An agricultural appraisal lowers the taxable value of land. The lands agricultural valuation is based on its general capacity to produce crops, livestock, wildlife or timber rather than its value on the real estate market. In order to determine what the savings is for an ag exemption, you need to know the market value of the land and the productivity value for agricultural usage. In Hays County there are 12 land classes, the lowest of which is waste land ($9.80 per acre) up to Orchards ($561.40 per acre). The most common is Native Pasture which is $73 per acre (2011). To qualify for native pasture you must have at least enough land for 3,000 pounds or 3 head of livestock to exist on the land for 9 months per year. The Hays County 2010 tax rate on valuation is $2.0645 per $1,000 market value.
If you have 20 acres and then subdivide it into 5 acre tracts, each new owner is responsible for establishing their particular land usage (ag or not). It could be that if they build a home on the land and run 3+ head of cattle they have 1 acre taxed at market value, and 4 acres taxed at native pasture value if they can qualify for an ag exemption. It is possible for the new owner to avoid the 5 year rollback tax (roughly $1,000 per acre or $5,000) even if they do not fully qualify by continuing some form of ag usage.
The appraisal method known as Open-Space or Section 1-d-1 land, requires the land, not the landowner, to qualify. The owner’s occupation, business and sources of income are irrelevant.
According to the statutes, there are three primary requirements for receiving the exemption.
• The land must be currently devoted principally to agricultural use to the degree of intensity generally accepted in the area.
• The land has been devoted principally to agricultural use or production of timber or forest products for five of the preceding seven years.
• The owner files a prescribed form provided by the appraisal office with the chief appraiser before May 1 with all the necessary information to determine the validity of the claim. For good cause, the chief appraiser may extend the filing deadline 60 days. To assist the chief appraiser, the statute contains an extensive definition of agricultural uses that qualify for openspace appraisal. Without going into detail, the definition contains the following:
• planting and producing crops,
• raising or keeping livestock or exotic animals,
• devoting the land to floriculture, viticulture and horticulture,
• producing or harvesting logs and posts for agricultural improvements
• wildlife management.
After the application is received and all relevant information reviewed, the chief appraiser must:
• approve the application and permit the appraisal as open space,
• disapprove the application and request additional information or
• deny the application.
None of the information accompanying the application must be kept confidential. If the application is approved, the chief appraiser places the land in the category to which it is principally devoted. The categories include, but are not limited to, irrigated and dry croplands, native and improved pastures, orchards and wastelands. The categories may be further divided according to soil type and capability, general topography, geographic features and other factors influencing productivity. The chief appraiser then appraises the categorized land using an income capitalization approach. This involves a two part process. First, the net average annual income for the preceding five years must be determined based on what the land category would have earned had ordinary, prudent management practices been employed. The calculation includes income from hunting and recreational activities. Second, the five-year net average annual income is then divided by a capitalization rate for the appraised tax value. The capitalization rate is the greater of 10 percent or the Farm and Credit Bank of Texas interest rate on December 31 of the preceding year plus 2.5 percentage points. Also, the chief appraiser appraises the land at its market value and places this figure in the appraisal records. If the lands use changes, an additional tax equal to the difference in the two appraisals will be assessed on the current owner for the five years preceding the land-use change. In addition, interest at an annual rate of 7 percent will be imposed on the additional taxes due on a year-by-year basis. Consequently, the additional tax due five years ago will be subject to the 7 percent interest five times but without compounding. The taxes and interest are payable by the next February 1 occurring 20 days after the bill for the additional taxes is delivered to the present owner. To secure the payment, a tax lien attaches to the land on the date the land use changes. This is commonly referred to as the five-year open-space tax rollback even though the statute never uses the term “rollback” and even though reversion covers six years, the present plus the past five.