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Developers get huge tax breaks for property labeled agricultural

You could call it the Wal-Mart farm.

It’s 20 acres in Johnson County along Kansas 7 that the mega-corporation purchased a few years ago with plans to build a store. Utilities and roads went in. Streetlights went up and burn brightly every night.

But no store has gone up yet. Instead, Wal-Mart claims the vacant land as a farm.

As a result, how much did Wal-Mart pay in property taxes last year? $53.

Wal-Mart owns just one of thousands of faux farms in Johnson County — plots that developers are waiting to build on but in the meantime call farms for big tax breaks.

“It’s terrible,” said Calvin Hayden, Johnson County commissioner. “You look around Johnson County, it’s everywhere. It’s costing Johnson County millions of dollars.”

It’s entirely legal, though. Thanks to court rulings that stretch back 20 years, residential and commercial developers can call their land farms for tax purposes. And developers are doing that across Kansas, but especially in Johnson County, where they’re claiming the agricultural classification with increasing frequency.

The developers — those who are willing to talk about the maneuver — say it’s necessary in hard economic times. If they couldn’t use it, everyone else would just have to pay more.

“Developers would have to add it on to their price,” said longtime developer Jim Lambie. “It would cost the consumer more, and probably slow the market down even more.”

But others say it already is costing more in lost taxes.

Residents and businesses are forced to pay more taxes even as many Johnson County schools have fewer teachers and larger classes.

County officials say it’s impossible to calculate how big the tax loss is because there are so many lots, and each is unique when it comes to taxes. Indeed, it’s almost impossible to figure a standard tax break on any lot. Some properties are as small as a single lot, while some are multiple acres.

But some lots offer a vivid snapshot of the tax difference.

One empty Shawnee residential lot was appraised in 2009 at $33,850. The next year it was classified for agriculture use, and the appraisal dropped to $20 with a property tax owed of 82 cents. That’s a tax savings of more than $500.

So why aren’t county officials up in arms?

They have been, said Paul Welcome, Johnson County appraiser, who said he has fought the problem in courts and in Topeka for decades to no avail.

“There are only so many times that you can beat your head against the wall, and I did beat my head against the wall,” Welcome said. “I finally quit. I had to say uncle.”

One taxpayer who once worked in the appraiser’s office blames the inertia on state and local officials who are attuned to special-interest groups.

“It makes me sick,” said Judith Rogers of Gardner. “Property worth millions of dollars is exempt from taxation. I’ve tried every scenario possible to get elected officials to do the decent thing.”

Rep. Richard Carlson, a St. Marys Republican and chairman of the House taxation committee, said he was aware of the problem but didn’t know how large it might be.

“It may be very well something that is considered in the future,” Carlson said.

And just in case you’re a Johnson County homeowner suddenly inspired to grow some trees or a vegetable garden in your backyard to take advantage of the loophole, think again.

Courts have said lots with homes on them are excluded.

Low bar

Some property claimed by companies and developers may actually be used for farming, but the bar isn’t set very high.

To qualify for the tax break, all landowners need to do is toss out some grass seed or plant a few trees — and make sure they snap a picture as proof of their farming endeavors. The seeds don’t even need to sprout.

“Literally you could grow a couple Christmas trees and claim it’s a farm,” Hayden said.

Doug Knop, a former Olathe mayor, said he can be found each fall riding a little tractor, broadcasting seeds on property around the county. He is a property tax representative who advises clients on using the agriculture designation.

On his website he lists dozens of corporations and developers as clients — and he says the tax break they’re using is legal and fair.

“If you ask the average person if they owned the ground, would they do it?” Knop asked. “What do you think the answer would be? ‘Yeah of course, I’m going to take advantage of it if I can.’ ”

Knop is sometimes noted as a pioneer in the agricultural designation.

In the 1980s, lawmakers wanted to give farmers a break on property taxes, especially farmers with property near sprawling communities where values were skyrocketing.

“The intent was never to have anything but farmland, actual farming activity, for the agricultural exemption,” said former Johnson County Commission Chairwoman Johnna Harris-Lingle.

But some quickly picked up on a loophole in the state’s law that dealt with the definition of “land devoted to agriculture.”

Knop began advising developers to grow trees for firewood and for Christmas. They also could produce a hay crop with very little work.

In 1989, the owner of about 2 acres of land at 119th Street and Quivira Road asked for an agriculture designation but was refused by Welcome’s office. The owner appealed, and eventually both the Kansas Court of Tax Appeals and the Kansas Court of Appeals agreed with him.

The courts found that:

• The landowner’s intention for the property didn’t matter. Neither did his motivations for establishing agricultural use.

• It also didn’t matter whether the farmer was successful. He could claim crop failure or drought if there was no growth.

• Profit didn’t matter.

The case came down to the court’s interpretation of a single phrase in the law: That the land must be “devoted” to agricultural use.

Welcome’s attorneys argued that the developers were not seriously devoting the property to agriculture.

But the courts said the law was broad and refused to impose a more narrow definition.

The property in question was reclassified to agricultural use and its appraisal dropped from $288,000 to $350.

Since then, other urbanized counties such as Wyandotte, Sedgwick and Butler have seen a proliferation of developer farms.

In Missouri, appraisers are able to deny an agriculture designation more often.

For example, Platte County Appraiser David Christian said that land is no longer considered agricultural if it has been platted or zoned commercial or residential.

“If you have a lot in the middle of a subdivision, that is going to be hard to claim as agriculture property,” he said.

Making hay

Drive through your subdivision. Notice any vacant lots? Type in the address at and you may find it has an agriculture use classification.

In Grey Oaks, a community built by Rodrock Development in western Shawnee, only a handful of vacant lots are left. The going price for a corner lot at Johnson Drive and Roundtree Street is $50,950, according to the Rodrock website. The county appraisal shows the lot is used for “farming/ranchland” and was appraised at $10 this year, $20 last year.

Rodrock did not return phone calls.

Down the road on the southeast corner of Johnson Drive and K-7 is the Wal-Mart property, which county officials say would be appraised at about $5.3 million if not for the agriculture use. Property tax revenue lost: About $89,800.

Paul Chaffee, Shawnee’s director of planning, says he has never seen any farming activity on the property.

“No, no, this is just very common,” Chaffee said of whether Shawnee should be getting more taxes from the development site.

Wal-Mart did not return calls or emails.

Sen. Robert Olson, a Johnson County Republican, was angry about Wal-Mart’s property tax bill.

“The taxpayers of Kansas should not be subsidizing Wal-Mart on those 20 acres,” Olson said. Farmers “should be growing crops or raising cattle I don’t think Wal-Mart is going to get into that business.”

Developer Lambie said Lambie Custom Homes hires someone to plant fescue seeds on his vacant ground. A farmer comes in to bale the hay usually.

But he acknowledged it’s difficult to bale hay on a residential lot in places such as the Ashford Villas in Olathe.

“That one we mow because of the neighbors,” he said.

At the site of the old Leawood Country Club, which closed about a decade ago, the new owners put in three cul-de-sacs and planned to build 25 to 36 attached villas.

That never happened. The development this year is listed as farmland.

Each lot last year had been appraised at generally about $62,000. But after receiving the agriculture classification, the value dropped to $10 to $20 a lot. Taxes on each will drop from $800 or more to about 35 cents, county officials said.

Neither Richard Jones nor Bryce Jones, who are part of Leawood Country Club Partners, which owns the property, returned phone calls.

Developers of River Ridge Farms in southern Johnson County have several acres of open, street-lined properties designated as farmland. They grow grass and harvest it for hay, sometimes donating to a group that rescues horses, said Jack Sutherland, president of WRS Inc.

“We need to do that,” Sutherland said. “In an economic downturn everybody is doing what they can to keep the prices down and get the houses moving. It’s one of the cures for a downturn.”

Development attorney Douglas Patterson said he has a hard time defending single lots classified as farmland, but he strongly argues for the agriculture classification for larger properties that Johnson County developers own.

“I assure you that any developer sitting on a subdivision now is bleeding,” he said. So if a government “wants to drive a developer completely out of business, they can whack him with taxes.”

Beat up

Indeed, the downturn in the housing market has left developers with a number of vacant lots, at least for now. And that has led builders to reclassify many of their residential properties to agriculture, county officials say.

The number of lots spiked — from 750 in 2007 to 5,299 this year.

The decrease in taxes has a number of effects, said Tim Rooney, manager of budget and finance for the Shawnee Mission School District.

“In one case it’s the state that suffers, in another it’s the other taxpayers that suffer, and in the third case it’s the school districts that suffer,” he said.

But local leaders say the Legislature has turned a deaf ear to their pleas.

“Every time we go to Topeka we just get beat up,” said Hayden, a county commissioner. “The Legislature wants to protect the agriculture for the rest of the state, but they need to understand these guys are taking advantage of the law.”

Audits in 1993 and 2005 both criticized the tax break.

The more recent audit noted a 1.6-acre vacant parcel near Metcalf Avenue and 146th Street in Overland Park that was appraised at almost $440,000 in 2003 but dropped to $120 in value after being approved as agriculture land in 2004.

Of three parcels that auditors visited in Johnson County, two did not appear to be used for agricultural purposes and one had hay growing.

But there are two basic solutions, the 2005 audit recommended for the Legislature:

Consider a tax rollback.

In the 1980s, an amendment to the constitution was passed permitting the Legislature to enact a rollback. It would work this way:

When property that is classified as agriculture use is sold, the owner pays the difference between the taxes charged at agriculture use and the higher fair market value, going back several years.

Texas and Nebraska have versions of the rollback.

• Consider changing the state law to better define when property is used for real agriculture.

“I don’t understand why the state can’t do something about this,” Hayden said. “It is placing a terrible burden on homeowners and taxpayers because they are footing the bill.”