Land speculators are taking advantage of loose property tax laws, overburdened officials and lax oversight to avoid paying hundreds of thousands of dollars that should be going to schools, universities and local governments.
Tax breaks for agricultural land are benefitting many East Valley speculators who aren’t growing any crops or raising any farm animals. They are paying taxes at a much lower rate than if the land was categorized as commercial or vacant — even though vast acreages of so-called ag land are indeed sitting empty and neglected, awaiting new subdivisions or strip malls.
A Tribune review of records with the Arizona State Board of Equalization, and the Maricopa County Assessor’s and County Treasurer’s offices found that despite the county assessor’s efforts to reclassify the land to collect the taxes, property owners — including some of the region’s biggest developers — routinely thwart attempts to make them pay more money. The state board frequently overrules the assessor’s recommendations, allowing landowners to keep the land as agricultural.
"So if somebody isn’t paying their fair share, then that means that (taxpayers) are paying more than you need to," says Tracy Clark, an economist at the Bank One Economic Outlook Center.
One example of how the agricultural tax break benefits landowners is a parcel of land that spanned more than 581,000 square feet near Lindsay and Riggs roads.
It was valued at $125,316 as agricultural land in 2003. The parcel was owned by Vanderbilt Farms, the main development arm of the Wolfswinkel family, headed by longtime developer and dealmaker Conley Wolfswinkel.
With the agricultural assessment, Vanderbilt’s property tax bill was $1,946. If it had been classified as vacant, as the assessor recommended, the tax bill would have been $23,546.
The Wolfswinkels claimed the land was a farm because they used the area to graze sheep. But the county appraisers told a different story, describing an empty field, unkempt and brush-filled.
"There is no feed for sheep. Owner is not a known sheep rancher," a county appraiser wrote in a June 2003 report.
Assessors deemed the land "vacant" and recommended an assessment based on its market value — $1.5 million.
But the State Board of Equalization sided with Vanderbilt Farms, giving the firm one more year to benefit from the agricultural classification.
Last year, Lesueur Investments II LLC appealed an assessment on a chunk of land spread out over 1.6 million square feet near Val Vista Drive and Willis Road in Gilbert. The county appraiser estimated the market value of the land at more than $2.9 million — meaning it could have had a tax bill of up to $47,000.
But the Lesueur firm argued the property was still farmland. The State Board of Equalization agreed, and set the value at $38,773. The property tax bill was $634.
The land has since changed hands and is owned by Banner Health.
Board spokesman Phillip Viator says various factors influence the board’s decisions to rule against the assessor’s office, including the fact that landowners, when their property is being assessed, sometimes don’t have all the paperwork necessary to prove that the land is truly agricultural.
In those situations, landowners usually will appeal the assessment and seek a hearing with the board, where they can bring in their evidence, he says.
PLENTY OF LOOPHOLES
Keeping a property classified as farmland — even though it will be developed — is a money-saving tactic that could be considered an abuse, "but it’s legal," says Ed Leyba, an administrator at the Arizona Department of Revenue.
Leyba cited various loopholes in property tax laws that enable landowners who aren’t farming to keep their land classified as agricultural, even when they’re not growing a crop or feeding a herd.
"You can have land that’s lying fallow for years and still qualify," Leyba says.
To retain the agricultural classification, many speculators try to fulfill just the minimum requirements of the law. That includes sprinkling some seed and letting a few livestock animals graze, to leasing the lot to a farmer for producing crops and livestock until it’s ready to be sold or developed.
Some landowners simply let the land sit untouched — a concept that’s known as "dry farming" in Arizona.
Also, many local investors and developers seek a "vacant" classification for the land, which still carries a low tax rate compared with commercial and residential rates.
The Wolfswinkels, who own about 40,000 acres of farmland in Arizona, have done that in some instances. They’ve also leased land for farming and have dry-farmed as well.
"If we don’t make any money on the crop, we’re doing something wrong," says Brandon Wolfswinkel, a partner in Vanderbilt Farms. "But typically we will cover the cost of holding the land with the farming."
Even though some taxpayers would view this as unfair, Stuart Goodman, a lobbyist for the Wolfswinkel family says the use of the agricultural property classification is an industry-wide practice among developers and speculators.
"It would be disingenuous to say that the Wolfswinkel family’s doing something different than anyone else is doing," Goodman said.
Dry farming became a legal option for landowners after a 1991 tax court case in which the Tait family challenged the Maricopa County assessors’ determination that their land wasn’t farmland because they didn’t produce a profitable crop.
Thomas Tait argued he was "dry farming" barley in 1988 and 1989. According to the case, he ended up grazing sheep on the grain during the first year. The next year, he harvested a meager crop of barley at a loss of $4,000.
This type of farming generally is more successful in cooler regions in higher altitudes that receive more rainfall.
In the end, the judge sided with the Taits.
Tait was a genuine farmer, but his case provided an opening for other tax-smart landowners to also claim they were "dry farming" by letting the land sit, untouched by any tractor and uneaten by any animal.
House Speaker James Weiers, R-Phoenix, attempted to close this loophole when he was in the Senate in 2003.
Weiers proposed to limit the length of time the land in federal farm programs could lie fallow to 12 months. He also sought to eliminate the "dry farming" claims by requiring that cropland, at an altitude of 4,000 feet or lower, have water rights and allow regular irrigation.
Although written to ensure that taxpayers no longer unfairly paid more than their share, Weiers was the only legislator to vote for it. Farm groups and developers were against it.
Weiers acknowledges that the agricultural classification continues to be misused. He says he’d be happy to bring up the issue again if he could get enough legislators on board.
The gap in the agricultural property tax law "doesn’t make sense and it’s not fair to everybody else," Weiers says.
HISTORY OF PROBLEMS
The agricultural property tax law has been giving assessors fits over the years.
In 1989, the family of Kemper Marley, a prominent investor and liquor magnate, was accused of avoiding taxes by putting a few goats on a plot of land in Scottsdale and claiming it as agricultural, although most of the land was awaiting development.
After a state Department of Revenue investigation, the issue ended up in court. A judge ruled that only part of the 12 square mile plot in Scottsdale was a real goat ranch. The decision increased Marley’s property taxes by $375,000 a year.
This form of tax evasion was tabbed "rent-a-goat" or "rent-acow."
In 1989, the Legislature tried to close the loopholes by redefining what constitutes a working farm. The new definition said that to count as agricultural, the land must have been in active production for at least seven of 10 years, and there must be a reasonable expectation that the farmland will generate a profit in crops or livestock.
Mark Killian, House speaker in the early 1990s, says the law requires landowners to sign affidavits, vowing that they are, indeed, raising animals or growing crops.
But Killian notes the law and the reality are two different things.
"One of the problems that the counties have is they don’t recanvass properties as they should," Killian says. "They should do that every two or three years."
The assessor’s staff is too small to check every piece of agricultural land. Sometimes the office will check on a piece of land after seeing a satellite or aerial photo that indicates the land has no signs of farming.
Maricopa County has nearly 1.5 million acres of privately owned land; 560,000 of those acres are designated agricultural. There are only three appraisers and a supervisor in the assessor’s office who check on farm properties.
In all, the office has 320 workers to canvass the entire county — one for every 4,700 parcels of land. Experts on assessment recommend one employee for every 3,200 parcels.
"On top of that, you add the growth," says Keith Russell, the Maricopa County assessor. "I think that we need help with additional personnel."
The office’s responsibilities include handling the thousands of appeals that landowners file every year, challenging their assessed values.
Last year, the office dealt with appeals on 25,000 parcels.
"We spend a tremendous amount of time in the appeals process," Russell says. "It does take manpower when we’ve got tremendous growth going on. We’ve got to juggle the resources in making sure that we’re keeping track of all the development and going through the appeals process."
The county Board of Supervisors recently approved hiring 20 more staff this year. The office didn’t ask for more because it takes up to three years to train an inexperienced appraiser.
Improper assessments and taxation affect state-funded programs. Schools, lighting and flood control districts also depend on property taxes.
So if the assessments are incorrect, "it means the state has less money to spend in other areas," says Chuck Essigs, director of governmental relations for the the Arizona Association of School Business Officials. "It could have been more money for universities. It could have been more money for community colleges."