Property Taxes for Agriculture: Use-Value Assessment and Urbanization Across the United States

Abstract

We analyze the spread of use-value assessment (UVA) programs applied to agricultural and rural land for property tax purposes across the 50 states. Taxing such land on the basis of its current use in agriculture rather than its full market value can confer significant property tax reductions on owners of the land. Effects are often substantial for land near large urban areas. Using a time-to-event model, we find, as others have posited, that a driving force behind the spread of UVA has been the secular trend toward urbanization across all 50 states. We also find that models of collective action do a good job of explaining the spread of UVA. Urbanization and divergence of the values of agricultural and nonagricultural land are critical to the spread of UVA. However, other important factors include changes in average farm size and changes in agriculture's share of state income. We find that in states where average farm sizes increased more rapidly, legislatures were quicker to adopt UVA. That finding is consistent with an increased concentration of agricultural interests. We also find that states where agriculture's share of state income declined more rapidly also were quicker to adopt UVA. That finding, too, is consistent with models of collective action. As groups become smaller, the burden of subsidizing them also falls. Note that although the findings are consistent with models of interest group behavior, they are at odds with traditional voting models.