Wednesday, February 25, 2015

A $75 million farmland sale includes a hidden big loser — the public

Posted By on Wed, Feb 25, 2015 at 2:20 PM

click to enlarge BIG DEAL: Auction of this land produced a bid somewhere between $50 and $75 million. - ARKANSAS BUSINESS
  • Arkansas Business
  • BIG DEAL: Auction of this land produced a bid somewhere between $50 and $75 million.

Arkansas Business has been doing a thorough job
following a family dispute over inherited farmland in which two years of litigation seem to have ended Tuesday with George Dunklin Jr. the high bidder for the family's 15,881 acres of farm and hunting property in Arkansas and Jefferson Counties. The bid was estimated up to $75 million

This deal includes a fancy hunting lodge. The auction was meant to settle differences between Dunklin and a sister, Deborah Tipton of Memphis, over family interests in M.E. Black Farms.

I'll leave you to Arkansas Business present and past for a tale full of money, family, privilege and Delta culture.

Instead, I turn to a friend who shares my  interest in the tax treatment the state bestows on all agricultural land, a particular boon to the wealthiest landowners. Agricultural land is way undervalued for tax purposes. It's assigned a "use" value, not a market value. There's some rationale. Productivity goes up and down. Sometimes land lays fallow. A market tax rate against no cash flow could be burdensome.

Presuming that the estimates are correct, Dunklin paid as much as $4,722 an acre for the land. Comments my friend, who's in the real estate business but is more willing than many to pay a fair share for good public services and quality education:

Had that been a shopping center, office building or other commercial real estate the property taxes would be over $42.00 an acre (20% of value assuming 45 mills) but since the state appraises farm land at $250 an acre or less, it was taxed at $2.25 an acre. That is the same as buying a $100,000 house and having the house appraised by the assessor at $18,000.

The difference to the county school districts would be $675,000 in taxes annually if it were commercial use versus $35,735 as commercial agricultural use. No wonder the Delta schools are poor performers. There is no local tax money going back into the school system.

The commercial agricultural and timber users are being subsidized by hundreds of millions a year compared to other types of property owners and the problem is a number of the owners are out of state interest who have no real interest in Arkansas.

We have a similar situation very close to home in Little Rock. It's perfectly legal but quite advantageous to the beneficiary. Deltic Timber, which acquired vast tracts of timberland in Pulaski County for pennies decades ago (around $2 an acre), holds that land at its very low "agricultural" value until it sells it in $100,000 lots in Chenal Valley and environs. The new homeowners pay the stepped-up rate.

The legislature is in session. Money is short. Even Texas has a "clawback" law that allows recouping of underpaid property taxes when land held for agricultural use is sold for more valuable development purposes. Arkansas legislators like to talk about emulating Texas tax policy. (Texas has no income tax, but its oil and gas wells pump gushers of tax money.) Here's a good way to emulate Texas.

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