Indiana encourages the development of farmland through a “developer’s discount,” whereby a developer can purchase the land, hold it for future development, and continue to pay property taxes based on the typically much lower base rate assigned to agricultural land.  On Friday, the Tax Court affirmed that the discount applied to land for the 2008 tax year even though it was not actively farmed on the date of assessment.   In Hamilton County Assessor v. Allisonville Road Development, LLC, the developer owned vacant land that was farmed before its acquisition by prior developers in the 1990s (a developer is a “person that holds land for sale in the ordinary course of the person’s trade or business”).   The Assessor changed the land’s property class from an agricultural to a commercial land classification for the 2002 tax year.  Allisonville Road Development (ARD) later bought the land and contested its assessment, arguing that the re-classification violated the developer’s discount statute, Ind. Code § 6-1.1-4-12.  ARD claimed that the statute prohibited a reassessment based on a new classification until the land was subdivided, rezoned, purchased by a non-developer, construction of a building commenced or a building permit was issued. 

In its final determination (the subject of the Tax Court appeal), the Indiana Board of Tax Review observed that the land could be reassessed based on a new classification if, among other things, there was a change in the land’s use.  But a cessation of farming activities was not a change in use justifying reassessment.  The Assessor argued that a different statute (Ind. Code § 6-1.1-4-13) allowed land to be assessed as agricultural only when it is “devoted to agricultural use.”  In addition, ARD’s land had been used for commercial purposes since it was originally sold to commercial developers and all active farming operations ceased.  According to the Assessor, a change in use was “nothing more than a change in ownership and potential use.”  Slip op. at 6 (emphasis in original).

The Assessor “missed the big picture” of the developer’s discount.  Slip op. at 5.  The statute was “designed to encourage developers to buy farmland, subdivide it into lots, and resell the lots.” Slip op. at 6 (quoting Aboite Corp. v. State Bd. of Tax Comm’rs, 762 N.E.2d 254, 257 (Ind. Tax Ct. 2001)).  That is the “bedrock purpose” of the statute, which as a whole “promotes commercial development by allowing a developer’s land to be assessed on the basis of its original (i.e. its pre-purchase) classification until an objective event signaling the commencement of development occurs.”  Slip op. at 6.  Cessation of farming activities followed by the land’s non-use “does not necessarily evidence the imminence of commercial development.” Slip op. at 7.  The Court noted that land may lie fallow but remain agricultural.  The Indiana Board’s final determination was not erroneous.  The Court also observed that the developer’s discount essentially acted as an exception to the statute that land must be devoted to agricultural purposes to be assessed as farmland.  Slip op. at 7. n.8.