"The Farmland Assessment Act subsidizes property owners who keep land undeveloped, but not fallow."

It's not often that a state policy to promote open spaces matches up with a property owner's need to reduce expenses, but under the Farmland Assessment Act, that's precisely what occurs.  This Act provides a subsidy to all property owners who would keep land undeveloped, but not fallow.  

Recently, a large corporate property owner retained a property tax law firm to advise them regarding the potential for tax savings on an improved industrial site of more than 100 acres.  Although the site contained a several hundred thousand- sf building, the law firm suggested that a significant amount of the excess land could be leased to a farmer.  As a result, the assessment on this land would decline by more than 95%.  This is an opportunity many other property owners could take to lower their property taxes.

Under New Jersey law, any property is entitled to a farmland assessment if the property devotes five or more acres to farming.  At the same time, a qualified plan of farming must be approved in advance.  A farmland assessment can be granted for agricultural, lumbering, horse and sheep farming, and other horticultural purposes.

An application for farmland assessment must be filed by August 1st of the pre-tax year.  The land must be in active horticultural or agricultural use for two years prior to being considered for farmland assessment.  Thus, if an owner begins farming on a property today, it should be eligible for farmland assessment in the 2006 tax year.

The statute also requires minimum income standards.  The land designated as farmland must generate at least $500 for the first five acres, and then $5 an acre for any additional acreage.  

Reduced levels of assessment come with farmland, typically $500 to $1,500 per acre.  There have been situations where, without the farmland assessment, the land would be assessed at $250,000 per acre.  Notwithstanding that value, if any portion of the land is being farmed in accordance with the statute, a farmland assessment is required.

The law does not require the property to look like a typical farm.  An owner of a 12,000-sf Georgian colonial manor located on 8.5 acres recently litigated a farmland case, the property consisted of a grand manor house, swimming pool, pool house and significant patios and driveways.  The owner was strongly involved in creating a horticultural farm where various flowers and shrub cuttings throughout the property were actively marketed.  The shrubbery beds and flower beds were not placed in any regimented manner that made the stand out.  Rather, anyone viewing the estate saw it as just any other elaborate residential mansion.

The Tax Court determined that the intent of the farmland assessment law had been met even though the "horticultural farm" appeared to be an estate.  As long as five acres were actively farmed in accordance with the statute, the intent of the state legislature in preserving open land meant a farmland assessment was appropriate.  Thus, the taxes on the land devoted to horticulture were reduced more than 95%.

These cases are important because they demonstrate how laws invoked to carry out public policy can be used by homeowners as well as corporate owners.  Any time a developer or owner has land that is not currently being devoted to a specific use, that land could be set up for a farmland assessment.

Owners don't need to farm the land themselves.  They can lease the land to a third party farmer who would be responsible for meeting the farming obligations of the law.  As long as the property is being farmed for two consecutive years, and more than five acres is being farmed, the statute mandates that a farmland assessment should be applied.  This would allow owners of all types of industrial and commercial property with excess land the opportunity to significantly reduce the land taxes that they are currently paying, even if there is an existing improvement on the property.

There is, however, a caveat.  When farming ceases on the property, the farmland assessment is rescinded, not only for the year of cessation, but for two prior years as well.  The design of this "roll back" provision ensures that farms and open land are preserved whenever possible.

In a state like New Jersey, where every sf is often coveted for some development, the Farmland Assessment Act promotes a vital public policy.  The fact that owners and developers can take financial advantage of it makes it even more worthwhile.

John Garippa is the senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair, New Jersey and Philadelphia. He is also the president of American Property Tax Counsel, the national affiliation of property tax attorneys and can be reached at john@taxappeal.com