Property Tax Land Value Reductions

*Note: This article is prepared by a member of KE Andrews, an ad valorem tax and valuation company specializing in the energy industry, representing over 35% of all gas processing plants in the U.S. and over $40 billion in pipeline*

There is an large tax reduction (special tax appraisal for farmland) that many people don't apply for or think of when they have land that has commercial use on it, or land that has been purchased in preparation for commercial use. In Texas, agricultural land is taxed not at the value of what the land is worth, but taxed on what the field or land produces in income. Without this help from the State, many farms and livestock owners wouldn't be able to make a profit. However, many counties including Bexar county, are beginning to crack down on agriculture land exemptions. As you can see below, it results in a significant amount of savings to land-owners. To be clear, there is nothing unethical about applying for these tax savings opportunities. They are spelled out by the Chief Appraisers and are in within the boundaries that they set.

Farmland is being used for production at an extremely high rate for Oil & Gas companies over the past 10 years. A study published in 2015 in the journal Science found about 7 million acres of cropland and farmland was used in production between 2000 and 2012. Many counties have begun to see companies take advantage of this law by putting a couple of cattle on the land, or putting up a shell of ag production to satisfy the current requirements. There are different requirements for the different type of classifications, timber, livestock, and agriculture.

We're seeing Oil & Gas companies pay $1 Million dollars for agricultural land, but the land itself isn't worth that to them because they're using just a portion of it for production purposes. With the rest of the farmland still being used for farmland, this is a situation where we can file on behalf of the company to have the remaining land fall under the farmland appraisal method. We file hundreds to thousands of these every single year.

In San Antonio, the local NBC affiliate reported on this example. "Two properties on the Northwest side off of Galm Road were valued by the appraisal district at $1.4 million last year. The developer fought to get an ag exemption and that lowered the property value down to $1,300 for both pieces of property. They ended up paying $32 in property taxes." A great example of how an owner can GREATLY reduce their burden.

Now, the primary function of the land must be agricultural, and there are ways to have property that has dual roles. An owner with a large tract of land for commercial real estate development that is waiting for a buyer can run cattle on it and have it fulfill the Texas requirements, but it's getting to be a battle with counties because of how it affects revenue. This is something that is fair to companies because the land itself is being used for agriculture, or livestock, and just a portion of it is devoted to E&P production. If you haven't considered this while purchasing acreage, it's something we can help you navigate.