Wilco Dirt

Ok,

If you’ve lost your ag exemption, then you’ve received the tax bill and know what it is, but in case you don’t know what an agricultural exemption is, here it is quickly.

Agricultural Exemption Defined

If your property is deemed by an appraisal district appraiser to have a higher and better use than agricultural production, say, commercial or industrial use, it will be given that value and taxed as such; but those higher taxes will be deferred as long as the property remains in agricultural production.  (See Rollback Taxes)

From a land owner point of view, this deferment of taxes is great, if you like paying fewer taxes.  But many times landowners, or more particularly new land owners, don’t understand what it means to have your land in agricultural production.  While in today’s world of commercial/residential development farmers and ranchers may not garner much respect, there is a real skill in what they do, which is to get agricultural production from the land.

Losing Your Agricultural Exemption - the 5 year lesson

When you take your land out of ag production, either on purpose or by accident or by just not knowing any better, it will be taxed at it’s highest and best use, which is generally, considerably higher than agricultural use.  Most land owners don’t like that bill, but here is the really bad part, once your land is considered out of agricultural production, it has to be put back into agricultrual production for five (5) years before the land owner will be given the exemption again.  Yep, you’re stuck for five years of paying non-agricultural taxes.  So lets talk about how to prevent this;

Keeping Your Ag Exemption

Farming is the easiest to spot, there are tractors and black dirt flying and seed getting spread.  But there are certain times of the year farmers plant certain crops, and the appraisers know it, and if that’s your claim, you’ll need to show them the records, such as seed and fertilizer bills from the feed store, most likely from Williamson County Grain.  Even if your crop doesn’t make, you’ll need to show proof you attempted.

Hay is a good crop, but again, document your efforts because during our recent drought, it was hard to tell.

Ranching is also a good, but a single cow usually doesn’t do it.  Base on the foliage available on your land, you’ll need to have adequate heads to call it production.  What is that number?  I can’t tell you, experienced ranchers can tell you, the gurus at Texas A&M can tell you, but no appraiser is going to give you an exemption based on my opinion.  You’re going to need a qualified opinion.

The cow business, as an exemple, is different than the horse business.  In the cow business you can make money by making more cows (calfs) or by making skinny cows into fat cows, since cows are often sold by weight.  Usually, having cows on your property will defend your claim, but horse are different.

It generally isn’t enough just to have horses.  Even if your horses grow, they usually aren’t sold by weight.  That means you need to be making little horses (folds).  And depending on the size of your property, that can be a lot of folds.

Goats are good, but know that the fence to keep goats is different than the fence to keep cows, and the appraisors know it.

Orchards are good too, but that will mean you’ll need all of your property making pecans (or the orchard of your choice) to get the ag exemption on all of your property.

Leasing Your Property For Agricultural Exemption

Most often, I tell new property owners to lease their property to a professional farmer/rancher.  These guys know what they are doing and can defend their practices, but be sure you have a written lease.  Also keep tract of them, they can move animals from one pasture to another, which is smart as a rancher but may be an issue because the pasture is at rest. If there are no cows on your property when the appraiser drives by, there’s a problem.  Document, document document.  Know that you may be showing up at the appraisal district defending your agricultural exemption with your farmer/rancher in tow.

I had one client who’s rancher died and the family sold his cows, and by the time the land owner figured that out, he had lost his exemption for 5 years.

Pictures

I tell most of my clients to take pictures with date stamps, silly pictures showing the rancher at work, or the farmer sowing seed or you fixing fence.  These always help defend your case.  A minute of taking picture can save you a lot of tax pain.  Be sure to know that the appraiser will have pictures.

When protesting your taxes, it’s important to understand the Williamson County Appraisal District’s (WCAD) process, and that starts with the first rule;

Rule 1: You must timely notify the WCAD of your protest. It doesn’t matter if they agree their appraisal is wrong, you don’t let them know in writting by June 1, 2010, game over.

Even if you don’t know how to protest your taxes at the time you send in your protest, you must protest timely. And if you later decide that you don’t want to protest your appraisal, there is really no penality.

Their exact proceedures are on their website (http://www.wcad.org/) and they will include a form with their appraisal that is a “protest” notification, but you really don’t need a form.  For my clients, I typically just send a letter, on my letterhead, noting who my client is, that I represent them, I want to protest the appraisal, and then I list their property ID number (or “R” number).  Done.

The notification needs to be written.  They want a piece of paper to put in the file.

Schlitterbahn is coming to Cedar Park.  Congrats to Cedar Park’s council, city staff and ED team.  I know they have been working on this one a while.

Round Rock is the second fastest growing city in the United States at 8.16%, behind New Orleans (8.20%).

Complete Story Here

Rollback taxes are taxes that become due on a parcel once an exempted use ceases.  As an example, I have a client that has a parcel in the City of Round Rock.  This parcel is entitled, zoned and has utilities available to it.  It is well situated and therefore valuable.

The Williamson County Appraisal District has place a value on the property of around $5 million dollar, that typically require him to pay a tax bill of several tens of thousands of dollars in taxes annually, lets call it $150,000.  However the parcel is not yet ripe and there are no buyers for the asking price,but there will be some day soon.  As oppose to paying the taxes, the owner has elected to put the property in agricultural production (he is growing wheat), thus making the property agriculturally exempt from taxes.  Instead of paying $150,000 in taxes, the owner pays around $200 in taxes.

The Rollback

Once the property loses it agriculturally exempt status, the deferred taxes for the last five (5) years become due to the Tax Assessor Collector.  Generally, the exempt status will be lost because someone has bought the property and is now developing it.  Buyers/Developers are however leery of being left holding the significant bill (yes, it would be a $750,000.00 bill).  Who pays the rollback taxes is typically negotiated in the sales contract, which is an entry for another time.

What I Want You To Know

Often, the owner of a parcel that is (agriculturally) exempt don’t pay attention to the actual tax bill, because they will only pay a few hundred dollars in taxes because of their exempt status.  I believe the owner has to protest the taxes when appropriate to do so, because the rollback taxes will effect a potential new owner.  The less they have to pay in rollback taxes, the more they have to pay a Seller.  It’s that simple.

Know that all real estate appraisals, including the one used the appraisal districts, are more art than science.  By definition, every piece of real estate is unique.  So in finding comparative sale, none will be exactly like your property.

This particularly holds true for commercial properties.  Commercial properties that are five (5) feet from one another can have drastically different values.  Traffic access may be different, zoning, improvements, entitlements, topography, all can be different - and effect the value of the property.

Often, you need to look through the eyes of a developer in examining your property.  Yes, Wal-Greens could, in theory, come pay you $18/sf for your property.  But ask yourself, have you ever seen Wal-Greens at any place other than on the corner of two major arterials?  So if that’s not your property, Wal-Greens isn’t coming.

There are also, generally speaking, relatively few commercial/office/industrial sales.  That means less data, which means it’s more difficulty to zero in on the value of your property.  Residential property is different.  There are more sales, meaning more data, meaning it’s easier to zero in.  Yes, your house may have granite counter-tops and the comp doesn’t, but really, the appraisal district isn’t going fight you on that.

The answer is yes, you should protest your property taxes.  I’m currently protesting tax appraisals for a handful of my clients and want to pass along some of my experiences.

What the Appraisal District is doing

The County hires licensed real estate appraisers to review and value each piece of real property in the county.  From that valuation, the Tax Assessor Collector applies the appropriate tax rates (each property has has numerous entities that levy taxes) and sends you a bill (yes, you bill is online http://tax.wilco.org/Appraisal/PublicAccess/).

Tax Rates

 Taxing entities and rates vary, as per the parcel.  For example, Georgetown ISD’s tax rate is different that Round Rock ISD’s tax rate; or the City of Cedar Park’s Tax Rate is different than the City of Leander’s Tax Rate.  If your parcel is in an unincorporated section of the county, there won’t be City taxes.

The appraiser places a value on the property as it stands on January 1st of the taxing year, so I am currently protesting valuations of my client’s property as they were on January 1, 2008.  If the property is improved on January 5, 2008, they can’t tax the improvement until next year.

Do they drive by and look at every property before they place a value you on it?  No, and they’ll tell you that.  Often they will increase/decrease the value by what trends they are finding in the market, which is fancy appraiser speak for *educated guess*.  So often it’s just a matter of you presenting your data that their educated guess is wrong.

Comps

The appraiser will research and find comparable sale or *comps*.  Comps are sale of properties the appraiser believes to be similar to your property.  This can be more difficult than it appears.  Texas is a non-disclosure state, meaning that buyers and sellers are not required by state law to disclose their sales price.  Most states are disclosure states and the property sales price is required to be listed on the deed.

A point of distinction, Multiple Listing Services (MLS) is the Internet listing service in which most residential properties are listed (and on occasion commercial and office properties).  By agreement with MLS, once a broker list a property on MLS, that broker is required to list the sales price of that property once it sales (or MLS will deny you the ability to use their service).  This is a private agreement with MLS, not state law.

As noted earlier, generally as a practice, commercial real estate brokers do not list their properties on MLS for this very reason.  What I am trying to tell you is that there are numerous sales that the county appraiser doesn’t know about or can’t discover the particulars, making their information and valuation imperfect.  I often have better and more current comps than the County Appraiser’s comps.

Comp Selection

In valuing your property, the Williamson County Appraisal District (http://www.wcad.org/) chooses a handful of comps (5-8) to value your property.  These are specific sales they can list for you and they are key in your protest.  Once they choose their comps, typically these are the comps they have to stick with.

Call the appraisal district and for a nominal fee they will give you a list of the comps they used.  They look for comps that they believe were sold for fair market value (http://en.wikipedia.org/wiki/Fair_market_value) or FMV.  Meaning properties that sold without duress, given fair time to expose the property for sale.  This means that sales on foreclosures and brother-in-law deals usually are not not good comps.

Your job is to show that their unfavorable comp is not a good comp and like wise, why your or their favorable comps are good comps.  You do this by reviewing the comps and point-out the differences/similarities in your property.

Last week I spoke at a local business club, something I do time to time, they wanted to know a couple things.  First, surprisingly, they wanted to know a little more about me.  After I put my notes together and spoke, I was surprised by what really held their attention.  I have lived in Round Rock and Williamson County for more than 36 years and in telling the story of myself, you have to tell the story of development and economic growth.  I often take for granted that everyone knows the story because everyone here has experienced it in some fashion, but 36 years is a pretty good run.

I believe the favorite story was when I told how I cried as a youth because I couldn’t get friends to come to my house and play because I lived too far out of town.  I lived in Egger Acres, that was the place too far out.  For those of you unaware, Egger Acres in almost at the intersection of I-35 and St. Hwy 79, now considered the heart of Round Rock.  That seems like two lifetimes ago.

I also gave them an update on the commercial real estate market, which always seems to be a topic of interest.  If you’d like me to speak to your group, I’d be glad to, just let me know.

The Bradley family with Jim & Russ Boles

The county broke ground on a sorely needed new annex on Old Settlers Blvd. today.  The Bradleys, who sold the property to the county are good friends and clients our ours.  Commissioner Birkman led the way in naming the new facility after Butch Bradley’s uncle, J.B. Jester, whose family has farmed this particular site for over one hundred years.

Located in Round Rock, this facility will serve as the Pct. 1 County Annex and will host among other things, Constable, Sheriff, Justice of the Peace, Commissioner and Tax Assessor offices.  There will also be a separate building to house EMS.  Dad and I are proud to be part of this project.