Since nobody seemed to open the attachment
that spells out the requirements/steps, here you go. Take special note of "length of time" requirements under both definitions. Also note the differences in rollbacks between the two.
Some land in Texas receives tax reductions
known as exemptions. All exemptions
are found in Chapter 11 of the
code. The rural homestead exemption
(Section 11.13) is a good example. However,
rural land as a whole receives
substantial tax saving by qualifying for
one of two types of special appraisal
methods.
The first type is called “Assessments
of Lands Designated for Agricultural
Use” authorized by Texas Constitution
Article VIII, Section 1-d and described
in Sections 23.41 through 23.47 of the
code. The other is called “Open-Space
Land” authorized by Texas Constitution
Article VIII, Section 1-d-1 and further
described in Sections 23.51 through
23.59 of the code.
Generally, when people speak of receiving
an ag-use exemption, they are
actually referring to the open-space
appraisal method found in Section 1-d-
1, not the agricultural-use appraisal
method found in Section 1-d.
With more and more rural land being
converted to subdivisions or into smaller
tracts, the question of which, if either,
rural appraisal method the property
qualifies for becomes important. Likewise,
because of the stiff penalties for tax
rollbacks when the land no longer qualifies
for either appraisal, buyers and sellers
must consider this factor when negotiating
the price of land.
This article discusses both types of
appraisals, the qualifications for each
and the tax rollback consequences.
1-d
The Section 1-d appraisal method is
reserved for landowners whose primary
occupation and source of income are
agriculture. Under this section, both the
landowner and the land must qualify.
According to the statutes, the landowner
and the land must meet four
requirements as of January 1 of each
year.
• The land must have been devoted
exclusively to or developed continuously
for agriculture during the
past three years.
• The owner’s primary occupation
and source of income are agriculture.
• The owner intends to use the land
for agriculture and as an occupation
or business for profit during the
coming year.
• The owner files an application by
sworn statement with the chief appraiser
before May 1 of each year
with all the documentation required
to determine the validity of the
claim. For good cause, the chief
appraiser may extend the filing
deadline 60 days.
After reviewing the application and
all the relevant information, the chief
appraiser must:
• approve the application and allow
the appraisal as agricultural use,
• disapprove the application and request
additional information or
• deny the application.
Except for six limited circumstances,
all the information filed in support of
the application (primarily, the sources
and amounts of the applicant’s income)
must be kept confidential.
The statute defines two important
terms for this appraisal method. Agriculture
means the use of land to produce
plant or animal products, including fish
or poultry products, under natural conditions
but does not include the processing
of harvesting or the production of timber
or forest products.
The term occupation includes employment
and a business venture that
requires continual supervision or management.
If the chief appraiser approves the
application, the property is valued on
its capacity to produce agricultural
products, not its market value. This is
determined by capitalizing the average
net income that the land would have
been earned during the past five years
using prudent agricultural management
practices.
Also, the chief appraiser appraises the
land at its market value and places this
figure in the appraisal records. If the land
is sold or diverted to a non-agricultural
use, the difference between the two
appraisals for the preceding three years,
plus interest, must be recaptured. The
additional taxes and interest are due by
the next February 1 occurring 20 days
after the bill for the additional taxes is
delivered to the present owner of the land.
To secure payment, a tax lien attaches
to the land whenever the sale or change
of use occurs. This is commonly referred
to as the three-year ag-use tax rollback
even though the term “rollback” is never
used in the statutes and even though the
reversion covers four years, the present
plus the past three.
1-d-1
The other appraisal method, better
known as Open-Space or Section 1-d-1
land, requires the land, not the landowner,
to qualify. The owner’s occupation,
business and sources of income are
irrelevant.
According to the statutes, there are
three primary requirements for receiving
the exemption.
• The land must be currently devoted
principally to agricultural use to
the degree of intensity generally
accepted in the area.
• The land has been devoted principally
to agricultural use or production
of timber or forest products for
five of the preceding seven years.
• The owner files a prescribed form
provided by the appraisal office with
the chief appraiser before May 1
with all the necessary information
to determine the validity of the
claim. For good cause, the chief
appraiser may extend the filing
deadline 60 days.
To assist the chief appraiser, the statute
contains an extensive definition of
agricultural uses that qualify for openspace
appraisal. Without going into
detail, the definition contains the
following:
• planting and producing crops,
• raising or keeping livestock or exotic
animals,
• devoting the land to floriculture,
viticulture and horticulture,
• producing or harvesting logs and
posts for agricultural improvements
and
• wildlife management.
After the application is received and
all relevant information reviewed, the
chief appraiser must:
• approve the application and permit
the appraisal as open space,
• disapprove the application and request
additional information or
• deny the application.
None of the information accompanying
the application must be kept confidential.
If the application is approved, the chief
appraiser places the land in the category
to which it is principally devoted. The
categories include, but are not limited
to, irrigated and dry croplands, native
and improved pastures, orchards and
wastelands. The categories may be further
divided according to soil type and
capability, general topography, geographic
features and other factors influencing
productivity.
The chief appraiser then appraises the
categorized land using an income capitalization
approach. This involves a twopart
process. First, the net average annual
income for the preceding five years
must be determined based on what the
land category would have earned had
ordinary, prudent management practices
been employed. The calculation includes
income from hunting and recreational
activities.
Second, the five-year net average
annual income is then divided by a capitalization
rate for the appraised tax value.
The capitalization rate is the greater of
10 percent or the Farm and Credit Bank
of Texas interest rate on December 31
of the preceding year plus 2.5 percentage
points.
Also, the chief appraiser appraises the
land at its market value and places this
figure in the appraisal records. If the land
use changes, an additional tax equal to
the difference in the two appraisals will
be assessed on the current owner for the
five years preceding the land-use change.
In addition, interest at an annual rate
of 7 percent will be imposed on the
additional taxes due on a year-by-year
basis. Consequently, the additional tax
due five years ago will be subject to the
7 percent interest five times but without
compounding. The taxes and interest
are payable by the next February
1 occurring 20 days after the bill for the
additional taxes is delivered to the present
owner.
To secure the payment, a tax lien
attaches to the land on the date the landuse
changes. This is commonly referred
to as the five-year open-space tax rollback
even though the statute never uses
the term “rollback” and even though
reversion covers six years, the present
plus the past five.
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