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Current Use Tax Penalties Could Soon Change Under Proposed Bill

January 26, 2012

Owners of agricultural and forest land enrolled in Vermont's Current Use program may see changes in the amount of taxes they will have to pay when they sell or develop their property. This farm is located on the Alderbrook Road in Coventry. Photo by Christopher Roy

MONTPELIER – Property owners involved in Current Use may soon pay a different amount if they decide to take their property out of the program. The bill is now in the Vermont Senate Committee of Rules. The House approved the bill last year.
Current Use is a tax system for working agricultural and forest land. Property owners enrolled in the program pay taxes on the productive value- instead of the market value - of their land. The productive value is usually much less. Other Vermont taxpayers pick up the slack “one way or the other,” said Bill Johnson, Director of Property Valuation and Review for the Vermont Department of Taxes.
About 17,000 parcels of land are enrolled in the program The land represents over a third of the land in Vermont, Johnson said. As part of the program, the state places a lean on the enrolled property to ensure penalties are paid when the owner withdraws from the program or develops the land. 
“The penalty right now is based on the pro-rated value of the property that’s either been developed or you want to get the lean off of,” said Johnson. “If it’s the entire property, then it’s either 10 or 20 percent of the listed value, depending how many years the property was enrolled in the program.”
The penalty is 20 percent for property enrolled for less than 11 years and 10 percent for land enrolled for greater than 10 years. The state imposes the penalty only for the land taken out of the program and not the entire parcel. 
However, if the bill passes, instead of the tax being assessed at a pro-rated value of the portion that is being developed, it would be based on the fair market value. 
“When you go from a tax based on the pro-rated value to a tax based on the full market value, suddenly the basis for the tax increases by a significant amount, particularly when you’re talking about a portion of the property and not the whole property,” said Johnson. 
The bill, as it is written now states, “If the property has been continuously enrolled by the same owner for fewer than 12 years, the tax rate shall be ten percent. If the property has been continuously enrolled by the same owner for 12 to 20 years, the tax rate shall be eight percent.
If the property has been continuously enrolled by the same owner for over 20 years, the tax rate shall be five percent.”
According to Johnson, the penalty for 50 acres enrolled in the program for more than 12 years and valued $50,000 would be $4,000. Under the current law, the penalty would be $1,000.
“The penalty would be four times as large,” Johnson said. On the other hand, if someone wanted to pull an entire parcel worth $100,000, they would face a harder penalty now than they would under the proposed law. “There are people who are concerned that the penalty that now is constituted, and most of the time when it comes due it’s due to a subdivision of the property where a portion of the property is developed, not the entire property, but a portion. The great majority of times that is what’s happening now. Especially when you get beyond the tenth year when the penalty drops down under current law to 10 percent, the penalty is not particularly onerous. The concern is that it is not a sufficient hindrance to the development of the property.”
The idea to some extent, said Johnson, was to slow down the development of property to a degree. However, that is not the case and people can easily pay the tax off and develop portions of the property. Johnson said there are a lot of people who are concerned that the current use tax program is not doing what it’s supposed to do.
The bill also gives an easy out: “Properties that were subject to this revised penalty could get out under certain conditions or at least during a window of time and have a penalty calculated base on current law before they would have to go and have the penalty calculated based on the new law,” Johnson said.

 

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