up seeing is that from 2020 to 2021 all, but the west-central increase,” Featherstone said. “You see a pretty high percentage increase in the Southwest, but I think it's important to remember that from 2019 to 2020, you are moving from a $0.26 to $1.75 at a 573% increase and the 2020 to 2020 increase is only 29.7%.”
Featherstone said big percentage jumps like the pasture increase in the southwest are typically explained by small numbers of rented ground in those areas as well as low overall prices.
The full webinar can be watched at https://agmanager.info/news/recent-videos/property-valuation-ag-land-kansas-webinar. For county level year-end contact a local Kansas State Farm Management office.