Legislature(2023 - 2024)BELTZ 105 (TSBldg)
01/30/2024 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB161 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 161 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 161-TAX EXEMPTION FOR FARM USE LAND
2:24:01 PM
CHAIR DUNBAR announced the consideration of SENATE BILL NO. 161
"An Act relating to municipal taxation of farm use land; and
providing for an effective date."
CHAIR DUNBAR stated that the bill sponsor will introduce SB 161
today.
2:24:43 PM
SENATOR BJORKMAN, speaking as sponsor, introduced SB 161 as
paraphrased below:
SB 161 helps farmers produce more food. Alaska faces
the persistent challenge of food insecurity, relying
heavily on food imports from outside of Alaska. A
significant portion of Alaska's food is brought in
through the Port of Seattle to the Don Young Port of
Alaska. Disruptions in these central port locations
could have severe consequences for local food
availability. It is important that we take steps to
ensure a more resilient food system in our state.
Alaska State law allows farms to be assessed at a farm
use rate for property taxes to encourage farmers to
keep their land in production rather than selling it
or converting it for other more profitable uses. The
farm use rate can be lower than the highest and best
use rate for the property, which provides a tax break
to the farmer. However, this provision does not
include the buildings that are used for farm
operations and currently has a high bar for small or
startup farms seeking to qualify for this program. The
changes in SB 161 would address these issues so that
the program is more supportive of Alaska's in-state
farmers.
2:26:05 PM
Current statutory provisions require 10 percent of the
farm operator's income come from farm operations to
qualify for the tax rate. This unnecessarily links the
farms tax status to the success of the farmers other
employment or business interests. It can also be an
invasion of privacy, as a farmer must provide
information on all of their income and business
interests to a local assessor in order to qualify for
the current program. These privacy concerns would be
alleviated by replacing this qualification with the
USDA definition of farm:
- An operation that produces at least $1,000 in annual
sales.
- The products are produced on-site.
- An IRS Schedule F is filed for federal taxes.
This change would allow startup farmers and small
operations to more easily qualify for the farmland use
tax rate, encouraging growth in the number of in-state
food producers.
SB 161 would also allow farm buildings to be assessed
at the farm use rate if they are used for the
operations of the farm. Barns and other buildings such
as processing facilities for meat or vegetables are
important to the operations of a farm and taxing them
at the farm use rate makes the most sense. The changes
in this bill come from the recommendations of farmers
around the state. These recommendations are found in
the Alaska Food Strategy Task Force 2023 Report.
2:27:54 PM
LAURA ACHEE, Staff, Senator Jesse Bjorkman, Alaska State
Legislature, Juneau, Alaska, presented the sectional analysis
for SB 161.
[Original punctuation provided.]
SB 161 Tax Exemption for Farm Use Land
Ver. S Sectional Analysis
Section 1 Adds language to AS 29.45.060(a) allowing
structures on farmland used for farm operations to
what may be assessed at the farmland use tax rate.
Section 2 Amends AS 29.45.060(f) to conform to the
changes in Section 3 and changes the paperwork
submission deadline from February 1 to April 15.
Section 3 Changes the qualifying definition of a
farm in AS 29.45.060(g) to an operation that provides
or would ordinarily realize $1,000 in annual sales of
farm products, files an IRS Schedule F, and produces
food for human consumption or to feed livestock.
Section 4 Repeals AS 29.45.060(c) as the new
definition of a farm in Section 3 includes farms that
are temporarily not operating.
Section 5 Provides an immediate effective date.
2:29:15 PM
SENATOR GRAY-JACKSON asked whether the structures are assessed
at true value.
MS. ACHEE replied yes. All structures on a farm are assessed at
the best and highest municipal rate.
2:29:40 PM
SENATOR GRAY-JACKSON brought up the Alaska Food Strategy Task
Force 2023 Report, which she received on August 1, 2023. She
drew attention to recommendation 5, "Encourage Tax Exemptions
for Farmland," years 1 3 on page 32:
Years 1 2:
• Conduct meetings/surveys to collect feedback from
producers and local governments on the following:
• the most beneficial tax exemption policies to
support increased production on farms
• why farms choose to participate and for what reasons
(e.g., for farms not participating, why are they
not? For farms participating, what are
recommendations to improve?
• incentives for local governments to implement tax
exemptions
• impact(s) of tax exemptions on other
taxpayers/property owners (requires data
collection/accessibility)
Year 3:
• Introduce legislation with changes to tax
exemptions.
SENATOR GRAY-JACKSON wondered why the bill sponsor skipped the
recommendations for years 1 and 2 to address the recommendation
for year 3.
SENATOR BJORKMAN replied that constituents contacted his office
on this issue in March 2023.
2:30:33 PM
MS. ACHEE replied that the bill sponsor started collecting
information when constituents reached out and gathered enough to
move forward with this legislation. She stated that the bill
sponsor's office gathered enough necessary information to start
the process, emphasizing that it was the right course of action.
As this bill moves through the committee process, more data and
testimony could influence the legislation. The boroughs cannot
predict the effects of the tax exemption until the farms
assessed under this program start submitting buildings for
exemption.
2:31:33 PM
SENATOR GRAY-JACKSON commented that this is a really good bill
and sought confirmation that the sponsor worked on the
legislation before the Food Strategy Task Force issued its
recommendations.
SENATOR BJORKMAN replied yes, that is correct. He engaged in
conversations with the Fairbanks North Star Borough, the Mat-Su
Borough, and the Kenai Peninsula Borough about SB 161,
discussing potential effects on borough revenue and encouraging
more farmers to get involved with food production.
2:32:08 PM
CHAIR DUNBAR sought clarification on whether this is an optional
or mandatory tax exemption.
MS. ACHEE replied that the legislature established a mandatory
tax exemption in the 1960s, and SB 161 proposes to adjust that
tax program. Essentially, SB 161 proposes a tax reduction. A
provision in State statute allows municipalities to present the
option to their voters to extend the exemption further, whether
partially or fully, which is up to individual municipalities and
their residents to decide. She reiterated that this particular
tax break is mandatory.
CHAIR DUNBAR expressed his understanding that the tax break on
farmland is mandatory, but right now, no mandatory taxes on
farmland buildings exist. He asked whether a borough could
exempt those buildings through its own municipal code without
SB 161.
MS. ACHEE replied yes, municipalities could do it if they
utilized the statutory provision that allows them to employ the
ballot initiative. She noted that the Fairbanks North Star
Borough (FNSB) did it this past fall.
2:33:54 PM
SENATOR BJORKMAN stated that the statutory provision in AS
29.45.050 does not include all the farm buildings included in SB
161. The statutory provision leaves out barns for poultry and
meat livestock. He said SB 161 is more inclusive, and the
definitions ensure the maximum amount of food production is
captured. He noted that the definition of livestock animals is
not limited to the animals listed in the bill.
2:34:45 PM
CHAIR DUNBAR announced invited testimony on SB 161.
2:35:03 PM
CHARLIE JEANNET, Farmer, Porcupine Ridge Farms, Fairbanks,
Alaska, gave invited testimony on SB 161, stating he farms 80
acres, separate from his home, on Farmers Loop Road. He and his
wife have been farming for 20 years in hay production.
MR. JEANNET said that he has taken advantage of the farm use
deferral program every year since he owned the farm. It has
encouraged him to maintain the farm, keep farming, and maintain
a profitable operation. He said that last year, for the first
time, the application was not approved. FNSB denied it the year
before last, but the Board of Equalization redetermined and
granted approval. This year, the board sided with the borough
assessor and ruled against approval. He alleged that the state
assessor intimidated the Board of Equalization. He said the
state assessor intended to intervene in the process because the
board erred last year in only counting farm-related income, not
total income.
2:37:37 PM
MR. JEANNET argued that the income he makes from his day job and
his wife's income from stock trading and inheritance are
unrelated to farm income. He asserted that FNSB misapplied the
statutory provisions for the past two years, as evidenced by its
previous annual approval without his personal tax records. He
said that he has only ever attached Schedule F to the
application, which is essentially a profit and loss statement
covering farmland profits, income, and expenses. He said it is
his interpretation that the statutory provisions for farmland
tax exemptions apply to profits from the land, not gross profits
from other entities. The farm is a separate limited liability
company (LLC) set on a separate parcel of land. He said there is
no need to compare the farm income with his engineering business
or other business endeavors.
MR. JEANNET said that he supports SB 161. It simplifies and
clarifies the original intent of the statutory provisions, which
is to promote open spaces, agricultural usage, and food
security.
2:40:39 PM
ROBERT GROSECLOSE, Farmland Owner, Farmers Loop Area, Fairbanks,
Alaska, gave invited testimony on SB 161, stating this
legislation helps small farmers. He purchased land through a
limited liability company (LLC) to grow hay to feed his
daughter's horse. He said while this is not his day job, it
became a vocation that intrigued him and has helped him
understand the challenges of Alaskan farmers.
MR. GROSECLOSE said his comments align with those of the
previous testifier. He stated that, lately, FNSB has interpreted
the reporting requirements differently than in the past.
Currently, the borough requests financial information beyond
what the farm generates. This new interpretation affected his
exemption eligibility. He lost a qualifying exemption for a farm
in production for decades. Historically, FNSB required the
Internal Revenue Service (IRS) Schedule F, which is specific to
farm operations and income. A few years ago, FNSB required a
fuller income disclosure. He said that he is a retired lawyer
and that if you considered his other sources of income, his farm
would not meet the 10 percent threshold. It has been a viable
farm and will continue to be a viable farm. In most years, it
generates more than 100 bales of hay each season. The farm
provides a source of local agriculture. People are discouraged
from wanting to retain land that provides some margin of food
security without the tax exemption.
MR. GROSECLOSE urged the committee to look favorably upon
SB 161. It embraces the requirements for qualifying the property
for farm use and confirms the existing practice of accepting the
income statement used by the IRS.
2:47:05 PM
AMY SEITZ, Executive Director, Alaska Farm Bureau, Soldotna,
Alaska, gave a brief overview of the bureau, stating it is a
nonprofit organization whose mission is to improve and expand
agriculture in Alaska. A major focus of the bureau is:
- Advocacy and support of agriculture-friendly policies that
help Alaskan farmers and ranchers build businesses.
- Increasing production.
- Increasing the number of successful farms in Alaska.
MS. SEITZ said that the agriculture industry has significant
potential and opportunities in Alaska, and developing this
industry will benefit the state. Food security is a big concern.
The bureau foresees increasing issues with food supply lines,
whether due to closed roads, earthquakes, or pandemics.
Increasing agricultural production in Alaska would benefit the
state.
2:48:23 PM
MS. SEITZ said there are challenges in farming, mainly because
Alaska is young and less developed than other states. SB 161
addresses some of the challenges that farmers face in Alaska:
• Access to capital.
While efforts to find ways to expand access to loans and
grants are underway, another way to get funding is through
reduced input costs. An example of input cost is property
taxes. She said that reducing the amount paid in property
taxes allows farmers to invest those monies back into farm
expansion and easier production. This results in increased
sales and food availability.
• Lack of infrastructure.
SB 161 incentivizes farmers to improve existing structures or
build new ones, such as storage or processing facilities.
These are two of the main infrastructure needs on a farm.
Storage extends the availability of food throughout the year,
while processing facilities enhance the ability to reach
specific markets. Incentives to build farm infrastructure
would help increase production and sales. The expectation is
that growth will compound over the years. Each year, farmers
could reinvest dollars saved through property tax reductions,
thereby increasing livestock, crops, sales, and the number of
successful farms. She conjectured that the committee would
unanimously agree that this would be a good thing.
2:50:35 PM
• Qualifying for a property tax reduction.
The 2017 Census of Agriculture indicated that "more than half
of Alaska's producers have off-farm jobs as their primary
occupation and source of income." She said access to
healthcare and a high percentage of new and beginning farmers
account for this statistic.
Other sources of income are necessary while individuals grow
their farming businesses. Alaskan farmers compete with
established markets. Grocery stores, restaurants, and
institutions have established distributors who primarily
source products outside Alaska. Although the number of Alaska-
grown products is increasing in grocery stores and
restaurants, the lack of infrastructure and services means
that each farmer must navigate these systems individually. It
takes time to figure out how to enter established markets and
build a customer base.
SB 161 streamlines the process for farmers to qualify for the
property tax reduction by tying qualification directly to the
farm instead of off-farm income. An off-farm income does not
mean an individual lacks commitment to farming; additional
sources of income are needed for individuals to foster growth.
2:52:29 PM
MS. SEITZ pointed out that, according to the Census of
Agriculture, there are around 1,000 farms in Alaska. Many of
these farms are located in areas that do not impose property
taxes, so the number of farms per municipality is not large.
MS. SEITZ thanked the bill sponsor for looking at ways to ease
burdens on farmers and ranchers and help them expand. She
thanked committee members for hearing SB 161.
2:53:11 PM
CHAIR DUNBAR asked about borough pushback and estimated amounts
for property tax reductions.
MS. SEITZ replied that she has no firm estimate, especially with
adding structures. She does not know whether the boroughs are
pushing back on SB 161. She stated the FNSB recently passed a
ballot initiative allowing farm structures, so it seems like
there is support to ease the property tax burden. She said one
hope is that increased agricultural sales would lead to higher
revenues from sales tax.
2:55:08 PM
CHAIR DUNBAR drew attention to the zero fiscal note, which
indicates the State will bear no cost. He noted, however, that
the Mat-Su borough receives services from the State, suggesting
a potential secondary effect of increased costs to the State. He
asked whether the bill sponsor has any sense of that impact.
MS. ACHEE replied that she and the bill sponsor do not have an
objective numerical sense of the impact of buildings assessed at
the proposed rate. She and the bill sponsor met with the Mat-Su
Borough because SB 161 will significantly affect it. The bill
sponsor worked the borough's feedback into the bill draft before
introduction, and the borough has not reached out with further
concerns.
2:56:03 PM
CHAIR DUNBAR welcomed Mat-Su Borough feedback if they choose to
provide it.
2:56:10 PM
MS. ACHEE said Fairbanks provided written feedback, which was
generally supportive. The bill sponsor spoke with the Kenai
Peninsula Borough; it has been aware of this legislation for
over a year and has not provided any feedback. She assured the
committee that she had contacted all six boroughs affected by SB
161, and they were aware of these hearings.
2:56:48 PM
CHAIR DUNBAR drew attention to the last section of SB 161, which
expands the meaning of "farm use." He pointed out that $1,000 in
agricultural products is a small amount. He posed a hypothetical
question about an Anchorage resident with a chicken coop who
sold eggs at the farmer's market. He asked whether this resident
would qualify for the tax exemption with $1,000 in egg sales.
MS. SEITZ replied that SB 161 requires farmers to file an IRS
Schedule F for taxes. She noted that Schedule F is intended for
farming businesses, so hobby farmers and personal use
agriculturists would not qualify to file it.
2:57:36 PM
CHAIR DUNBAR asked for more details about what goes into
Schedule F.
MS. SEITZ replied that to file a Schedule F, the farming
business has to show a profit at some point. This indicates to
the IRS that the farmer is trying to operate a business rather
than farming solely as a hobby.
CHAIR DUNBAR asked whether the Municipality of Anchorage has any
farms that would be affected by SB 161.
2:58:42 PM
MS. ACHEE drew attention to excerpts from the Department of
Revenue, 2022 Alaska Taxable Report in the committee packet. She
pointed out [Table 10B], which showed a farm use assessment
breakdown by municipality. It indicated that one farm in the
Municipality of Anchorage takes advantage of this program.
CHAIR DUNBAR said he believes that farm is in his district and
it is a great farm. He brought up the expansion of definitions
in the last section of SB 161, asking:
- whether this bill would enable more Anchorage farming
businesses to take advantage of the property tax exemption, or
- would the legislation have no effect because farmers are not
currently filing Schedule F.
MS. SEITZ replied that some hydroponic farms and smaller-scale
market farms could try to become more of a business.
3:00:30 PM
CHAIR DUNBAR opened public testimony on SB 161; finding none, he
closed public testimony.
3:01:20 PM
SENATOR BJORKMAN said learning more about Alaska's farming
industry and challenges has been interesting. He emphasized the
importance of local control. While SB 161 mandates farm
buildings be assessed at the farm rate, municipalities are
responsible for setting and adjusting that rate. After receiving
feedback from the Mat-Su Borough, he retained the deferment
provision. The provision states that an owner who stops using
land for food production and as a farm must compensate the
borough for forgone taxes it would have otherwise received. The
Mat-Su Borough's feedback influenced his decision to retain the
tax deferment provision because it encourages land to remain
dedicated to farming and food production. He stated that farmers
have to make an economic calculation to determine if farming is
a financially viable choice.
3:02:53 PM
MS. ACHEE explained how the tax incentive works, emphasizing
that recipients do not get a flat dollar amount or a flat
percentage off taxes. She outlined the process as follows:
• The assessor evaluates the property at its highest and best
use.
• If the highest and best use for a property on the edge of a
borough, away from attractions like a big fishing river, is
farming, the owner pays the farm tax rate.
• The owner does not receive a tax break; the owner just pays
the farm tax rate.
• If the assessor's valuation exceeds the farm use tax rate, the
owner must decide whether to keep the land for farming or
pursue a more lucrative use.
• The difference in property taxes can influence that decision,
encouraging owners to keep land as farmland rather than
converting it to condos, a shopping center, or another higher-
value use from a property tax perspective.
3:04:18 PM
CHAIR DUNBAR held SB 161 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 161 Sponsor Statement Ver S.pdf |
SCRA 1/30/2024 1:30:00 PM |
SB 161 |
| SB 161 Sectional Analysis Ver S.pdf |
SCRA 1/30/2024 1:30:00 PM |
SB 161 |
| SB 161 Recommendation Encourage Tax Exemptions for Farmland.pdf |
SCRA 1/30/2024 1:30:00 PM |
SB 161 |
| SB 161 Table 10A & 10B Farm Use Land Assessment Program.pdf |
SCRA 1/30/2024 1:30:00 PM |
SB 161 |
| SB 161 USDA Farm Definition.pdf |
SCRA 1/30/2024 1:30:00 PM |
SB 161 |
| SB 161 Ver S.PDF |
SCRA 1/30/2024 1:30:00 PM |
SB 161 |