The Kentucky Department of Revenue (“Department”) recently issued an opinion in which it discussed the definition and applicability of certain Kentucky statutes that relate to “agricultural use” valuation for real property tax purposes. The Department was prompted to do so by the Property Valuation Administrator (“PVA”) of Fayette County, David O’Neill, after several articles in the Lexington Herald-Leader questioned how agricultural use valuation was applied in Fayette County. In its opinion, the Department states that over the years, it has improperly advised PVAs on the method for assessing agricultural property.

The Kentucky Constitution permits agricultural or horticultural land to be valued differently than other real property. In 1992, the Kentucky General Assembly passed HB 585, which altered some of the requirements for land to be valued as agricultural or horticultural. In particular, landowners were no longer required to provide proof of income from any land claimed as agricultural or horticultural. Because of this, PVAs across Kentucky were, as the Department put it, “left with slim legal footing from which to refute a landowner’s claims that their property has the ‘potential’ to be used for agricultural or horticultural purposes, even when no such activities are likely to occur.”

KRS 132.010(9) requires that the land at issue be at least 10 acres to qualify for the agricultural valuation and 5 acres to qualify for the horticultural valuation. Under certain circumstances, PVAs would permit this 5 or 10 acres to include a house or other improvements. In its opinion, the Department has articulated the position that acreage including a dwelling house cannot be included in the 5 or 10 acre minimum. Because of this, a number of taxpayers who live on a lot that is 5 or 10 acres or less but that includes a dwelling house may discover that their property taxes will increase in the coming years.

The Department also announced that it did not believe “grandfathering” to be appropriate for taxpayers who had previously had their property valued as agricultural but who stand to lose that valuation under the new opinion.

Taxpayers should review their property tax records to determine if they qualified for this valuation in the past. The Department has cautioned that “unless sufficient acreage is added to the parcel,” taxpayers with a dwelling house on properties whose acreage was on the cusp of qualifying for the reduced agricultural or horticultural valuation will lose this valuation status. Taxpayers aggrieved by the changes in these valuation procedures may wish to challenge their future property tax assessments. As of yet there has been no new legislation passed in the General Assembly to codify the Department’s opinion.