HOUSE BILL REPORT

E2SHB 2493

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.

Floor Activity:

Passed House: 2/17/14, 98-0.

Senate Amended.

Passed Senate: 3/7/14, 47-1.

House Concurred.

Passed House: 3/11/14, 98-0.

Passed Legislature.

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 13 members: Representatives Carlyle, Chair; Tharinger, Vice Chair; Nealey, Ranking Minority Member; Orcutt, Assistant Ranking Minority Member; Condotta, Fitzgibbon, Hansen, Lytton, Pollet, Reykdal, Springer, Vick and Wilcox.

Background:

All property is subject to a property tax each year based on the property's highest and best use, unless a specific exemption is provided by law. The Washington Constitution authorizes agricultural, timber, and open space lands to be valued on the basis of their current use rather than fair market value.

The Open Space Taxation Act (Act) allows for current use valuations of qualifying farm and 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 agricultural products of $200 or more per acre in three of each five-year period;
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; and
lands whose use is compatible with agricultural purposes, so long as the compatible use lands do not exceed 20 percent of the land classified for farm and agricultural use, and the compatible use is necessary to the production, preparation or sale of an agricultural product.

In 2013 the Legislature passed Engrossed Substitute Senate Bill 5882, which established certain conditions on the creation of new tax preferences. A default expiration date of 10 years for new tax preferences is required, unless the legislation specifies an alternate date. All new tax preference legislation must include a tax preference performance or legislative intent statement. Legislation that clarifies or makes technical amendments to existing tax preferences is not subject to the tax preference performance or legislative intent statement requirements.

Summary of Engrossed Second Substitute Bill:

Land used primarily for commercial horticulture is included within the definition of the farm and agricultural land use classification. Commercial horticulture practices which qualify for farm and agricultural use classification include the indoor or outdoor growing of trees, fruits, vegetables, and other plants in containers.

Commercial horticulture lands used to grow plants in containers must meet certain conditions in order to qualify for the farm and agricultural land use tax classification:

Parcels that are smaller than 20 acres must meet the same income qualifications that apply to other lands that are classified for farm and agricultural uses.
Lands smaller than five acres do not qualify if more than 25 percent of the land is open to the general public for on-site retail sales.
Lands used for the storage, care, or selling of plants purchased from other growers for resale do not qualify for the farm and agricultural land use tax classification.
If more than 20 percent of commercial horticulture lands are covered by pavement, the paved area does not qualify for farm and agricultural land use tax classification unless the land otherwise qualifies under current law as an incidental use compatible with farm and agricultural land use.

The inclusion of commercial horticulture within the definition of farm and agricultural land is declared to clarify an ambiguity in an existing tax preference, and to not require a performance statement or be subject to the default 10-year expiration date.

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

(In support) This bill addresses an emerging problem where some counties are throwing nursery owners out of the farm and agricultural land use classification. This bill ensures that nursery owners are treated in a more uniform way from county to county, and clarifies a commonly-held understanding of what the law currently says. Landowners who unexpectedly have their land use classification change are subject to a big tax increase. It is already hard to get into agriculture, and excluding nurseries from the farm land use classification would make it even harder for some people. This bill was written with extensive input from the Department of Revenue and is narrowly tailored so that only nurseries that are truly growing plants like other agricultural crops will be allowed under the current use tax classification. It does not make sense to exclude crops grown in containers from the farm use classification, especially since container-grown plants are responding to a market need and sell better than rooted nursery plants grown directly in the ground. This bill could use a few refinements to reduce confusion, which the Senate has already adopted in their companion bill.

(Opposed) None.

Staff Summary of Public Testimony (Finance):

(In support) In Pierce County, there has been an audit and they have withdrawn nurseries out of the Open Space Program who have potted plants. There is inconsistency between county assessors and treasurers as to whether growing in containers is considered agriculture. This impacts urban farms, large orchards, and professionals. Nurseries are the eighth largest agricultural commodity in Washington. This bill will clarify legislation that would be helpful statewide. These nurseries hire local in and out of session, and follow nursery standards. There is a misunderstanding with laws between growers and assessors.

(Opposed) None.

Persons Testifying (Agriculture & Natural Resources): Representative Wilcox, prime sponsor; Heather Hanson, Washington State Nursery and Landscape Association; Ingrid Wachiller, Woodbrook Native Plant Nursery; Dave Schactler, Eatonville Nursery; Megan Pulkkinen, Washington State Nursery and Landscape Association; Mary Schactler, King-Pierce County Farm Bureau; and Evan Sheffels, Washington Farm Bureau.