HOUSE BILL REPORT

E2SHB 1437

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Brief Summary of Engrossed Second Substitute Bill

Establishes a pilot program in Thurston County under the current use program for home sites on qualifying farms less than 20 acres.
Directs the Joint Legislative Audit and Review Committee to provide a report to the Legislature regarding the impact of the pilot program by December 1, 2018.

Majority Report: The second substitute bill be substituted therefor and the second substitute bill do pass and do not pass the substitute bill by Committee on Agriculture & Natural Resources. Signed by 12 members: Representatives Carlyle, Chair; Tharinger, Vice Chair; Orcutt, Assistant Ranking Minority Member; Condotta, Fitzgibbon, Hansen, Lytton, Pollet, Reykdal, Springer, Vick and Wilcox.

Background:

The Open Space Taxation Act allows for current use valuations of qualifying agricultural land, which includes:

parcels 20 acres and larger devoted primarily to agricultural production;
parcels five to 20 acres that generate gross income from the sale of farm products $200 or more per acre in three of each five-year period; or
parcels that are less than five acres that generate a gross income of at least $1,500 per year in three of each five-year period.

A parcel or contiguous parcels classified as farm and agricultural land in the current use program must be 20 acres or more to receive a reduction in the taxable value of the home site. The housing or residence must be on or contiguous to the current use parcel(s) and integral to the use of the classified land for agricultural purposes. For parcels under 20 acres, the land where the housing is situated is valued at fair market value, while the remainder of the parcel is valued at current use.

Summary of Engrossed Second Substitute Bill:

The housing or residence of agricultural and farm lands at least five acres up to 20 acres located in Thurston county may be eligible for current use valuation if:

the residential structure is on or contiguous to the current use parcel;
the residential structure is integral to the farming operation of the classified land; and
for farm and agricultural land 10 acres or less, the classified land produced a gross income of $10,000 in three of the last five years before application of current use classification.

The Department of Revenue must develop guidance, in consultation with stakeholders, on how the eligibility requirements for current use valuation to the housing or residence that is on or contiguous to and integral to the current use classified agricultural land will be interpreted by July 1, 2014.

By December 1, 2018, the Joint Legislative Audit and Review Committee must provide a report to the Legislature that addresses the impact of extending the current use valuation to the housing or residence on farms less than 20 acres.

Staff Summary of Public Testimony (Agriculture & Natural Resources):

(In support) Smaller farms are the fastest growing sector of farming, and this growth has been reflected in Thurston County. Small farms are participating in programs that provide fresh produce to local schools and food banks, as well as provide local, sustainable food to the community. The biggest challenge to farming is financial. The Legislature has prioritized preserving farm land in the state, but if farms cannot stay in business, then it is in vain. Allowing smaller farms to be eligible for the home site current use valuation is about fairness. Farms under 20 acres should not be treated differently than those 20 acres and larger. Small farms benefit their communities, and one acre of land being taxed at fair market value is a huge burden that is better distributed to the taxing district. Tax shifts happen all of the time. Passing this bill will go a long way to show our small farmers how much we appreciate their work.

(With concerns) Growth management is supposed to support farming. A tax shift puts rural and urban counties at odds with each other. Without additional requirements in place, there may be unintended consequences of home sites being eligible for current use that are not meant to benefit from this bill. Aquaculture should not be categorically excluded from eligibility the home site exemption.

(Opposed) None.

Staff Summary of Public Testimony (Finance):

(In support) This bill addresses equity and fairness in the tax system, and treats farms under 20 acres similar to larger farms. Income requirements are included for small farms to qualify for the current use program. The home site must be integral to the farm. The number of small farms in the United States is increasing. These small farms provide food for farmers markets, are healthy, are good for the environment, and maintain open spaces. Taxes are the highest expense for some small farms. The income requirement should be deleted, and sustainable farming should be encouraged. Back taxes are due if someone removes their property from the program. With populations growing, farmland should be preserved and more food grown.

(In support with concerns) The original bill without the income requirements for farms under five acres is preferred.

(Other) This benefit will not apply to most shellfish growers.

(Opposed) This bill will result in a tax shift to other taxpayers. The wording for the gross income requirements is not clear. It would be useful to study the issue before implementing this change.

Persons Testifying (Agriculture & Natural Resources): (In support) Representative Reykdal, prime sponsor; Leslie Cushman; Nancy Laich; Sandra Romeno, Thurston County Commission; David Muehleisen; Loretta Seppanen, South Sound Community Farm Land Trust; Julie Puhich, Common Ground Farm; Holli Johnson, Washington State Grange; Josh Giuntoli, Washington State Conservation Commission; Jim Groche, Friendly Grove Farms; Tom Davis, Washington Farm Bureau; E.J. Zita, Thurston County Agriculture Advisory Board; and Diane Grace.

(With concerns) Steven Drew, Thurston County; Dianne Dorey, Lewis County; Monty Cobb, Washington Association of County Officials; and Jim Jesernig, Pacific Coast Shellfish and Washington Association of Conservation Districts.

Persons Testifying (Finance): (In support) Representative Reykdal, prime sponsor; Leslie Cushman; Nancy Laich, Common Ground Farm; Lorretta Seppanen, South of the Sound Community Farm Land Trust; Dr. E.J. Zita, Thurston County Agriculture Committee; Holli Johnson, Washington State Grange; July Pulich, Common Ground Farm; Dave Muehleisen, The Evergreen State College; Sandra Romero, Thurston County Board of County Commissioners; and Tom Davis, Washington Farm Bureau.

(In support with concerns) Jim Goche, Friendly Grove Farm.

(Other) Jim Jesernig, Pacific Coast Shellfish Growers.

(Opposed) Dianne Dorey, Lewis County Assessor; and Monty Cobb, Washington Association of County Officials.