Taxes and Revenue
Sand Creek is an example what Wyoming Department of Revenue chief Ed Schmidt calls “hybrid land transactions.” The trouble is, such critters are new to Wyoming, and more particularly, to Wyoming tax assessors.
Most Wyoming ranches, even family ranches, run on a corporate structure. Individual homes on a ranch, called “farmsteads,” are part of the corporation, but are taxed separately from the land itself. The house is taxed at fair market value; the land is taxed at its productive value. Thus, a rancher typically pays two different sets of taxes to the county: one for his/her farmstead and one for the ranchland.
Jenkins says he used similar economics to calculate what each shareholder would pay in taxes if they bought into the Sand Creek Conservation Community: One tax rate for the lot and house, another rate for the agricultural land.
Jenkins’ idea was that since each buyer would own one-ninety-ninth of the ranch, the homes would qualify as “farmsteads.” They would be valued at fair market value, but the tax assessed on them would be at a rate lower than “rural residential.”
Jenkins’ plan for “hybrid” land development is not unique.
The idea is gaining popularity among rural planners in areas surrounding growing urban centers. Larimer County, Colorado, through its Rural Land Use Center, gives landowners in the Fort Collins area a number of incentives to keep open space when developing property. Brenda Gimeson of the Rural Land Use Center explained that Larimer County deviates from its standard zoning formula–which allows agricultural rates for developments with only four houses per 35 acres–if the developer will cluster, or use “special spacing,” for the lots and commit the rest of the property to open space for 40 years.
Typically in such a plan, the developer creates fewer total lots with the houses closer together than counties normally allow. He can usually charge more for the lots, however, because they are associated with the open-space benefits of views and legroom.
In Larimer County this hybrid development results in two tax classifications and two tax bills.
“The single family dwelling are taxed as ‘rural residential,’ the common areas or protected open space is taxed as agriculture,” Gimeson said.
Johnson County assessor Dottie Elsom doesn’t see Sand Creek that way. She sees it as an upscale housing project whose owners owe one tax bill–for a rural residential property.
Elsom has worked in the assessor’s office for nearly 49 years. She is petite, polite, but decidedly feisty. She is well-known and much respected for her hard work and her big heart through county’s economic ups-and-downs during the repeated cycles of boom and bust.
The difference between Elsom’s assessment and Jenkins’s own estimate of the valuation of the Sand Creek Conservation Community is $15.5 million.
In 2007, Elsom valued Sand Creek Ranch at $551,164: $484,714 for various agricultural lands, and $56,901 for residential land improvements.
In 2008, Elsom valued the same property at $17,425,809. The reason for the difference was that Elsom added $16,668,531 for 99 empty, platted residential lots.
The difference between Jenkins’ idea of taxing the lots alone as “farmsteads” and Elsom’s idea of taxing lots-plus-ranch-share as “rural residential” is substantial. “Farmsteads” in Johnson County are valued for tax purposes at $4,030 per acre; “rural residential” valuations in subdivisions near Sand Creek range from $17,159 to $26,133 per acre. Elsom classified each one-acre lot in Sand Creek and its attached right to the ranch land, as “rural residential” and based the value on the sale price: $169,000.
This assessment made Sand Creek’s tax bill jump from $4,000 in 2007 to $120,000 in 2008. While each of the owners must pay the tax on their one-acre lot and a 1/99th share of ranch, the rest of that burden falls on Jenkins and his wife, Carol.
“That’s about $100,000 per year,” said Jenkins.
Jenkins called Elsom’s assessment “a fiction” and appealed the county’s 2008 assessment to the Board of Equalization, Wyoming’s tax court. He lost the first round at the local board in December 2008, and appealed to the State Board of Equalization, which heard argument on July 7. The decision is pending.
Jenkins also filed a lawsuit in district court against Elsom and the Johnson County Commissioners, alleging discrimination. He contends that while Sand Creek may have 99 owners, it still qualifies as a ranch under the Wyoming constitution and should be taxed as such.
Jenkins’ lawyer, Wyoming First Lady Nancy Freudenthal argued that use of the land is key.
“The constitution looks to the use of the land,” she said, referring to the Uniformity of Assessment clause of the Wyoming Constitution, which states that agricultural and grazing lands “shall be valued according to the capability of the land to produce agricultural products under normal conditions.”
“It has nothing to do whether you’re wearing cowboy boots or loafers,” she said.
Elsom disagrees. To her, the key issue under the law in force in 2008 is whether the land is platted into a subdivision.
“The law is very clear,” she said. “You cannot have agriculture in a platted subdivision. I cannot legally allow agricultural rates in this platted subdivision.”
Jenkins made his disagreement with Elsom fairly clear in an op-ed piece in the Casper Star-Tribune, in which he called Elsom’s assessment of Sand Creek “bizarre tax theory.”
As in most tax protests, it’s the amount of the tax bill, not the classification, that bothers Jenkins.
“I’ve calculated that Dottie Elsom’s assessment on Sand Creek’s 856 acres is more than [the assessment on] the ten largest ranches in Johnson County combined,” he said.
Elsom got her figure by adding up the purchase prices to arrive at a $168,639 assessment for each shareholder. (She disqualified Jenkins and his wife’s two lots from consideration for market value.)
Elsom said she had no alternative, because in Wyoming “fair market value” is derived from previous sales.
Property taxes–which include ad valorem levies on mineral production–are the principal source of revenue for Wyoming counties. If mineral tax revenues fall, as they have statewide in the past year, taxes on other kinds of property become even more important.
In a rapidly changing market, meanwhile, technology and training for county assessor’s offices can be crucial. State legislators are currently trying to figure out how well and how fairly property taxes are assessed around the state. Underfunded counties, of course, can have trouble getting new technology and training for their tax officials.
In Johnson County, both ranch owners and residential real estate agents have complained about the “obsolete system” at work in the assessor’s office, and its limited ability to deal with the county’s changing property values. They have argued that funds already set aside should be used to bring the office’s current systems up to date. The county seems not to give upgrading the office high priority, instead focusing on the needs of the jail.
Elsom’s office made the front page of the local paper, the Buffalo Bulletin, the first week in August when state Rep. Mike Madden (R-Buffalo) went to Elsom to see why his property assessments had risen. He did not come away satisfied.
“Either her office would not, or could not, provide the sales that were used to calculate my home value,” Madden told the Bulletin.
He, too, went before the local Board of Equalization, which supported Elsom.
“Since they refused or were unable to tell me which properties were being used [to calculate his assessment], I walked out of there a total cynic,” Madden said.