Lawmakers tackle property tax reform for ag land

Clayton Murphy

HELENA (UM Legislative News Coverage) — Montana Legislators are pitching a tightrope of a bill in hopes of closing a loophole for large “unqualified” landowners who benefit from the lower agricultural property tax rate. 

But to do that, House Bill 27 would also create more hoops for farmers and ranchers to jump through to sort out who’s “bonafide” in agriculture and who’s not.

 ”We've had a lot of people waltzing right through that loophole and taking advantage of our good nature and getting that ag rate,” said Rep. Sherry Essmann, R-Billings. “We're not going to penalize anybody. We are going to ask people to pay their equitable and fair share of property taxes.”

Essmann is carrying HB 27, which is still being ironed out after its first committee hearing on Feb. 7 in the House Taxation Committee. The four-hour hearing drew long lines of both proponents and opponents. Committee Chair Rep. Paul Fielder, R-Thompson Falls said in his three sessions as a legislator, it’s the longest hearing he’s had. 

At its core, HB 27’s aim is to address rising property taxes, a top issue at the 2025 Montana Legislature, by targeting “trophy ranches” and organizations that buy up land and automatically qualify for and benefit from the lower ag rate, despite not producing ag products on their land. 

That, proponents said, would make the overall property tax picture more equitable and potentially take the pressure off of residential property taxpayers. 

But many of the opponents of the bill said they worried that the proposal would be rife with unintended consequences and could leave subsistence farmers and agri-tourism type operations getting thrust into the increasingly expensive residential property tax picture.

The bill would eliminate an existing system of automatic agricultural classification for large tracts of land. To get the agricultural property tax rate, landowners would have to prove that they earn minimums of either 51% of their income from production for some landowners or $1,500 yearly in products from their land. 

The original bill set the yearly income minimum at $4,000 but an amendment brought it back to the $1,500 in current law, one of the many compromises still churning on the legislation.

Agricultural land that does not qualify would be classified as “idle” and taxed at seven times the agricultural rate.

“ If you have a pasture that you only rent out for folks to use for stargazing, hunting, and snowmobiling, this would not be considered agricultural,” said proponent Cynthia Johnson, president of the Montana Farm Bureau Federation.

Lt. Gov. Kristen Juras said that large, non-producing operations that benefit from the lower tax rate are in part contributing to rising unaffordability across the board of property taxes by not paying their “fair share.”

“They push those tax burdens onto another taxpayer, including our residential homeowners,” Juras said.

Julia Altemus, executive director of Montana Wood Products Association, supported the bill, but only after another amendment was added that would provide a separate tax rate for non-productive forest lands.

Altemus said the amendment would help sustain the nearly 850,000 acres of industrial timberland in the state.

"They're growing timber for the purpose of commercial harvest.  And so if you start to increase the taxes on these lands, they're going to make different decisions, which is probably to sell them off and subdivide them,” Altemus said. She said this could lead to wildfire risk and infrastructure issues.

Most of the opposition to the bill came with a caveat last week: The intent of the bill, and even the amendments, is welcome but the possibility for repercussions for some landowners remains.

While one proponent of the bill talked about the “hoop to jump through” to get the ag property tax rate as a positive, some opponents said it would be overly burdensome. Sarah Clerget with the Montana Land Reliance said most ag producers will have to apply for tax relief that they already receive and the organization is against anything that makes it harder for land to be used for agricultural production.

Ernie Barker owns a dude ranch and is an outfitter near Augusta. He said the 51% income from production requirement poses a serious threat to his family’s operation.

“The unique characteristics of our land make it unsuitable for viable cattle ranching to sustain the business on its own,” Barker said. “Our dude ranch operation represents the most effective and sustainable use of this resource.”

Barker said his business contributes to the local economy, employs 15 seasonal workers and has been in continuous ag operation since it was homesteaded in 1921.

Former state Sen. Greg Hinkle also opposed the bill. He said the 23 acres he owns are all used for subsistence production for himself and his wife, both on fixed incomes. 

Hinkle said requiring agricultural sales to benefit from the agricultural tax rate would mean the two would “literally have our home taken away from us,” he said.

Essmann told the Taxation Committee to expect more amendments to address concerns from opponents.

She started the hearing with a joke that she was presenting “a simple bill,” saying she’s aware of the complex issues the bill raises, but that it is a policy change that is long overdue. 

 ”This is a great bill, though it's really not simple. It's not easy,” Essmann said.

Sen. Becky Beard, R-Elliston, is proposing another change to agricultural property taxes.

Beard’s Senate Bill 4 would change the tax rate for one-acre homesites on agricultural land, taxing them as residential rather than agricultural.

Brendan Beatty, director of the Montana Department of Revenue, said those pieces of land are currently valued by their production, which is very low in many cases.

Beard said changing that tax rate to residential would promote more equitable tax payments.

Beard also spoke at HB 27’s hearing in support.