State Program Offers Property Tax Relief

The efforts to protect farmland from development started back in 1974 with a program enacted by the Michigan Legislature called the “Farmland and Open Space Preservation Act” (hereafter called PA 116). PA 116 provides for a farm owner to voluntarily enter into a “Development rights Agreement” with the State. The Agreement or “contract” is designed to ensure that the land remains in an agricultural use for a specified number of years - a minimum of 10 years and a maximum of 90 years. Agreements may be extended in 7 year increments after the initial term. In return for maintaining the land in an agricultural use, the landowner may be entitled to a “tax credit”. The land is also not subject to special assessments like sanitary sewer or water, projects, street lights or non-farm drain projects.

The financial benefit of PA 116 is that you may get a refund on some of the property taxes that you paid. The amount refunded is a very simple calculation. Take your annual household income, multiply it by 3.5%. If the property taxes you paid exceed this amount, you are refunded the difference by the State of Michigan. Household income includes farm income and off farm income.

As an example, let’s say your household income is $40,000 and you pay $3,000 in property tax on your land. Multiply your household income by 3.5% ($40,000 x 3.5% = $1,400). Then subtract that from the amount of property tax you paid ($3,000 - $1,400 = $1,600 refund). Obviously, the lower your household income is, the more credit you are going to receive.

When your contract ends, you have the option to renew it or discontinue it. You can also petition to get your land out of the program under special circumstances like death, disability, bankruptcy or foreclosure. If you choose to end your contract for any reason, you will have to pay back the last seven years worth of tax refunds (actually it is more complicated than that, but this is a good general rule). So if you sign up for a 7 year contract and decide not to re-enroll, you will have to pay back your refunds during the last 7 years of the contract. This is the incentive to renew your contract and stay in the program.

What about additional millages?

What do new millages have to do to the amount of property tax you pay when you are in PA 116? It increases it – right? So if you have your land enrolled in PA 116, how much would a new millage cost you? The rules for PA 116 are the same no matter the millage rate, and the calculation is the same, except that now your property tax amount is higher. Let’s use the same example (same household income) only with a new millage, the property tax increased by $300 per year. Multiply your household income by 3.5% ($40,000 x 3.5% = $1,400). Subtract this amount from the total property tax paid, which we said is $300 higher this year ($3,300 - $1,400 = $1,900 refund). So how much did the new millage cost you? After the refund last year you paid $1,400 in property tax ($3,000 paid in subtract the refund of $1,600 = $1,400). This year you paid in $3,300, but got $1,900 back – a difference of $1,400 actually paid out in property tax. In essence, those that have land enrolled in PA 116 and are currently receiving more than $1 credit, are not affected by new millages. This assumes that household income is the same. If household income changes from year to year, the benefit will change. But that change would occur regardless of whether or not a new millage is passed.

Bottom Line

PA 116 may offer landowners interested in protecting farmland some property tax relief. In 2003, there were 380 contracts covering 30,400 acres in Barry County. We have over 150,000 acres zoned agriculture; most of which would be eligible for the program.

If you are interested in this program or have questions, please call Dennis Pennington at the Barry County MSU Extension office at 269-945-1388.

Resources

PA 116 Eligibility Requirements
PA 116 Application Form
PA 116 Termination Requirements
PA 116 Termination Form

For more information contact:

Dennis Pennington
Barry County MSU Extension
206 W. Court Street
Hastings , MI 49058
Phone: 269-945-1388
Fax: 269-948-3323
Email: pennin34@msu.edu
Web: www.msue.msu.edu/barry

MSU is an affirmative action, equal opportunity institution, Michigan State University Extension programs and materials are open to all without regard to race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, marital status, or family status. Issued in furtherance of MSU Extension work, acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture, Margaret A. Bethel, Extension Director, Michigan State University, E. Lansing, MI 48824