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Montana Administrative Register Notice 42-1023 No. 16   08/28/2020    
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BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.20.156, 42.20.601, 42.20.610, 42.20.620, 42.20.640, 42.20.655, 42.20.675, 42.20.681, and 42.20.682; and the repeal of ARM 42.20.606, 42.20.615, 42.20.630, and 42.20.635 pertaining to classification and valuation of class three property (i.e., agricultural land)

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND

REPEAL

 

TO: All Concerned Persons

 

1. On September 28, 2020, at 10:00 a.m., the Department of Revenue will hold a public hearing via remote conferencing to consider the proposed amendment and repeal of the above-stated rules.  Interested persons may access the public hearing in the following ways:

(a) Join Zoom Meeting: https://mt-gov.zoom.us/j/96259182849, Meeting ID: 962 5918 2849;

(b) Dial by Telephone: +1.406.444.9999 or +1.646.558.8656, Meeting ID: 96259182849;

(c) Join by SIP: 96259182849@zoomcrc.com;

(d) Join by H.323 (Polycom): 162.255.37.11## 96259182849; or

(e) Join by Skype for Business: https://mt-gov.zoom.us/skype/96259182849.

 

2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, please advise the department of the nature of the accommodation needed, no later than 5 p.m. on September 4, 2020. Please contact Todd Olson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or todd.olson@mt.gov.

 

3. GENERAL STATEMENT OF REASONABLE NECESSITY. ARM Title 42, chapter 20, subchapter 6 contains the department's administrative rules regarding the classification and valuation of class three property (i.e., agricultural land), as authorized under 15-7-201, MCA, et. seq.

Based on the department's periodic review of the rules subchapter, other related rules, and in preparation for the upcoming two-year reappraisal cycle for class three property which begins January 1, 2021, the department observes that certain rules contain redundancies to other rules within the subchapter, contain outdated definitions, text usage and rule references; and in some cases, do not reflect current department practices.

The department proposes to revise and relocate relevant content of ARM 42.20.606, 42.20.615, 42.20.630, and 42.20.635 into ARM 42.20.620 to provide improved rule organization for agricultural land application and classification requirements for land totaling less than 160 acres. The department proposes to repeal ARM 42.20.606, 42.20.615, 42.20.630, and 42.20.635 based on the transfer of content.

The department proposes to amend definitions in ARM 42.20.601, amend ARM 42.20.610, 42.20.640, 42.20.655, and 42.20.682 to remove unnecessary redundancies to other rules, update language usage for consistency, and insert necessary cross-references.

The department further proposes to amend: ARM 42.20.156 to update land classification change criteria; ARM 42.20.675 to implement House Bill 24 (HB 24) amendments made to 15-7-201, MCA, made by the 2019 Montana Legislature; and ARM 42.20.681 to update the agricultural commodity prices and values for the upcoming reappraisal cycle.

While this general statement of reasonable necessity covers the basis for the following proposed rulemaking, it is supplemented below, where necessary, to explain rule-specific changes.

 

4. The rules as proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

 

42.20.156 AGRICULTURAL AND FOREST LAND USE CLASSIFICATION CHANGE CRITERIA (1) The department will change the classification and valuation of land from class three, as defined in 15-6-133, MCA, or class ten, as defined in 15-6-143, MCA, to class four, as defined in 15-6-134, MCA, when any of the following land use change criteria are met:

(a) restrictive covenants, easements, deed restrictions, servitudes, conservation easements, or other legal encumbrances that exist and when are enforced to effectively prohibit forest or agricultural use of the land;

(b) the forest land does not no longer meets the eligibility requirements definition of forest land in 15-44-102, MCA, the forest land classification requirements in ARM 42.20.705, and subsequently does not meet the agricultural land classification requirements of 15-7-202, MCA;

(c) the land contains three or more of the following physical site improvements:

(i) through (vii) remain the same.

(viii) a fire hydrant; or

(ix) landscaping developed for the aesthetic benefit or security of all the landowners; or

(d) remains the same.

(2) Examples of what would not be considered a change in land classification based on this rule are:

(a) utility lines that run across the property but are provided for the benefit of a third party and not for access or the benefit of the property owner;

(b)  easement access roads that are provided for the benefit of a third party and not for access or the benefit of the property owner.

(3) (2) When the criteria in (1) are met, Tthe department will value land will be valued at 100% of market value under class four, as provided in 15-8-111, MCA instead of its productivity value when any of the criteria in (1) are met.

(3) Examples of land use criteria change not considered for a change in land classification include utility lines that cross a property or easement access roads provided for the benefit of a third party and not for access or the benefit of the property owner.

 

AUTH: 15-1-201, 15-7-111, 15-44-105, MCA

IMP: 15-1-101, 15-6-133, 15-7-103, 15-7-111, 15-7-202, 15-7-206, 15-7-207, 15-7-210, 15-44-102, 15-44-103, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity, the department proposes to amend ARM 42.20.156 beginning with the catchphrase to clarify that the rule pertains to land classification change criteria for class three and class ten property, but not specifically agricultural and forest land. Class three property includes agricultural land, nonproductive patented mining claims, and nonqualified agricultural land as provided in 15-6-133, MCA.

The department proposes deleting the words "and valuation" from (1) because the references to 15-6-133, 15-6-134, and 15-6-143, MCA, pertain to land classification and not land valuation. The department proposes amendments to (1)(a) through (c) to remove unnecessary verbiage that does not lend to understanding how the department classifies land according to its use and proposes to include relevant statutory attribution and administrative rule cross-references.

The department proposes revising text in (2) and (3) for style, plain language usage, and inclusion of necessary cross-referencing.

 

42.20.601 DEFINITIONS The following definitions apply to this subchapter:

(1) "Agricultural application" means department form AB-3 used by taxpayers to request agricultural classification of land.

(2) (1) "Agricultural products produced by the land" means crops or forage raised directly in the land's soil and used to support livestock. "Agricultural products produced by the land" does not mean land that is used as a "platform" for agricultural activities use such as. Examples of agricultural activities that do not meet the definition "agricultural products produced by the land" are the feeding of livestock from external sources that allow stocking rates to exceed the carrying capacity or crops produced in potted soil that are not grown directly in the land's soil.

(3) (2) "Ancillary improvements," as provided in 15-1-101, MCA, means improvements necessary for the production and storage of raw agricultural commodities. These improvements do not include improvements that are used to process, treat, or package raw agricultural commodities into a value-added product, or improvements designed to accommodate and serve the public.

(4) through (6) remain the same but are renumbered (3) through (5).

(7) (6) "Bona fide agricultural operation" means an agricultural enterprise in which the land actually produces agricultural crops products provided under the term, agricultural, defined in 15-1-101, MCA, that directly contribute agricultural income to a functional agricultural business.

(8) remains the same but is renumbered (7).

(9) "Classification" is the agricultural use of the land. The department classifies agricultural land into one of five agricultural use classes. The department's five agricultural uses are described in ARM 42.20.660 through 42.20.680.

(10) (8) "Conservation reserve program (CRP)" means a federal farm program administered by the Farm Service Agency (FSA) that pays agricultural landowners to remove land from crop production on highly erodible soils for a specified period of time.

(11) (9) "Contiguous parcels of land" means separately described parcels of land under one ownership that physically touch one another or would have touched one another were the acreages not separated by:

(a) deeded roads and highways,;

(b) navigable rivers and streams,;

(c) railroad lines,; or

(d) federal or state land that is leased from the federal or state government by the taxpayer the owner whose land is physically touching the federal or state land.

(12) and (13) remain the same but are renumbered (10) and (11).

(14) "Effectively prohibit" means to result in the permanent cessation of a bona fide agricultural operation.

(15) (12) "Income from agricultural production" means the gross amount of income received from the sale of food, feed, fiber commodities, livestock, poultry, bees, biological control insects, fruits, vegetables, and also includes sod, ornamental, nursery, and horticultural crops that are raised, grown, or produced for commercial purposes, income from farm rental, the sale of draft, breeding, dairy, or sporting livestock, the share of partnership or family corporation gross income received from a farming or ranching business entity, or the taxpayer's share of distributable income from an estate or trust involved in an agricultural business. When the income from agricultural production is used to qualify land for agricultural land classification, it must be reportable income for income tax purposes.

(a) Wages received as a farm employee or wages received from a farm corporation are not gross income from farming.

(b) A bona fide agricultural operation may combine the income of more than one parcel to meet the income requirements. The parcels must be dependent upon each other in the agricultural operation as a whole.

(16) (13) "Land use" means land placed into a certain type of service or utilization, such as the agricultural uses described in ARM 42.20.660 through 42.20.680. the utilization of land which directly relates to its classification, in accordance with 15-7-103, MCA. 

(17) remains the same but is renumbered (14).

(18) (15) "Livestock" means the same as it is defined in 15-1-101, MCA, means cattle, sheep, swine, goats, horses, mules, asses, llamas, alpacas, bison, ostriches, rheas, emus, and domestic ungulates.

(19) remains the same but is renumbered (16).

(20) "Noncontiguous parcels of land" means parcels of land under one ownership that are physically separated from one another by land in a different ownership other than deeded roads and highways, navigable rivers and streams, railroad lines, or federal or state land that is leased from the federal or state government by the taxpayer whose land is physically touching the federal or state land.

(21) (17) "Nonqualified agricultural land" means parcels of land of 20 acres or more but less than 160 acres under one ownership that are not eligible for valuation, assessment, and taxation classification as agricultural land under 15-7-202(1), MCA.

(22) remains the same but is renumbered (18).

(23"Owner" means that the applicant and owner of record are the same individual, corporation, partnership, sole proprietorship, or trust.

(24) and (25) remain the same but are renumbered (19) and (20).

(26) (21) "Poultry" means domesticated birds raised for eggs, meat, or other commercially marketable products that are not included in the definition of livestock as described in 15-1-101, MCA. the same as it is defined in 15-1-101, MCA.

(27) "Productive capacity or productivity" means the ability of a soil to produce crops or forage under the environment where it occurs and under a specified system of management. The productive capacity can change over time due to changes in soil fertility or more efficient farming practices and equipment.

(28) "Productive capacity value and productivity value" are synonymous and interchangeable terms for the per-acre value of the agricultural land based on its productive capacity. The productive capacity value is determined using the formula described in 15-7-201, MCA, and is further identified in ARM 42.20.660, 42.20.665, 42.20.670, 42.20.675, and 42.20.680.

(22) "Productivity" means the ability of a soil to produce crops or forage at the location, and under the environment and a specified system of management. Productivity can change over time due to changes in soil fertility or more efficient farming practices and equipment.

(23) "Productivity value" means the per-acre value of the agricultural land based on its productivity. The productivity value is determined using the formula provided in 15-7-201, MCA, and described in the subchapter.

(29) (24) "Residence" means all conventionally constructed homes, as well as all mobile homes and manufactured housing, that may serve as living quarters for one or more individuals or a family, regardless of actual occupancyThe occupancy of the residence shall be irrelevant.

(30) through (32) remain the same but are renumbered (25) through (27).

(33) (28) "Sole proprietorship" for the purposes of qualifying land for agricultural assessment and taxation land classification under the provisions of 15-6-133 and 15-7-202, MCA, and ARM 42.20.625 42.20.682, means an ownership of agricultural land in the name of one or more individuals which can be any of the following: grandparent(s), parent(s), spouse, sibling(s), children, stepchildren, aunt(s), uncle(s), and first generation cousin(s).

(34) (29) "Under one ownership" means one party owns when two or more parcels of land when the title is in the party's are deeded under an owner's identical name or names; or when an owner has obtained department recognition of parcels under one ownership through the affidavit process described in ARM 42.20.620 the party has received title in the parcels by a transferring instrument such as a deed, contract for deed, or judgment; and the party has the present right to possess and use the parcels.

 

AUTH: 15-7-111, MCA

IMP: 15-1-101, 15-6-133, 15-7-201, 15-7-202, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity, the department proposes striking current (1) as the definition is not used in the subchapter and it incorrectly identifies the agricultural land classification application.

The department proposes terminology changes in proposed (1) to reflect terminology proposed in ARM 42.20.620 which also exists in ARM 42.20.683. The department also proposes striking other substantively redundant text from proposed (1), and text which is already provided in ARM 42.20.683(1)(d).

In proposed (2), the department proposes inserting a cross-reference to 15-1-101(1)(d)(ii)(C), MCA. The department is proposing this amendment to tie the term back to the statute.

In proposed (6), the department proposes replacing the word "crops" with "products" and inserting necessary verbiage to clarify necessity for the inclusion of agricultural crops under the broader term of "agricultural products" that are grown, raised, or produced for commercial purposes and defined as "agricultural" in 15-1-101, MCA.

The department proposes striking the definition of "classification" in current (9), as it is unnecessary since 15-7-103, MCA, provides that ". . . [a]ll lands must be classified according to their uses or use." Additionally, the rule cross-references in the definition are obsolete since rules mentioned were repealed effective February 1, 2020.

In proposed (8), the department proposes updating the definition of Conservation Reserve Program (CRP) to include the name of the federal Farm Service Agency (FSA) that administers the program for necessary attribution.

The department proposes amending proposed (9) to make the definition consistent with "contiguous parcels of land" defined in ARM 42.20.701. The amendment in (9)(b), which removes the navigability of rivers and streams requirement for parcel contiguity, is consistent with prior department rulemaking adopted under MAR Notice No. 42-2-977 (2017). The department also proposes striking the word "taxpayer" in proposed (9)(d) and replacing with "owner" to better identify that the leasing party of government land must be the same owner of the adjacent property for the parcels to be considered contiguous for land valuation purposes.

The department proposes removing the definition in current (14), because its meaning is not consistent with plain language usage and the verbiage is applied more correctly throughout the subchapter. Maintaining the definition could also lead to confusion with the definition of bona fide agricultural operation in (6). The department is proposing a similar amendment to ARM 42.20.156 to clarify how "effectively" should be interpreted by property owners.

In proposed (12), the department proposes transferring the content from (b) to ARM 42.20.620(4) because the text contains requirements in addition to the definition and ARM 42.20.620 is a more appropriate location.

The department proposes to amend the definition of "land use" in proposed (13) by simplifying verbiage, striking obsolete rule references, and including the statutory authority of 15-7-103, MCA, since land is classified according to its use.

In proposed (15), the department proposes to maintain the definition but remove the examples as they are redundant to what is included in the definition in 15-1-101, MCA.

The department proposes striking the definition of noncontiguous parcels of land in current (20), as the definition is the direct opposite of contiguous parcels of land defined in proposed (9) and offers no measurable benefit from its continued use.

In proposed (17), the department proposes to correct a misstatement in the definition that could lead to confusion by removing the words "valuation, assessment, and taxation," because nonqualified agricultural land is not valued, assessed, or taxed as agricultural land because it is not eligible for that classification. Land valuation and taxation are based on the land's classification.

In proposed (22), the department proposes to maintain the definition but remove the examples as they are redundant to what is included in the definition in 15-1-101, MCA.

The department proposes removing the definitions in current (27) and (28) and providing revised definitions in proposed (22) and (23). The department contends that striking "productivity capacity" and "productive capacity value" with what is stated in 15-7-201, MCA, will simplify terminology. These proposed changes reflect the department's efforts to make its rules easier to understand and more concise.

The department proposes amending the definition in proposed (29) for correct use of terminology consistent in the subchapter and to update cross-references.

The department is also proposing to remove the obsolete rule reference to ARM 42.20.625 which was repealed in December 2014.

The department proposes amending the definition in proposed (30) to improve rule text and to reflect the affidavit process for department acknowledgment of ownership of parcels in ARM 42.20.620(2).

 

42.20.610 CLASSIFICATION AND APPRAISAL OF EASEMENTS ON AGRICULTURAL LAND (1) Road, irrigation ditch, or power line easements that do not transfer title to such rights-of-way are taxable and will be classified and valued as adjoining agricultural land.

(2)  A deeded right-of-way that is conveyed through a deed or other instrument, from a private owner to a government agency or other tax-exempt entity is not taxable and the acreage is deducted from the ownership in which it is located. If the deeded right-of-way splits two or more ownerships, such as along a deeded county road, the department will deduct proportional amounts of acreage from each ownership. A record of the conveyance must be available in the local county clerk and recorder's office.

(3) To determine the total acreage of land devoted to the easement or deeded right-of-way, the department shall determine the square footage and convert the square footage to acres by dividing the square footage by 43,560.

 

AUTH: 15-7-111, MCA

IMP: 15-7-103, 15-7-201, 15-7-206, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity, the department proposes to amend ARM 42.20.610 by revising the catchphrase and to remove the word "valued" in (1), because the rule pertains to classification, and not classification and appraisal.

The department also proposes inserting "the acreage" in (2) to clarify that a right-of-way's acreage is deducted from the ownership when a deed or other instrument is conveyed to a government agency or other tax-exempt entity.

The department proposes removing (3) as the formula for converting square feet to acres is informational only and is not necessary in the rule.

 

42.20.620 CRITERIA APPLICATION AND CLASSIFICATION REQUIREMENTS FOR AGRICULTURAL LAND VALUATION FOR LAND TOTALING LESS THAN 160 ACRES (1) Multiple parcels of land, consisting of totaling less than 160 acres, both contiguous and noncontiguous, in the same under one ownership, actively devoted to agricultural use and part of a bona fide agricultural operation may be classified as agricultural land for the current tax year if the property owner submits an Agricultural Land Classification Application (application) to the department by March 1 and the land must meets all of the production and income qualification tests requirements provided in these rules this rule, ARM 42.20.682, and ARM 42.20.683 for classification as agricultural land classificationThe department's application review process may include a field evaluation, additional information requests, and will conclude with the approval or denial of an application.

(2) A person who owns contiguous parcels of land deeded in non-identical names may file an affidavit with the department attesting that the names are one and the same person, for the department's determination of under one ownership.

(2) (3) Noncontiguous parcels of land in the same ownership and actively devoted to agricultural use can that are an integral part of the agricultural operation may combine agricultural production income and/or livestock carrying capacity of the parcels of land to meet eligibility agricultural land classification requirements. Each noncontiguous parcel of land, less than 160 acres in size and not a that is not part of a larger agricultural operation, must individually meet the agricultural eligibility criteria land classification requirements set forth in this rule.

(3) An applicant for agricultural land classification must prove that the land indicated in the application actually produced agricultural crops as defined in 15-1-101, MCA.

(4) A personal property reporting form that lists the farm and ranch personal property and livestock on the land must be completed by the current landowner and be on file at the local department office.

(5) If agricultural products, other than livestock, are marketed from the land identified in the application, the applicant must provide proof that the parcel(s) indicated in the application produced at least $1,500 gross agricultural income each year.

(4) The land must produce an agricultural product provided under the term "agricultural" found in 15-1-101, MCA.

(6) (5) Income must be from The property owner must submit documentation to verify $1,500 annual gross income or more in sales of agricultural products, other than livestock, marketed by, or received by the property owner, the property owner's family members, or the property owner's agent, employee, or lessee. Acceptable proof of income documentation must includes:

(a) sales receipts;, cancelled checks, copies of income tax statements, or other written evidence of sales transactions;

(b) cancelled checks;

(c) copies of income tax statements;

(d) other written evidence of sales transactions;

(e) (b) annual rental or lease payments of at least $1,500, provided there is demonstrated proof of agricultural activity on the land and if the land is in an agricultural use and capable of sustaining that activity agricultural use; or

(f) (c) annual rental payments of at least $1,500, made under from the federal conservation reserve program (CRP), or a similar program that reimburses the landowner for removing the land from the current agricultural use and placing it in a different agricultural use.

(7) (6) For parcels of land under 20 acres, (6)(e) (5)(b) and (f) (c) are not considered eligible agricultural income for this rule sources.

(8) The sale of biological control insects shall be considered agricultural income if the insects are supported solely from noxious weeds grown on the land indicated on the application.

(9) (7) For grazing land, the land must be capable of sustaining Land used to raise livestock must have the capacity to produce forage based on the United States Department of Agriculture, Natural Resources and Conservation Service (NRCS), soil survey to support a minimum carrying capacity expressed in animal unit months, as provided in 15-7-201, MCA, and ARM 42.20.681The minimum animal unit months must equate to $1,500 in annual gross income as determined by the Montana State University-Bozeman's Department of Agricultural Economics and Economics, with cattle as the base.

(a) For the reappraisal cycle ending December 31, 2020, the Montana State University-Bozeman's Department of Agricultural Economics and Economics determined the minimum number of animal unit months of carrying capacity to be 31 animal unit months.

(b) The department will use the NRCS soil survey information to calculates the carrying capacity for: nonirrigated native grazing land.

(a) non-irrigated native grazing land from the NRCS soil survey information;

(c) (b) For non-irrigated domestic grazing land, by increasing the department shall increase the estimated non-irrigated native grazing land carrying capacity in (a) by 50 percent.; and

(c) grazing land from site-specific and pertinent information provided by the property owner.

(10) (8) For land other than grazing land that is used primarily to raise crops for consumption by humans, livestock, poultry, or other animals in the agricultural operation rather than for market, the applicant property owner must prove that the land on the application produced the annual equivalent of $1,500 in gross agricultural income from these crops. Proof of income Income documentation must include:

(a)  a written estimate record of the weight or quantity of food or other eligible agricultural product crop produced and the current commodity priceThe weight provided must be multiplied by the current commodity price to determine that the minimum annual gross income of $1,500 was met; and The crop value is determined by multiplying the quantity by the commodity price. Receipts from the sales of agricultural products from livestock, domestic animals, and wildlife, provided in 15-1-101, MCA, are not eligible for meeting the $1,500 annual gross income requirement but may be submitted to prove a commercial purpose of operation.

(b) if the consumption was from livestock, or the livestock was consumed by humans, the land must be capable of sustaining the minimum number of animal unit months of carrying capacity described in (9), with cattle as the base.

(11) (9) Non-irrigated Ssummer fallow farmland must produce a minimum of $1,500 in agricultural crop income in the year it is farmed to be valued as agricultural land meet the income requirements in (5) and (6) in the year it is cropped.

(10) Annual gross income documentation from the prior year may be submitted if:

(a) the land experienced a production failure in the current year that was beyond the control of the property owner from drought, fire, hail, insect infestation, frost, flood, or excessive rain. The department does not allow the results of overgrazing and other management practices as sources of production failure;

(b) the property owner; the property owner's family members; or the property owner's agent, employee, or lessee delayed marketing agricultural products they grew, raised, or produced from the land, to take advantage of future economic conditions. The marketing delay must not exceed 12 months from the initial date of application for agricultural land classification.

(12) A parcel or parcels of land less than 20 acres that meet all of the following criteria will remain classified and valued as agricultural land or as nonqualified agricultural land as defined in 15-6-133 and 15-7-202, MCA. The criteria that must be met are:

(a) the parcels are contiguous or noncontiguous parcels of land under one ownership;

(b) the parcel or parcels previous to a reduction in acreage as defined in (c) totaled 20 acres or more in size and qualified as agricultural land or as nonqualified agricultural land under 15-6-133 and 15-7-202, MCA;

(c) a portion of the parcel or parcels was taken by or given without compensation, or sold for a public use as described in 70-30-102, MCA, to the federal government, the state, a county, or a municipality, and that action reduced the number of acres in the parcel or parcels to less than 20 acres; and

(d) since the reduction in acreage occurred, the parcel or parcels have not been further divided or devoted to a residential, commercial, or industrial use, and there are no covenants or other restrictions that when enforced effectively prohibit agricultural use.

(13) A parcel or parcels of land that meet the criteria in (12)(a) through (d) are eligible for the classification determination identified in (12) regardless of when the acreage reduction occurred. However, taxpayers must notify the department of their eligibility in writing by submitting a Request for Informal Classification and Appraisal Review, Form AB-26, within 30 days from the date on the classification and appraisal notice for eligibility to begin in the first year of the two-year valuation cycle, or by June 1 in the second year of the valuation cycle for eligibility to begin in the second year.

(14) No refunds of taxes resulting from a reclassification of parcels under this part will be allowed for any tax year prior to the tax year in which the taxpayer notifies the department of their eligibility in (13).

(15) For contiguous and noncontiguous parcels of land under one ownership as defined in ARM 42.20.601 totaling less than 20 acres in size, any acreage in excess of that stated in the forest land classification in ARM 42.20.705 is classified as agricultural provided the acreage is actively devoted to qualifying agricultural use. 

(11) Land previously classified as agricultural land or nonqualified agricultural land in a prior year which is now reduced to less than 20 acres as the result of eminent domain, authorized under 70-30-102, MCA, maintains its classification unless the land has been further divided or is devoted to a residential, commercial, or industrial use, as provided in 15-7-202, MCA. The property owner must notify the department of the land's eligibility to maintain its agricultural land classification by submitting a Request for Informal Classification and Appraisal Review, Form AB-26.

(12) For land less than 20 acres under one ownership with a portion of the land classified as forest land, the remainder of the acres are classified as agricultural land if the land meets the requirements of agricultural land classification.

(13) The department may change an agricultural land classification if the:

(a) property changes ownership;

(b) property is subdivided; or

(c) department believes the property no longer meets the agricultural land requirements provided in the subchapter.

(14) Land classified as agricultural land will remain classified as agricultural land until the department determines the land use has changed.

(15) If the property owner disagrees with the department's reclassification action, the owner must submit an Agricultural Land Classification Application, within 30 days of the date on their reclassification notification.

(16) If a property owner owns personal property related to the bona fide agricultural operation, and the market value of the personal property is above the threshold provided in 15-6-138, MCA, then the property owner must submit to the department each year a completed personal property reporting form in accordance with the requirements provided in 15-8-301, MCA, and ARM 42.21.158.

 

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-102, 15-7-201, 15-7-202, 15-7-203, 15-7-206, 15-7-207, 15-7-208, 15-7-209, 15-7-210, 15-7-212, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity, the department proposes several amendments within ARM 42.20.620 to improve clarity of content organization and classification requirements throughout the rule. The department proposes revising the catchphrase to reflect the proposed changes in the rule content which are described below.

The department proposes transferring classification application content from ARM 42.20.615(1) and consolidating it with existing and revised text in current (1). The department proposes changing the land classification application submission deadline to March 1 so the department may begin the processing of agricultural land classification applications before classification and appraisal notices are sent to property owners, which will help them determine earlier any potential property classification changes for the current tax year. The department also proposes providing cross-references for necessary attribution of requirements stated in related rules. The department proposes transferring content from ARM 42.20.615(2) and revising it into proposed (2).

The department proposes (4) to include the necessary statutory authority that agricultural land must first meet the agricultural products requirements described in 15-1-101, MCA.

In proposed (5), the department's amendments seek to update documentation reviews of annual gross income requirements. The department also proposes revising Conservation Reserve Program (CRP) references with the definition proposed in ARM 42.20.601. The department proposes revising internal references in (6) for consistency with reorganized (5).

The department proposes striking current (8) to eliminate the redundant language found in ARM 42.20.683(4).

In proposed (7), the department proposes replacing unnecessary text with cross-references to 15-7-201, MCA, and ARM 42.20.681, which is appropriate. The department also proposes to provide a process in proposed (7)(c) that permits property owners to provide pertinent and site-specific data for their land to the department when NRCS soil survey productivity data may be absent or when a property owner disputes the productivity rating from the soil survey.

The department proposes amendments to proposed (8) to increase accuracy and understanding of the income requirements for crops consumed by animals that are part of a commercial agricultural operation; and remove the word "human," as it is not included in the definition of "agricultural" in 15-1-101, MCA. This is a change from past practice, adopted in 2004 under MAR Notice No. 42-2-733, in response to property tax appeals involving crops raised for human consumption. The department has researched the matter further and confirms that the value of agricultural products for the property owner's consumption may not be used to meet the $1,500 annual gross income requirement.

Further, in proposed (8), the department also proposes the removal of vague or potentially contradictory text. For instance, an estimate is not proof of the harvest and the word "product" implies that the item does not have to be the raw commodity but can be value-added items which contradicts statute. Other amendments in proposed (8) seek to assist property owners with additional information regarding receipts from the sales of agricultural products from livestock, poultry, or other animals.

The department proposes revising text in proposed (9) to lessen redundancy and better describe summer fallow farm land. Other revisions proposed include inserting a cross-reference to the income requirement in proposed (5) and correcting word usage in the section.

The department proposes transferring content from ARM 42.20.630 into proposed (10) and (10)(a), and text from ARM 42.20.635 into proposed (11)(b).

The department proposes consolidating and revising content in current (12) and (13) as proposed (11). Text is proposed for revision for consistency of terminology or where the text is unnecessarily redundant to that provided in 15-7-102, MCA.

The department proposes removing current (14) as unnecessary since a Form AB-26 cannot be submitted for a classification or valuation change for prior years in accordance with 15-7-102, MCA.

The department proposes transferring text from ARM 42.20.615(4) to proposed (12) through (15) to consolidate all of the requirements for agricultural land classification for land totaling less than 160 acres.

Lastly, proposed (16) reflects the department's revisions to text from current (4) because certain text is obsolete because of legislative changes. The 2013 Legislature passed Senate Bill 96 and changed the class eight (personal property) exemption threshold from $20,000 to $100,000. Property owners must submit a personal property reporting form to the department each year they own personal property (business equipment) with a market value above the $100,000 threshold, pursuant to 15-6-138, MCA. The department also included the cross reference to the personal property reporting requirements found in ARM 42.21.158 for necessary attribution of authority. The word "livestock" was not included in proposed (16) text because livestock is no longer reported for per capita fees on the personal property reporting form, effective since 2015.

 

42.20.640 VALUATION CLASSIFICATION OF LAND OWNERSHIPS 160 ACRES OR LARGER IN SIZE (1) In accordance with the provisions of 15-7-202, MCA, contiguous parcels of land with 160 acres or more and under one ownership as defined in ARM 42.20.601 160 acres or larger in size shall be valued classified as agricultural land, provided that no portion of the ownership land meets the criteria requirements for forest land classification and there are no covenants, easements, deed restrictions, or other operations of law that when enforced prohibit the land from being used as agricultural, or the land is not used for residential, commercial, or industrial purposes other restrictions described in ARM 42.20.156.

(2) Under this rule, an ownership or the portion of an ownership meeting the criteria for forest land classification set forth in ARM 42.20.156, 42.20.705, and 42.20.710 shall be classified and valued as forest land.

(3) Any remaining acreage in the ownership parcel will be classified and assessed as agricultural land provided the land is not used for residential, commercial, or industrial purposes, and that the land doesn't have stated restrictive covenants, easements, deed restrictions, servitudes, conservation easements, or other legal encumbrances that when enforced effectively prohibit agricultural use. If the remaining acreage in the ownership parcel is either used for residential, commercial, or industrial purposes, or has stated covenants or other restrictions that when enforced effectively prohibit agricultural use, the remaining acreage will be classified and valued as class four land.

(4) For contiguous parcels of land that are 160 acres or larger in size, and under one ownership as defined in ARM 42.20.601, any acreage exceeding that which meets the criteria for forest land set forth in ARM 42.20.156, 42.20.705, and 42.20.710, or has stated restrictions that when enforced effectively prohibit agricultural use, or is used for residential, commercial, or industrial purposes, shall be assessed and taxed as land not specifically included in another class in accordance with 15-6-134(1)(a), MCA.

(5) (2) Land under the CRP, the Integrated Farm Management (IFM) program, or any other similar program that reimburses the landowner to remove the land from the current agricultural use and places it in a different agricultural use shall be shall remain classified and valued in the same land use category the acreage was in when it became eligible as it was prior to enrollment for in the programs.

 

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-201, 15-7-202, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity provided above, the department proposes to amend ARM 42.20.640 because the rule pertains specifically to the classification of land 160 acres or larger in size. The department proposes striking the words "valuation" and "ownership" from the catchphrase because the rule pertains to classification, not valuation, and 'ownership' is superfluous and potentially confusing because ownership is a factor in classification but not in a specified manner conveyed in the current catchphrase.

The department proposes striking the text regarding covenants and other restrictions in (1) and inserting a cross-reference to ARM 42.20.156 to lessen redundancy.

The department proposes striking (2), (3), and (4) as the content is provided in ARM 42.20.156 and is redundant. The cross-reference to ARM 42.20.710 in (2) was not proposed for transfer to ARM 42.20.156 as the rule is currently proposed for repeal in MAR Notice No. 42-1021, which is pending as of the publication of this notice.

 

42.20.655 CLASSIFICATION AND VALUATION OF ONE-ACRE OF LAND BENEATH RESIDENCES IMPROVEMENTS LOCATED ON AGRICULTURAL LAND AND NONQUALIFIED AGRICULTURAL LAND (1) An agricultural valuation will be made for each one-acre area beneath each residence(s) located on agricultural land as defined in ARM 42.20.660, 42.20.665, 42.20.670, 42.20.675, and 42.20.680.

(a) Occupancy of the residential improvement for the purpose of applying this rule shall be irrelevant.

(b) A single one-acre agricultural land value determination will be made when multiple residences are located on the same one-acre area.

(c) Each one-acre area beneath the residence(s) on agricultural land as stated in (1) shall be appraised according to the highest productivity value of agricultural land.

(d) To avoid double taxation, the productive capacity value for the one acre beneath the residence(s) on agricultural land must be subtracted from the productivity value for the entire property ownership.

(1) Each one-acre of land beneath any residences located on agricultural land is classified as agricultural land and valued according to the highest productivity value of agricultural land, in accordance with 15-7-206, MCA.

(2) A market value determination will be made for each Each one-acre area of land beneath each any residence(s)s which is located on nonqualified agricultural land is classified as class four land and valued according to the market value of comparable land.

(a) Occupancy of the residential improvement for the purpose of applying this rule shall be irrelevant. 

(b) A single one-acre market value determination will be made when multiple residences are located on the same one-acre area.

(c) Each one-acre area beneath a residential improvement on nonqualified agricultural land as defined in (2) shall be appraised according to market value consistent with that of comparable land.

(d) (a) If the one acre of land is located on a nonqualified agricultural parcel of land that is many miles from a suburban area, the market value assigned to the one-acre area land will be consistent with the market value of comparable land. In no case will the market value be lower than the lowest market value assigned to improved tracts within the county.

(e) (b) If the one acre of land is located on a nonqualified agricultural parcel of land that is near a suburban area, the market value assigned to the one-acre area land will be consistent with the market value of surrounding suburban land.

(f) To avoid double taxation, the statewide average productivity value of the grazing land for the one acre beneath the residence(s) on nonqualified agricultural land improvements must be subtracted from the productivity value for the entire property ownership.

(3) No specific site improvement values for water systems and septic systems will be added to the one-acre land values determined in (2)(d) and (e). 

 

AUTH: 15-1-201, MCA

IMP: 15-6-134, 15-7-103, 15-7-201, 15-7-202, 15-8-111, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity provided above, the department proposes amending ARM 42.20.655 and revising the catchphrase by removing "improvements" and adding "residences" and "located" as the rule content pertains to the classification and valuation of one acre of land beneath residences located on agricultural land and nonqualified agricultural land.

The department proposes striking current (1) and revising content in proposed (1) for improved organization, to lessen redundancy, and to include a statutory cross-reference regarding the valuation of one-acre of land beneath a residence located on agricultural land. The cross-references to ARM 42.20.660, 42.20.665, and 42.20.680 in current (1) are obsolete as the rules were repealed on February 1, 2020; the cross-reference to ARM 42.20.675 is proposed to be stricken as the rule pertains to the valuation of irrigated land.

The department also proposes striking the text in (1)(a) and (2)(a) because "residence" is a defined term in the subchapter regardless of occupancy. The department proposes striking (1)(d) and (2)(f) because the content is obsolete as it reflects an old process in the manual determination of the one acre applicable to the residence(s) present on the agricultural land. The department classifies all property according to its use and does not calculate two values for the same one-acre of land.

The department proposes consolidating the text in (2) to improve understanding of the subject matter.

Current (3) text was not kept or transferred to another rule because it became obsolete based on amendments to 15-7-103(7), MCA, made by the 2015 Montana Legislature under Senate Bill 157.

 

42.20.675 IRRIGATED AGRICULTURAL FARM LAND VALUATION

(1) remains the same.

(2) The department calculates net income per acre (I) by:

(a) and (b) remain the same.

(c) subtracting the $50.00 allowable water costs per acre of irrigated farm land from the value determined in (2)(b). The department calculates allowable water costs as provided in 15-7-201, MCA, and the department's Montana Agricultural Land Classification and Valuation Manual, adopted and incorporated by reference in ARM 42.18.121.

(3) and (4) remain the same.

(5) If the land owner fails to provide their energy costs to the department, as required by 15-7-201, MCA, the department will calculate the irrigated farm land productivity value without an energy cost deduction.

(6) The department may gather energy cost data and conduct property field reviews and energy cost audits. 

 

AUTH: 15-1-201, MCA

IMP: 15-7-103, 15-7-201, MCA

 

REASONABLE NECESSITY: As stated in the general statement of reasonable necessity, the department proposes to amend ARM 42.20.675 which is necessary to implement the irrigated farm land allowable water costs changes to 15-7-201, MCA, under HB 24. The allowable water costs for irrigated farm land are no longer calculated and are now set at a uniform amount of $50.00. The department proposes to amend (1)(c) to include the stated water costs and remove water costs calculations and Montana Agricultural Land Classification and Valuation Manual references because they are now unnecessary.

The department proposes striking (5) and (6) because the energy component of water costs in 15-7-201, MCA, was also eliminated by HB 24.

 

42.20.681 AGRICULTURAL COMMODITY PRICES AND VALUES

(1) Commodity prices for the 2019-2020 2021-2022 appraisal cycle used for the determination of income are calculated using a 10-year Olympic average of prices from Montana Agricultural Statistics for the years 2008-2017 2010-2019. The department's Olympic average removes the highest price and the lowest price and averages the remaining eight prices. The commodity prices used for valuing agricultural land for the 2019-2020 2021-2022 appraisal cycle are as follows:

(a) Spring wheat price used in the valuation of non-irrigated summer fallow and non-irrigated continuous cropped farm lands is $6.50 $6.16 per bushel.

(b) Alfalfa hay price, reduced by 20 percent as required by 15-7-201, MCA, used in the valuation of irrigated and non-irrigated hay lands is $98.20 $105.80 per ton.

(c) Private grazing fees used in the valuation of grazing lands is $20.93 $22.49 per Animal Unit Month (AUM).

(2) The minimum value of irrigated land as determined by the methodology detailed in ARM 42.20.675 is $583.98 $552.99 per acre.

(3) remains the same.

(4) For the 2019-2020 2021-2022 appraisal cycle the capitalization rate for Class 3 agricultural land, which is used to convert an ongoing income stream into an estimate of value is 6.4 percent.

(5) For the 2019-2020 2021-2022 appraisal cycle the highest productivity of non-irrigated continuously cropped farmland is 60 bushels per acre, and is used in calculating the values of specialty crop land.

(6) For the 2019-2020 2021-2022 appraisal cycle, the value of the one acre beneath a residence on agricultural land is $2,144 $1,866.

(7) For the 2019-2020 2021-2022 appraisal cycle, the minimum carrying capacity for grazing land to be eligible for agricultural classification is 31 23 AUMs as determined by the Montana State University - Bozeman, College of Agriculture, Department of Agricultural Economics and Economics, in accordance with ARM 42.20.620

 

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-201, 15-7-202, 15-7-206, 15-7-210, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity, the department proposes amending 42.20.681 to update the years, prices, and values for the upcoming reappraisal cycle that begins January 1, 2021.

The department proposes amending (1)(a) through (c) to update the rule with the current commodity price and production data for the base period obtained from the Montana Agricultural Statistics which is used for valuing agricultural lands in the upcoming reappraisal cycle. The department's use of the Montana Agricultural Statistics as its data source is required by 15-7-201, MCA.

 

42.20.682 FAMILY FARM REQUIREMENTS FOR AGRICULTURAL LAND CLASSIFICATION (1) Parcels of land between 20 acres and 160 acres that do not meet the agricultural land classification income requirements for agricultural eligibility as outlined in 15-7-202, MCA, and ARM 42.20.620 but which are used for farming or ranching, or as a part of a family farm or ranch business as described in 15-7-202, MCA, may be valued as agricultural land if the following requirements are met: taxpayer provides sufficient evidence, as described in this rule, to prove the property is part of a family farm or ranch business.

(2) The following proof of eligibility requirements will be considered when the owner of the land applies for agricultural land classification:

(a) the subject property must be located within 15 air miles of the family-operated farm or ranch;

(b) the property owner of the subject property must submit proof that 51 percent or more of the owner's Montana annual gross income is derived from agricultural production;

(c) remains the same.

(d) the property owner of the property must submit documentation proving that at least 51 percent of the farm or ranch entity's Montana annual gross income is derived from agricultural production.

(3) (2) If the conditions requirements of (2) (1) are satisfied, the land is eligible for agricultural land classification.

(4) (3) The department will accept a copy of a cancelled check as proof of payment of documentation that property taxes were paid by the family-operated business entity. Other acceptable proof of payments of the property taxes documentation will be considered on a case-by-case basis.

(5) (4) If the property owner of the subject property, which does not meet the requirements to be classified and valued as agricultural land, is a shareholder, partner, owner, or member of the family-operated farming or ranching entity involved in Montana agricultural production, the property owner they may qualify the subject property as agricultural land if proof the following documentation is submitted that details the legal relationship between the owner and the family-operated farming or ranching business entity. This proof must include:

(a) a copy of the documents documentation that establishes a legal relationship with the family-operated farming or ranching business entity, such as the documents on file with the Montana Secretary of State; and

(b) proof documentation that indicates at least 51 percent of the property owner's or family-operated farming or ranching business entity's Montana annual gross income comes from agricultural production.

(6) (5) If the conditions requirements of this rule are satisfied, the land is eligible for classification as agricultural land according to its use.

(7) (6) For all agricultural land classification applications received under this rule, the acceptable proof of income documentation will be the most recent year's Montana individual and/or corporate tax return, whichever is appropriate. The forms presented as proof must include all All state and federal income tax forms submitted must that detail the amount of income received from agricultural production as well as the amount of Montana gross income.

(8) A current county farm and ranch reporting form that reflects any livestock or personal property used on the land must have been filed by the current landowner with the local department office.

(7) If a property owner owns personal property related to the family farm or ranch business, and the market value of the personal property is above the threshold provided in 15-6-138, MCA, then the property owner must submit to the department each year a completed personal property reporting form in accordance with the requirements provided in 15-8-301, MCA, and ARM 42.21.158.

 

AUTH: 15-1-201, MCA

IMP: 15-7-201, 15-7-202, 15-7-203, 15-7-206, 15-7-207, 15-7-208, 15-7-209, 15-7-210, 15-7-212, MCA

 

REASONABLE NECESSITY: In addition to the general statement of reasonable necessity, the department proposes amending ARM 42.20.682 for subchapter consistency and to improve the public's understanding of the subject matter. The department proposes revising the catchphrase to better reflect the rule content. The department proposes revising (1) by inserting a cross-reference to ARM 42.20.620 to further describe the agricultural land classification income requirements.

The department proposes striking (8) as the text is obsolete. In proposed (7), the department proposes inserting the existing requirement that property owners submit a personal property reporting form to the department each year they own personal property (business equipment) with a market value above the $100,000 threshold, pursuant to 15-6-138, MCA. The department also included the cross reference to the personal property reporting requirements found in ARM 42.21.158 for necessary attribution of authority. The word "livestock" was not included in proposed (7) text because livestock has not been reported to the department for per capita fees on the personal property reporting form since 2015.

 

5. The department proposes to repeal the following rules:

 

42.20.606 EXCEPTIONS TO AGRICULTURAL LAND ASSESSMENT

 

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-6-134, 15-7-201, 15-7-202, 15-44-101, 15-44-102, 15-44-103, MCA

 

42.20.615 APPLICATION FOR AGRICULTURAL CLASSIFICATION OF LAND

 

AUTH: 15-1-201, MCA

IMP: 15-6-133, 15-7-202, MCA

 

42.20.630 PRODUCTION FAILURES

 

AUTH: 15-1-201, MCA

IMP: 15-7-201, 15-7-202, 15-7-203, 15-7-206, 15-7-207, 15-7-208, 15-7-209, 15-7-210, 15-7-212, MCA

 

42.20.635 MARKETING DELAY FOR ECONOMIC ADVANTAGE

 

AUTH: 15-1-201, MCA

IMP: 15-7-201, 15-7-202, 15-7-203, 15-7-206, 15-7-207, 15-7-208, 15-7-209, 15-7-210, 15-7-212, MCA

 

            6. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Todd Olson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail todd.olson@mt.gov and must be received no later than 5:00 p.m., October 2, 2020.

 

7. Todd Olson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

8. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. A written request may be mailed or delivered to the person in number 6 above or faxed to the office at (406) 444-3696 or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

9. An electronic copy of this notice is available on the department's web site at www.mtrevenue.gov, or through the Secretary of State's web site at sosmt.gov/ARM/register.

 

10. The bill sponsor contact requirements of 2-4-302, MCA, do apply with respect to the department's implementation of HB 24 (2019) and its amendments to ARM 42.20.675. The department contacted the bill sponsor via email on August 3, 2020.

 

11. With regard to the requirements of 2-4-111, MCA, the department has determined that the amendment and repeal of the above-referenced rules will not significantly and directly impact small businesses.

 

 

/s/ Todd Olson                                              /s/ Gene Walborn                                        

Todd Olson                                                   Gene Walborn

Rule Reviewer                                              Director of Revenue

 

Certified to the Secretary of State August 18, 2020.

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