Oregon Tax Court, Magistrate's Division
2006 WL 212105
Jan. 17, 2006
This case involves a dispute over whether or not plaintiffs’ 15-acre parcel of land qualifies for the exclusive farm use zone (EFU). This court holds that it does not. EFU requires utilizing tillable land or pastureland for the primary purpose of obtaining a profit in money. While allowing land to lie fallow for a year can be a part of responsible farming, this decision should be done before the dispute, not after.
Text of Opinion
Plaintiffs appeal Defendant's disqualification of their property from the farm deferral program for the 2005-06 tax year. Trial in the matter was held September 1, 2005. Sherry Meyer (Meyer) appeared on behalf of Plaintiffs. Darlene K. Lufkin (Lufkin) appeared on behalf of Defendant.
I. STATEMENT OF FACTS
The subject property is an approximately 15-acre parcel of land located in an exclusive farm use (EFU) zone. Four to five acres is tillable land ("tillable land") with the remaining acreage used as pastureland ("pastureland"). Historically, Plaintiffs have farmed the property by raising cows, horses, and chickens and growing hay, alfalfa, and barley. Plaintiffs sold the livestock and hay to interested individuals. On the property is a barn in which Plaintiffs store their hay. Meyer testified that they had four tons of hay stored in 2000 that largely remains there today. In June 2000, Plaintiffs moved to Phoenix, Arizona. They returned to Oregon in April 2004. During that time period, from 2000 through 2003, Plaintiffs' nephew, Mison Rooper (Rooper), cared for the property. He grew hay each year and ran four head of cattle on the pasture for another individual. He earned $800 caring for the cattle and purchased himself a steer with that money. In April 2004, upon Plaintiffs' return, Plaintiffs sold 10 bales of their hay. The cattle Rooper cared for were no longer on the property. In the summer of 2004, the property became overgrown with weeds. Plaintiffs tilled the five acres of tillable land three times to completely till under the growth. Plaintiffs had hoped to plant again in the spring of 2005, but were unable to do so due in large part to the dry winter and the lack of funds. In May 2005, Plaintiffs again sold 10 bales of hay. Plaintiffs also boarded a pleasure horse from April 2005 to June 2005. Meyer testified that they had to remove the horse because a cougar was running on the property and causing problems for area animals.
Plaintiffs replowed the five acres again this past summer and intend to plant next spring. Upon their return in 2004, Plaintiffs intended to run cattle on their property. However, the auction yard in The Dalles was no longer selling cattle and, as a result, Plaintiffs were exploring ways to purchase cattle on the internet. Unfortunately, due to the current problem with the cougar, Plaintiffs are delaying any purchase of cattle at this time.
In April 2005, Lufkin visited the property and observed no farming activity taking place. As a result, on May 11, 2005, Defendant sent Plaintiffs notice that the county was disqualifying their property from farm use special assessment. The notice advised Plaintiffs that 10 years of taxes in the amount of $7,622.64 would be listed as a potential additional tax on their account and appear as a lien on the property. Plaintiffs appeal the disqualification claiming they have a history of farming the property and plan to continue farming the property in the future. They further argue that it is inequitable to charge them 10 years worth of taxes when their farming activity was at a reduced level only in 2004.
Under ORS 308A.062(1),
FN4. All references to the Oregon Revised Statutes (ORS) are to 2003.
"[a]ny land that is within an exclusive farm use zone and that is used exclusively for farm use shall qualify for farm use special assessment under ORS 308A.050 to 308A.128." If the county assessor discovers EFU land is no longer being used as farmland, and no exception to the requirement applies, the assessor must disqualify the land from special assessment. See ORS 308A.113(a). Upon such disqualification, a penalty is assessed under ORS 308A.703(2).
The definition of exclusive farm use is twofold. First, the land must be "currently employed" in one or more enumerated farming activities. ORS 308A.056(1).
"(a) Raising, harvesting and selling crops;
" * * * * *
"(d) Stabling or training equines, including but not limited to providing riding lessons, training clinics and schooling shows;
" * * * * *
"(g) Preparing, storing or disposing of, by marketing or otherwise, the products or by-products raised for human or animal use on land described in this section; or
"(h) Using land described in this section for any other agricultural or horticultural use or animal husbandry or any combination thereof."
Second, the farming activity must be engaged in for the "primary purpose of obtaining a profit in money." Id. The court will address the tillable parcel and the pastureland separately.
Historically, Plaintiffs' activities on the tillable land qualify as a farming activity under ORS 308A.056(1) because, by plowing, growing, and selling hay, they were "[r]aising, harvesting and selling crops" and "storing [or] disposing of * * * the products or by-products raised for * * * animal use." ORS 308A.056(1)(a), (g). The questions remaining are whether the land was "currently employed" in those activities and whether that employment was for "the primary purpose of obtaining a profit in money."
In Everhart v. Department of Revenue, the Tax Court stated that "use of the word 'current' refers to the present use of the land and suggests that the past or future use is largely irrelevant." 15 OTR 76, 79 (1999). The court went on to state that "the law ignores the past, and any intentions with regard to future use." Id. at 81. Here, Plaintiffs have used the tillable land in the past to grow hay, alfalfa, and barley, and Plaintiffs intend to plant crops on the tillable land in the future. Neither activity occurred in the year prior to the January 1, 2005, assessment date. Accordingly, the court finds that Plaintiffs did not currently employ the tillable land for farm use.
Even were the court to conclude that the tillable land was currently employed during the tax year in question, that current employment must be for the "primary purpose of obtaining a profit in money." ORS 308A.056(1). As the court held in Everhart, a taxpayer need not actually make a profit when the land in question is EFU, but the taxpayer must "engage in farm activities with the primary purpose of obtaining a profit." 15 OTR at 80. The court further stated that "[it] is also clear the legislature viewed bona fide farms as those farms that produced products or crops sold on the open market" and that "[s]mall operations such as raising pigs for family use or a few pigs to trade with a neighbor or some other product or service do not qualify." Id.
Here, Plaintiffs' activities on the tillable land amounted to plowing the land in August 2004 with the intent to plant in the spring of 2005 and selling 10 bales of hay to a single purchaser. Plaintiffs did not use the tillable land to actually grow hay or other crop to be sold on the open market. Plaintiffs further did not engage in any operations other than a small scale sale of 10 bales of hay grown in 2000. As a result, Plaintiffs were not using the property for the primary purpose of obtaining a profit.
Plaintiffs argue that they have a history of raising cows, horses, and chickens on the pastureland and, therefore, the property has a farm use. However, as already discussed, the court does not consider the past use of the property when determining whether a property qualifies for special assessment. Instead, the court looks to the current employment of the land.
Plaintiffs claim they are currently engaged in the "stabling [of] equines," which is an allowable farm use under ORS 308A.056(1)(d). In Ameral v. Department of Revenue, a case in which the plaintiff also boarded a horse on his property, the Tax Court held that "it is not the activity of the taxpayer, as lessor, that is relevant [in determining whether a parcel qualifies for special use assessment] but the activity of [the lessee]." 14 OTR 56, 60 (1996). The court went on to hold that "[t]he pasturing of pleasure horses is not a farm use." Id. Here, as in Ameral, the horse boarded on the pastureland was a pleasure horse.
Even were the court to conclude otherwise, the court in Ameral held that "[t]he 'day-to-day activities' rather than a few months each year must be directed at achieving a profit." Id. (citing Beddoe v. Dept. of Rev., 8 OTR 186, 190-91 (1979)). Like Plaintiffs here, the plaintiff in Ameral boarded the horses for only two to three months each year. Accordingly, boarding of the horse for two to three months does not qualify the pastureland for special use assessment.
B. Exceptions to the EFU requirement
Under ORS 308A.056(3), even if farmland is not being used for one of the enumerated activities in ORS 308A.056(1), it is still considered to be currently employed for farm use when it is lying fallow. Fallow land is "currently employed" in a farm use if it is "lying fallow for one year as a normal and regular requirement of good agricultural husbandry." ORS 308A.056(3)(b). "Letting land lie fallow is not an excuse, but a decision to be made before, not after the fact." Jenkins v. Dept. of Rev., TC No. 3544, WL 468070 at *2 (Aug 24, 1994). Here, Plaintiffs stated that they intended to plant crops on the tillable land in 2005, but were unable to do so due to drought and lack of funds. Consequently, if the tillable land is lying fallow, it is only by accident and not due to a "decision made before * * * the fact." Id.
C. Disqualification Penalty
"(2) Following a disqualification * * *, an additional tax shall be added to the tax extended against the land on the next assessment and tax roll, to be collected and distributed in the same manner as other ad valorem property tax moneys. The additional tax shall be equal to the difference between the taxes assessed against the land and the taxes that would otherwise have been assessed against the land, for each of the number of years determined under subsection (3) of this section.
"(3) The number of years for which additional taxes shall be calculated shall equal the lesser of the number of consecutive years the land had qualified for the special assessment program for which disqualification has occurred or:
"(a) Ten years, in the case of exclusive farm use zone farmland * * *."
ORS 308A.706 provides, in pertinent part:
"(1) Notwithstanding that land may have been disqualified from special assessment, the additional taxes described under ORS 308A.703 shall not be imposed and shall remain a potential tax liability if, as of the date the disqualification is taken into account on the assessment and tax roll, the land is any of the following:
"(a) Disqualified exclusive farm use zone farmland * * * that:
"(A) Is not being used as farmland; and
"(B) Is not being used for industrial, commercial, residential or other use that is incompatible with a purpose to return the land to farm use.
" * * * * *
"(2) In any case where the additional tax is deferred under the provisions of this section but may subsequently be imposed under ORS 308A.712, the county assessor shall continue to enter the notation 'potential additional tax liability' on the assessment and tax roll."
which, in the case of EFU land, imposes a penalty in the form of an additional tax equal to the difference between the taxes assessed against the land and the taxes that would otherwise have been assessed against the land for the last 10 years. ORS 308A.703(2), (3). That is the manner in which the penalty was calculated here. However, that penalty will not be imposed and will only appear as a potential tax liability if the land is not used for any purpose incompatible with farm use. ORS 308A.706(1)(a), (2). If Plaintiffs begin farming again next year as planned, the parcel can requalify for special assessment. It is only when the land is used for purposes incompatible with farm use that the penalty will cease to be a potential liability and will be imposed. ORS 308A.712(2). See also Douglas County v. Dept. of Rev., 316 Or 383, 387-88 (1993). Plaintiffs claim it is inequitable to assess back taxes for 10 years. However, that is the state of the law and the court must enforce the law as written. Any arguments about fairness are better addressed to the legislature.
The court concludes that, on January 1, 2005, Plaintiffs were not engaged in the current employment of either the tillable land or pastureland for the primary purpose of obtaining a profit in money. Now, therefore,
IT IS THE DECISION OF THIS COURT that Defendant's disqualification of the property identified as Account 7385 for the 2005-06 tax year is affirmed.
If you want to appeal this decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301- 2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of the decision or this decision becomes final and cannot be changed.
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