‘Current use’ loses millions
for Alabama

Large-scale landowners can thank an amendment to the 1901 constitution for a large break on tax bills.

The Mobile Register, Dec. 11, 1994

By Carol B. McPhail

   Large-scale landowners can thank an amendment to the 1901 constitution for a large break on tax bills.

   Amendment 373 allows most timber land and farmland to be taxed on its "current use" - not on what it’s worth, where it’s located or what the owner plans to do with it in the future.

   This amendment and accompanying laws strip away part of the tax base needed for education and other services, costing Alabama an estimated $25 million to $30 million a year. The system may be fundamentally unfair to the typical homeowner who can’t qualify for such a break, but it’s the law.

   "It’s an egregious act designed to legally abate taxes for landowners all over the state," said Keith Ward, director of the Center for Governmental Services at Auburn University.

   Amendment 373 took root at a time of fear.

   Alabama was undergoing land reappraisal in the 1970s, and owners worried that taxes might soar. Gov. George Wallace’s tax package of 1978 placed a new cap on the amount of taxes that could be collected and changed the way land was assessed. It amended the constitution to require legislative approval and an election before property taxes could climb. Wallace’s package also introduced the concept of current use.

   The 1901 constitution had made it tough for communities to tax themselves. The anti-tax sentiment among the constitution’s white authors was a holdover from Reconstruction, when voters were taxed to provide public services for freed slaves.

   Anti-tax sentiment stayed strong through the years, but with new forces behind it — special-interest groups with large land holdings.

   They got the Legislature to pass a classification system that stuck utilities with the highest tax rates and gave farmers, timber growers and residents the lowest rates.

  It was within this setting that current use became law. The concept of applying value to land based on its "current use" was not unique to Alabama. About 25 other states also applied current use to help farmers near sprawling cities. That way, a farmer would be protected from sprawl’s skyrocketing values, a subsequently higher tax bill and a possible forced sale.

   Those other states place values by comparing land to similar tracts in the taxing jurisdiction. Alabama, however, employed a system that set a single value for farmland and a single value for timber land for the entire state.

   Special interests made sure they got to write the formula that determined the values. Ward, who has researched the matter, said special interests decided on the value they wanted, then worked out a formula that would arrive at it.

   When it was all over, the average value of farmland was fixed at $443 per acre and timber land at $275 per acre­from a third to half the market value in some cases. Those values haven’t changed.

   "It has no relationship to market value and no relationship to the area of the state or the use of the land for an average acre," Ward said.

   Paul Till of the Alabama Farmers Federation concedes that the farm lobby Alfa influenced the current-use formula but says the calculation also takes into account the type of soil in question. He defends the system as fair.

  Taylor Harper, past chairman of the Alabama House committee that reigns over state spending, describes chances of changing current use as "slim and none" given the interests on its side.

   "It’d be very difficult to pass ... because of the powerful lobby of Alfa and the forestry folks and many of your business organizations that own a sizable amount of land," said Harper, who led the Ways and Means Committee for eight years through the last session. "If, perchance, it did pass, I don’t know whether the public would vote for it. The opposition would start a massive campaign."

   Tax assessors are responsible for deciding current use and for making owners pay back taxes when current use no longer applies. Ward and historian Wayne Flynt of Auburn University contend that assessors sometimes fear court challenges to their assessments and tend to grant current use too often.

  "Current use really shoots us in the foot. Our property wealth is really understated," said Sandra Sims-deGraffenried of the Alabama Association of School Boards.

   The impact of current use can astound.

• In Montgomery County, a parcel of land was taxed at $1.84 an acre based on its current use. Later, it sold for more than $200,000, meaning it could have been taxed at $35,000 an acre, according to Flynt and Ward.

• In Mobile County, land next to Springdale Mall has been claimed as timber land.

• In Fairhope, the owner of a house and half-acre lot valued at about $41,000 owes 25 times more in property taxes than owners of a prime piece of Gulf Shores waterfront property valued at $95,000 but taxed under current use for timber.

• Last tax year, three dozen subdivisions in Baldwin County contained lots that were classified as current use for timber.

   Over the years, property taxes have made up a smaller and smaller portion of the Alabama revenue pie. In 1920, property taxes provided 63 percent of total state tax revenue. By 1992, property taxes generated 2 percent.

   So Alabama has looked elsewhere for revenue - elsewhere often being the sales tax, a Depression-era invention. In essence, Amendment 373 shifted the tax harvest to the checkout line, where the landless pay as much as the landed.

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Reprinted with Permission from the Mobile Register.

Alabama Citizens for Constitutional Reform Foundation, Inc.
P.O. Box 34
Montgomery, Alabama 36101-0034

E-mail: accr@constitutionalreform.org
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