The Agricultural Use Assessment

What is the Intent of the Agricultural Use Assessment Law?

Maryland law provides that lands which are actively devoted to farm or agricultural use shall be assessed according to that use. In 1960 Maryland became the first state to adopt an agricultural use assessment law which has proved to be a key factor in helping to preserve the State's agricultural land.

The agricultural use assessment law and its corresponding programs are administered by the Department of Assessments and Taxation. This State agency is responsible for assessing all real property throughout the State and has offices located in the county seat of each of the 23 counties and in Baltimore City. Procedures governing the agricultural use assessment have been established to achieve uniformity among the 23 counties in which agricultural property is located. The Department recognizes the importance of this program to the individual land owner and to the farming community in the State.

The Tax-Property Article of the Annotated Code of Maryland, Section 8-209, provides:

  1. The General Assembly declares that it is in the general public interest of the State to foster and encourage farming activities to:
    1. maintain a readily available source of food and dairy products close to the metropolitan areas of the State;
    2. encourage the preservation of open space as an amenity necessary for human welfare and happiness; and
    3. prevent the forced conversion of open space land to more intensive uses because of the economic pressures caused by the assessment of the land at rates or levels incompatible with its practical use for farming.
  2. It is the intention of the General Assembly that the assessment of farmland:
    1. be maintained at levels compatible with the continued use of the land for farming; and
    2. not be affected adversely by neighboring land uses of a more intensive nature.

While these provisions establish the overall philosophy for the agricultural use assessment program, the law also includes:

  1. ​Specific provisions relating to the criteria to be used in determining whether or not lands qualify for the agricultural use assessment.
  2. Tests to be considered by the assessors.
  3. Situations where the use assessment cannot apply
  4. Application of the agricultural use assessment to woodland.

What the Agricultural Use Assessment Means to the Property Owner?

Although its importance is widely recognized, the actual benefits of the agricultural use assessment are often misunderstood. Because certain risks in the form of potential tax penalties can result from receiving the agricultural use assessment, the property owner should carefully evaluate the actual tax savings against those risks. The following is an outline of one method to determine the actual tax savings that might be realized from the agricultural assessment.

First, it is necessary to understand that a property tax bill is the product of the assessment on the real property multiplied by the property tax rate. This is true for all property tax situations, regardless of whether or not the land receives the agricultural use assessment. Property tax rates are expressed as a certain number of dollars and cents per $100 of assessment. While some cities and towns in Maryland impose a separate property tax rate for property in that jurisdiction, most agricultural land is not found within those boundaries. Thus, for illustration purposes, only the county and state property tax rates will be considered here. Our example will use a typical county rate of $1.00 per $100 of assessment and a state rate of $.132 per $100 of assessment resulting in a combined rate of $1.132.

To determine what tax savings can be realized by receiving the agricultural use assessment, an examination of the level of assessment with and without the use assessment must be made. The actual preferential value of $500 per acre is assigned to acreage within the agricultural use assessment. Land that does not receive the agricultural use assessment will be assessed based on its market value.

Assume that a 100 acre parcel of land has a market value of $3,000 per acre. The total value of the parcel would be $300,000 (100 x $3,000). The same 100 acre parcel receiving the agricultural use assessment based on a value of $500 per acre would be $50,000 (100 x $500). The taxes using a combined tax rate of $1.132 per $100 of assessment would be $566.00 [($50,000 ÷ 100) x $1.132] under the agricultural use assessment and $3,396.00 [($300,000 ÷ 100) x $1.132] under the market value assessment – a difference of $2830.00. This illustration demonstrates the importance of the agricultural use assessment in terms of its tax savings.

What Criteria Are Used to Qualify Land to Receive the Use Assessment?

It must be emphasized that the assessment applies to the land, not to the property owner. The law directs the Department to determine whether or not the land is "actively used" for farm or agricultural purposes and defines "actively used" as "land that is actually and primarily used for a continuing farm or agricultural use." The Department does not concern itself with who owns the land or the income of the property owner (with one minor exception mentioned later). The Department's sole focus is on the nature and the extent of the use of the land.

The primary test used by the Department is directly related to the phrase "actively used”. While the Department has formal regulations and procedures that are used in this determination (Code of Maryland Regulations [COMAR] Title 18 and Maryland Assessment Procedures Manual) which are available to the public, they can be summarized as follows:

    1. The nature of the agricultural activity on the parcel that is subject to the approved agricultural activities defined in COMAR Title 18.
    2. The amount of “actually devoted land” engaged in an approved agricultural activity.
    3. The primary use of the land located on the parcel, non-agricultural v/s agricultural.
    4. Total size of the parcel and its ratio of “associated land” to “actually devoted land” used in the approved agricultural activity.
    5. Amount and type of livestock or poultry located on the “actively used land”.
    6. Acreage in participation in a governmental or private agricultural program such as Conservation Reserve Enhancement Program (CREP).
    7. A parcel that is less than 20 acres that is contiguous to a parcel owned by an immediate family member qualified for agricultural use may be eligible as a “Family Farm Unit”.
      1. Agricultural activity required on the parcel
    8. Parcels being combined as an “Agricultural Land Unit” (ALU) for the purpose of qualifying for the agricultural use.
      1. Not more than 3 parcels of land that are each less than 20 acres in size; located in the same county and under the same ownership. (Parcels less than 3 acres in size must be adjoining to land owned by the same owner and no more than 2 parcels under same ownership within the state may qualify.)
    9. Gross income test derived from the agricultural activity on the parcel of land.

1.    A parcel of land or ALU that is less than 20 acres but greater than or equal to 5 acres may be eligible to meet the gross income test of $2,500 when the extent of agricultural activity is difficult to determine. 

2.    The $2,500 gross income test must be applied when at least 3 acres but less than 5 acres of land are actually devoted in an approved agricultural activity.

3.    Should the Department elect to apply the $2,500 gross income test, it is important that the property owner understand what is required. First, the term "gross income" means gross revenues derived from the agricultural activity only. It excludes other sources of income to the property owner. Hence, the figure to be reported is the total gross revenues received from the agricultural product before subtracting expenses.

4.    The law provides that "...'average gross income' means the average of the 2 highest years of gross income during a 3 year period." This provision was added to recognize special situations such as a drought.

5.    The law provides that the Department may require the property owner to supply evidence of the gross income in the form of copies of sales receipts, invoices, lease agreements, schedule F in tax filing, or other documents. If, the property owner leases the land to a farmer, the rent paid for the land is not considered under the gross income test. Instead, the Department examines the nature of the agricultural activity and determines whether or not that activity would generate an average gross income of $2,500 if the revenues from the sale of the product were received by the owner of the land. A similar approach is taken when the land owner actually does the farming, but does not sell the products.

What Are Some of the Restrictions on Receiving the Use Assessment?

The law is specific regarding those instances when the agricultural use assessment cannot be granted. For example, regardless of the agricultural activity, the land used for a homesite on the farm is not eligible. This principle applies to tenant homesites as well as the primary homesite. Unless obviously larger in size, the homesite is generally deemed to be a minimum of one (1) acre. Whatever the size, the homesite is valued and assessed at its market value as is all other non-agricultural land used in a more intensive use on the parcel.

Another important restriction is land zoned to a more intensive use at the request of the owner or a person who had previously had an ownership interest in the land. If a rezoning occurs at the initiative of the county, the land may retain the agricultural use assessment. If the owner requests the rezoning, the use assessment must be removed.

The law also prevents granting the use assessment to relatively small parcels of land. For example, in the case of farmland, no parcel under three (3) acres in size is eligible unless one of the following conditions are met:

      1. the land is owned by an owner of adjoining land that is qualified to receive the agricultural use assessment and the land is actively used (limited to only two parcels of less than 3 acres in the State and the parcel must have agricultural activity); or
      2. the owner receives at least 51% of the owner's gross income from the active use of the small parcel; or
      3. ​the parcel of less than 3 acres is a part of a "family farm unit." This term means that the owner of a larger farm may separate out of that larger parcel not more than 1 smaller parcel for each immediate family member. These smaller parcels must remain in active agricultural use, they must be contiguous to the larger parcel, and they must be owned by the immediate family member. (parcel must have agricultural activity)

 

The final restriction relates to platted subdivision lots. An ownership is only eligible to receive the agricultural use valuation on a maximum of 5 parcels that are less than 10 acres in size within the same county. In addition, No more than 2 parcels less than 3 acres under the same ownership in the State may qualify for agricultural use.

These parcels must meet the definition of "actively used”. Any number of parcels in the subdivision plat over the maximum of 5 which are under 10 acres in size will be assessed based on the market value.

What Woodland is Eligible to Receive the Agricultural Use Assessment?

The application of the agricultural use assessment to woodland is an important tool in helping to preserve Maryland's forestland. In general terms, there are two categories where woodland may be eligible for agricultural assessment: (1) woodland associated with a farm; (2) tracts of woodland within an approved forest plan. When the woodland acreage is a part of a larger parcel that is determined to be actively used for agricultural purposes, the woodland portion of that acreage may receive the agricultural use assessment when the parcel’s total acreage meets ratio requirements for that region for land that is actively used. In this case, it is generally expected that the primary use of the parcel is for an agricultural activity. If the Department finds that only a small portion of the parcel is actually used for the agricultural activity, the use assessment may be denied.

Woodland tracks of land are also eligible for the agricultural use assessment upon the property owner obtaining a forest management plan and having a minimum of 5 acres of land within that plan. The management plan must be prepared by a professional registered forester and the property owner will be required at certain points in time to submit their compliance with the plan to the Department. The management plan may be one provided by the State Department of Natural Resources pursuant to the Forest Conservation Management Agreement; or a forest stewardship plan recognized by the Maryland Department of Natural Resources developed by a registered forester. Land within a Forest Conservation Management Agreement receives an agricultural land rate of $125.00 per acre and land within a forest stewardship plan receives an agricultural land rate of $187.50 per acre.

More information about the forest management programs may be found by visiting the Maryland Department of Natural Resources' website. Regional brochures about the forest service are also provided by selecting one of the following regions: Western, Southern, Central, or Eastern.

 

CAUTION!

Owners should be mindful that lands being assessed in the Agricultural Use Category could be subject to an Agricultural Transfer Tax at some later date in the event of a transfer, sale, or other action leading to or causing a violation of the agreement as contained in any Letter of Intent that may have been filed in order to receive the Agricultural Use Assessment.

      More detailed information concerning the Agricultural Transfer Tax is available in a separate pamphlet.​