Submitted by Elaine Magliaro, Guest Blogger
According to T. S. Elliott in his poem The Waste Land: “April is the cruellest month.” I think many of us would agree because April is the month in which we Americans are required to file our annual income taxes. And thinking about who is actually paying taxes these days, has really gotten my dander up.
Today, while many working class and middle class people are trying hard to survive from paycheck to paycheck and when millions of Americans are out of work and unable to find new jobs that pay them a living wage, it’s hard to accept the fact that huge corporations like GE may not be paying any taxes at all while receiving tax rebates. It’s also maddening to see millionaires and billionaires who blew a hole in our economy and nearly caused a financial meltdown getting bailed out with OUR tax dollars.
It appears that the ultra-rich get all the breaks. Still, it seems many of them keep looking for different ways to hold onto their wealth by avoiding taxes while letting those of us who are less fortunate financially pay more than our share. Some of the well-heeled have even found a way to pay less than their fair share of local property taxes. They do that by claiming their large estates and properties as agricultural land. Here are the names of some of the “faux farmers” in New Jersey who have had their real estate taxes drastically reduced: Malcolm “Steve” Forbes, Jon Bon Jovi, E Street Band drummer Max Weinberg, Publishing magnate Donald E. Newhouse, former CEO of Commerce Bank Vernon Hill II, and Robert Wood “Woody” Johnson IV, heir to Johnson & Johnson and owner of the New York Jets football team.
Wealthy gentleman “farmers” haven’t just been gaming the system in New Jersey—they’ve been doing it in Texas, Florida, Iowa, Colorado, Alabama, and in many other states across this country. The tragedy of this tax avoidance by those who can well afford to pay more is that it is costing local governments the revenue they need to run their communities properly.
Several years ago, Art Cory, who was the chief appraiser for Travis Central Appraisal district in Texas, said: “It just seems to me that everyone ought to pay their fair share. That’s not happening now (American-Statesman, 2003). In regard to the agricultural tax break, Cory added, “You can go out and cut some brush, put out some feed and count the deer once a year and qualify.”
According to an article in The Nation, that’s what Michael Dell did with his second home—a suburban ranch in Austin. Because he hunted there periodically and maintained a “well-managed deer herd,” he was able to reduce the property’s 2005 market value from $71.4 million to an agricultural value of $290,000. That saved Dell—but cost Texas—$1.2 million. In 2007, The Wall Street Journal reported that Korea’s Samsung Electronics was able to qualify for a “wildlife management” agricultural tax exemption on more than fifty acres of land outside its semiconductor plant in Austin simply by erecting some birdhouses, eradicating ants, and taking a wildlife census. By doing that, the company reduced its tax bill by nearly 100%–from $21, 080 to $135! It’s sad to note that all the agricultural tax breaks in Texas have cost public schools in the state $1.5 billion in lost revenue.
A Few More Examples of Agricultural Tax Breaks
Colorado: Assessors in the state were reported to have said that even parking lots have qualified for agricultural tax breaks after some cows were brought in to graze on grassy strips between lanes. (Common Dreams)
Florida: Walt Disney World has received a farming tax break on 1,600 acres where it grows plants for its theme parks. At the time this was reported, the land owned by Disney was actually valued at $194 million but was taxed on a value of $12.3 million. (Common Dreams)
Alabama: In Mobile County, Ala., Delaney’s Inc. has planted pine seedlings on 54 acres left over after building a Hampton Inn, Marriott Courtyard, Lowe’s and Wal-Mart. This “tree farm” has been subdivided and laced with paved streets in preparation for development, and local officials insist that the land is not suitable for growing timber. But the developer’s lawyer pointed out that the law doesn’t require Delaney’s to be a good farmer — just a farmer. The result: a 2003 tax bill of $152 instead of $64,230. (Common Dreams)
Here are more details on the wealthy “faux” farmers who have been getting agricultural tax breaks in New Jersey from New Jersey: “Fake” farms get tax breaks (Asbury Park Press)
The rolls of those with farm-assessed land in New Jersey read like a who’s who in the world of high finance, business and entertainment. Those in the rich-and-famous category with approved applications for tax breaks in 2009 and 2010 include:
— Financier Michael C. Price, with a net worth of $1.4 billion, Bedminster: 92 farm-assessed acres, on which he paid $359 in taxes in 2009.
— Robert Wood “Woody” Johnson IV, heir to Johnson & Johnson and owner of the New York Jets football team, Bedminster: 269 acres, $1,470 in 2009.
— Publishing magnate Donald E. Newhouse, with a net worth of $5.4 billion, Hopewell Township: 273 acres, $1,787 in taxes for 2010; in West Amwell, 77 acres, $611 in taxes in 2010.
— Publishing magnate Malcolm “Steve” Forbes, including properties with his wife, Sabina, Bedminster: 450 acres, $2,005 in taxes in 2009.
— E Street Band drummer Max Weinberg, Middletown: 34 acres, $122 in taxes in 2010.
— Rock star Jon Bon Jovi, Middletown: 7.1 acres, $104 in taxes in 2010.
— Lamington Farm Club, under the corporate umbrella of entrepreneur and TV personality Donald Trump, Bedminster: 195 acres; $277.
— John Whitman, husband of former Gov. Christie Whitman, Tewksbury: 167 acres, $1,521; in Bedminster: 65 acres; $173.
— Vernon Hill II, former CEO of Commerce Bank, Moorestown: 29 acres, $79 in 2010.
Now, let’s take a closer look at just one of the New Jersey “farmers” on the list above—Malcolm “Steve” Forbes. I bet you didn’t know that Forbes was into animal husbandry, did you? Well, Forbes actually raises show cows on his property, which qualifies for the agricultural tax break because it generates at least $500 in revenue annually. From The Center for Public Integrity (2000): “His New Jersey farm meets the state’s revenue test, with about $5,500 in yearly income, and he gets the federal write-offs for raising cattle, too.”
The Center for Public Integrity also reported the property that Forbes owns would have been valued at $9 million if he didn’t stock it with his show cows. An assessor had estimated that the land would be assessed at only $160, 531 because of the cows. So…Forbes paid a paltry $2,215 tax bill on his 449-acre estate because prize bovines were grazing there.
Well, there you have it, folks. That’s just one of the ways that the rich hold onto their riches. It’s also one of the ways that our cities and towns are losing out on essential tax revenues that are needed to pay for schools and other community services .
Because April is National Poetry Month, I’ve written another song parody for you in honor of Malcolm “Steve” Forbes:
Old Steve Forbes…He Had a Farm
A Song Parody By Elaine Magliaro (To be sung to the tune of Old MacDonald Had a Farm)
Old Steve Forbes
He had a farm.
E-I-E-I-O
And on that farm
He raised show cows.
E-I-E-I-O
He had moo-lah here.
He had moo-lah there.
He had lots and lots of moo-lah
Everywhere.
Old Steve Forbes
He had a farm.
E-I-E-I-O!
He milked them cows
For tax breaks. True!
E-I-E-I-O
He didn’t need
The money though.
E-I-E-I-O
He had moo-lah here.
He had moo-lah there.
He was a greedy billionaire.
Old Steve Forbes
He had a farm.
E-I-E-I-O
Old Steve was
A farmer—faux.
E-I-E-I-O
He knew how to make
His riches grow.
E-I-E-I-O
Did you hear him say
He’ll keep making hay
While all the little people pay their
E-I-E-I-DOUGH?
SOURCES
This Tax Day, ‘Farms’ Owned by the Rich Provide Massive Tax Shelter (The Nation)
Property Taxes Are For Parasites: Billionaires Use The “Fake Farm Loophole” To Not Pay Any… (Exiled Online)
Senate panel OKs rollback of some Colorado ag-land tax breaks (The Denver Post)
Faux Farmers Milk the System (Common Dreams)
Steve Forbes Cattle Farmer (The Center for Public Integrity)
New Jersey’s Farmland Assessment Act
Why Texas Firms Are Keeping Cattle On the Back Forty (Wall Street Journal)
Owners of $250 billion in property benefit from exemptions, loopholes amid school crisis (Statesman)
“Fake Farmers” Cost N.J. Taxpayers Millions (CBS Local, NY)
“Fake” farms get tax breaks (Asbury Park Press)
I like the websites where you can edit at any point and post replies or add-ons to particular comments.
I just really need editing
Tax subsidies and property tax reclassifications are two different subjects.
Some property owners are using activities that have little revenue to justify a [use reclassification] which if it were framed as a [tax] deduction would result in a large net loss.[The property tax use reclassification from residential to agricultural is basically a hidden transfer payment.] Some of the haying operations have very minimal GROSS income. The property tax reclassifications aren’t shown as deductions but have the same net effect resulting in an actual tax loss from some hobby farms year after year and sometimes that can be very substantial.
So there are two public policy issues: going forward and going back.
I am not a lawyer but I think part of the key is in presumptions. Lawyers for rich people will use strained interpretations of agricultural enterprise and other terms in the statutes that are inconsistent with the presumption that farms make an actual real profit almost every year. This can be proven using legislative intent because at the state and local level there are lots of records by what is meant when these laws were passed.
[You could argue that there should be no tax differences and all property should be taxed at market value regardless of use. In the past that sort of argument was considered as promoting development. But changes in our energy situation have changed the development market anyway.
Another factor is that sometimes wind turbines are considered an agricultural use and a lot of wind turbines are being put on land that was never used for anything other than agriculture.]
Tax subsidies and property tax reclassifications are two different subjects.
Some property owners are using activities that have little revenue to justify a revaluation which if it were framed as a deduction would result in a large net loss. Some of the haying operations have very minimal GROSS income. The property tax reclassifications aren’t shown as deductions but have the same net effect resulting in an actual tax loss from some hobby farms year after year and sometimes that can be very substantial.
So there are two public policy issues: going forward and going back.
I am not a lawyer but I think part of the key is in presumptions. Lawyers for rich people will use strained interpretations of agricultural enterprise and other terms in the statutes that are inconsistent with the presumption that farms make an actual real profit almost every year. This can be proven using legislative intent because at the state and local level there are lots of records by what is meant when these laws were passed.
Gyges:
Why should Springsteen get a huge tax break for farming? He doesn’t need it. The property is worth a pretty penny and the loss of revenue to the community is substantial since it should be taxed as a residential estate or some such thing rather than as agricultural.
The bottom line is that “farmers” should not get subsidies for growing or not growing crops, etc. and that any “subsidies” should be in terms of legitimate business expenses rather than actual cash payments in the form of grants from the Federal Government.
Why should middle class tax payers be forced to partially support Ted Turner or Bruce Springsteen?
Elaine,
I am sure it is just a coincidence that the developers are also taking advantage of this tax break!
Colorado tax break intended for struggling farmers enriches developers, investors
By Christopher N. Osher and Eric Gorski
The Denver Post, 3/6/2011
http://www.denverpost.com/news/ci_17549051
Excerpt:
First of two parts
One of the biggest players in Douglas County agriculture, at least for tax purposes, is not in the business of growing wheat or grazing cattle.
It builds subdivisions.
About one in six of the county’s parcels taxed as agricultural are owned by subsidiaries of Denver home builder MDC Holdings Inc.
In Broomfield County, another hotbed of suburban growth, a staggering 95 percent of the county’s agricultural parcels are controlled by developer, commercial or investor interests. No one owns more land on the agricultural tax rolls there than Pulte Homes of Bloomfield Hills, Mich., the nation’s largest homebuilder.
From Denver’s outskirts to exclusive mountain communities, the story line is similar. Developers and corporations more interested in bulldozing land for houses and strip malls than raising cattle or crops are saving millions of dollars in taxes by taking advantage of a state law meant to help struggling farmers.
A Denver Post investigation of property-tax records sheds new light on the extent of the practice: Developers and firms with little or no ties to actual farming own at least 40 percent of the nearly 54,000 parcels classified as agricultural in eight Front Range counties.
The lenient tax structure saves developers, businesses and others who have no real mud on their boots an estimated $366 million a year in those counties, according to a Post analysis using data from CoStar Group, a Washington-based commercial real estate research firm.
More from Colorado:
Tax break for farmers saves developers millions
http://www.9news.com/news/article/185644/339/Tax-break-for-farmers-saves-developers-millions
Excerpt:
KUSA – An investigation by the Denver Post Sunday revealed developers and investors are reaping the benefits of a state law that’s supposed to help struggling farmers.
Those developers and investors are saving millions of dollars by calling undeveloped property “farm land.” Property that will eventually become a subdivision or shopping center is getting the same tax break a farmer gets for growing crops or cattle grazing.
And guess what? You could be paying more taxes because of it.
Hundreds of empty acres near Brighton will soon become the next phase of Prairie Center. You’ll find stores, offices and new homes. You won’t find much in the way of farm animals or crops.
**********
Note: The story I provided a link to above includes a video report.
Marco,
Except that Springsteen was careful not to register his house and surrounding three acres in Colt’s Neck as part of the farm.
The farm’s an actual working organic farm. It’s an investment.
There’s no “abusing the system” in this case, it’s a guy who wanted to own his own farm and had the money to do it.
Elaine,
I’ve been on parts of the Forbes Ranch in WY, there’s usually a good sized herd on that property. Can’t speak to any of his other properties though.
There are a lot of issues in Colorado regarding taking one time tax breaks for transferring development rights or giving up development rights to keep a ranch in grass. Sometimes city and county funds are used to “buy” development rights to ranches that might never have been developed anyway. The bigger the ranch the more versatility it has for agricultural issues.
One issue is transparency.
All of these land use and valuation legal issues can get really factually complicated with water rights, mineral rights, high capacity electric lines, public access issues, endangered species etc.
There is an excellent informative blog called “The Law of the Land” by Patricia Salkin, a law professor at SUNY in Albany, that addresses some of these issues by summarizing court opinions.
Here’s a link to an article that I read last year:
Tuesday, June 15,2010
The Making of Manhattan’s Elite Welfare Farmers
Want fiscal reform? Let’s start by targeting the fattest farm subsidy checks—which are mailed to the richest New York ZIP codes.
By Yasha Levine
http://www.nypress.com/article-21342-the-making-of-manhattans-elite-welfare-farmers.html
Excerpt:
WALL STREET BANKERS and retired hedge fund billionaires have been talking about fiscal responsibility and deficit reduction, preparing the masses for austerity measures and cuts in social services—which we are told are regrettable, of course, but necessary nonetheless. Well, here is the perfect welfare program for the bailout queens to show off their fiscally conservative chops: Let’s see them cut federal farm subsidies, which funnel billions of dollars to the richest Americans, including notables like Ted Turner, David Letterman, Scottie Pippen, Paris Hilton’s grandpa, Charles Schwab, Microsoft billionaire Paul Allen and just about every single one of Sam Walton’s degenerate heirs.
Most people know next to nothing about this $20 billion-a-year welfare for the rich program, probably because the billionaires want it that way. Why get the masses worked up? Best to let them think the $200 billion they spent from 1995 through 2006 went to friendly farmers with cute farmhouses, rather than to Chevron or Kenneth Lay. Better to let urban entrepreneurs call themselves backyard farmers and toil away for the locavore movement, than to realize that their rich neighbors are reaping actual “farm” subsidies.
Marco,
I missed that program…darn it!
**********
Here’s something I just found:
In Colorado, some famous faces, names get ag-land tax breaks, too
Tom Cruise, Goldie Hawn, Walker Stapleton, Charlie Ergen considered ‘farmers’
By Nancy Lofholm
The Denver Post, 3/7/2011
http://www.denverpost.com/news/ci_17553507#ixzz1G7hoaSlc
60 Minutes had a show on this subject a week or 2 ago. It was pretty eye opening.
Bruce Springsteen does the same thing for his 200 acre “farm”.
Buy a pig, cow or chicken and join in the savings.
Andy,
While I was doing research for this post, I discovered that two former US Presidents got agricultural tax breaks on their properties: Ronald Reagan and Geroge W. Bush. I don’t know if there are any other presidents who got the same kind of tax reductions on their land.
rafflaw,
You’re right about “flat tax” Forbes. It’s sad that so many people of great wealth do their best to game the system, isn’t it?
*****
FF Leo,
Welcome back! You’ve been on an extended vacation from the Turley blog. Remember…only the poor pay taxes–well, maybe the poor and middle class…and wealthy people of conscience.
The Denver Post ran some articles on homeowners in the metro Denver area who had huge expensive homes who were also reducing their property assessments with periodic visitations of grazing animals. (See Adams County)
If the laws were interpreted in a manner consistent with income tax, then a loss would only be allowed for a limited amount of time. You can’t claim that you are taking a loss for writing novels or taking photos year after year while deducting home and travel, there is a time limit to actually show a profit.
The expense also has to be logically proportional to the revenue in order to show that it is really a cost of business.
In many places fields grow tall grass that is conducive to grass fires and weeds. In the corn belt therefore many fields are leased for corn operations run by subcontractors who come in the spring and fall to seed and harvest. Outside the corn belt hay is usually the crop. A contractor will pay to harvest grass from someone’s estate because it has cash value. From my general knowledge, I think that the cash value of hay is often less than annual property taxes based on the fair market value of location and view.
This one hits home. I know a number of farmers and our conversations will abruptly stop if I mention subsidies. My favorite was a fellow who owned 20 acres in partnership with his dad who had the rest of the farm, another 100 acres. One day he was channeling Reagan and preaching about the welfare (insert racist slur) in Cleveland. I pointed out he did no farming (his dad did it all) but he collected an ag subsidy. Without hesitation he said, “Well, if they are going to give it to you, why not take it?”
Former Fed,
It is good to hear from you! Don’t be a stranger! 🙂
Ms. EM,
Excellent topic and citations.
I guess I will continue to trudge along with TurboTax for the rest of my bornd days and continue to pay taxes on my paltry gubbermint pinchin’ and real estate while the elite laugh at—and scorn—stupid servants like most of us here who try to do what is right for the whole of society.
Great article and great song, Elaine,
It is amazing how the system can be gamed. It is also interesting to see someone like Steve “flat tax” Forbes taking advantage of the tax break by earning $5,500 raising cows! The gentleman farmer dodge is an interesting one and obviously a successful one. But let’s not forget that we as Americans are paying too much taxes. At least according to the Right.