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Property taxes and the fenced out

by Susan Simons

HUERFANO- The Code of the West covers just about all the surprises in store for people who have moved from the city to the country and bought rural land outside municipal boundaries.

Another source of advice comes through CSU Extension agent, Jim Conley,  who generally offers a Small Acreage Workshop once a year to help new rural landowners anticipate surprises.  There is also a publication called the Rural Living Handbook published by the Turkey Creek Soil Conservation District.  Despite all those excellent resources, more could and probably should be said to new landowners about property taxes on rural land.

    According to Louise Sandoval, Huerfano County Assessor, it could save a lot of confusion and financial upset if people planning to buy rural land researched property tax issues as a part of their real estate search.

    I know I’ve spent almost two years since my purchase of fenced-out agricultural land trying to figure out exactly what my taxes would be if I lost agricultural status.  The land I bought was fenced out from my sub-division’s grazing lease and the owner had ag status because she raised sheep and sold the wool.  To keep ag status, land must be continually used for ag purposes. I had two years to establish ag classification

    I heard from one source that taxes would only increase by about $100 without ag status.  Another source warned me that taxes would increase ten times.  One source told me that I could fence out cattle from as much as 40 acres of my land and not lose ag status.  Another told me I could fence out only five acres. 

    When the letter finally came warning me that I would lose the ag status I inherited when I bought the property, I was still pretty confused about what this might mean.  The most important thing I found out is that the Assessor’s Office is willing to work with all landowners and it’s the only place where you can get accurate information about your situation. Information can also be found at the Division Of Property Taxation:  http://dola.colorado.gov/dpt/index.htm.

    Colorado is an open-range state, so rural landowners who do not want cattle on their land have to fence them out.  Most of the rural sub-divisions that have developed as the big ranches sold out have grazing lease agreements with a local rancher.  The rancher grazes his cattle on that land, taking responsibility for the health of the land and of the cattle.  The homeowners generally own around 35 acres and fence out up to five acres around their home and outbuildings.  The rest is available for grazing.

    This arrangement gives the homeowners agricultural status which means their land is valued at a reduced rate based on its carrying capacity or productivity as a farm or ranch.  For example, with ag status, my land is valued at $10.45 an acre based on how many cattle it can carry.  Without ag status, it is valued at $645 an acre based on its market value within an 18-month window of time.  The present window will be updated Jan. 1, 2009.

    There are three classes which apply to farm or ranchland:  vacant, agricultural, or residential.  Vacant and agricultural land are assessed at 29% of the value while residential land is assessed at 7.96% of value.  The value of my land with ag status is much lower than its market value.  So even though it is assessed at 29% of its value rather than at 7.96%, my taxes will be lower.  In my case, taxes will be lower by about $120 dollars with ag status, but depending on where I lived, they could be several thousand dollars lower.  The formula for figuring the property tax is: value per acre x the number of acres x the percent applied to that land x the mill levy.

    To qualify for ag status, a farm or ranch must produce crops or livestock for profit.  The profit must “equal or exceed one-third of the total gross income resulting from all uses of the property during any given property tax year.”  Two exceptions are the following:  forested land being harvested for timber and land being rested for conservation.

    I was able to keep agricultural status by signing an independent grazing lease with a nearby rancher, but if I had lost the ag classification, I would not have been able to restore it again for another two years.  I had some anxious days and weeks trying to understand the ins and outs of this process.  At one point, I thought I could no longer afford this property; at the same time, I couldn’t afford to sell it in today’s market.

    Property taxes fund the schools and various county services.  These are listed on the tax notice each year.  The Huerfano County version of the Code of the West www.huerfanocounty.org/codeofthewest.htm reminds rural taxpayers that the amount they pay in taxes does not cover the services they receive.

    “Even though you pay property taxes to the county, the amount of tax collected does not cover the cost of the services provided to rural residents.  In general, tax revenues derived from oil and gas production, commercial, industrial, agricultural and forest uses and activities in the County subsidize the lifestyle of those who live in the country by making up the shortfall between the cost of services and the revenues received from rural dwellers.”