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.
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.
Tax-Property Article of the Annotated Code of Maryland, Section 8-209,
these provisions establish the overall philosophy for the agricultural use
assessment program, the law also includes:
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
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:
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.
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.
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
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.
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
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,
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.
301 W. Preston St., Baltimore, MD 21201-2395