The Idaho State Tax Commission is considering the impact of a new state law that guarantees hop growers won’t have to pay local property tax on production equipment.
The commission’s Property Tax Rules Committee on June 12 stopped short of initiating a rule-making process tied to the new law for now, and instead formed a separate committee to study the law as it relates not only to hops, but also to the definition of “production” in other types of agriculture.
Hops equipment taxation emerged as an issue in the 2018 Idaho Legislature after some growers received assessments.
Since 2000 the state has exempted from property tax any equipment used in agriculture production. But several counties want to tax dryers and other types of equipment that isn’t used in the hop yards.
The Legislature on March 22 passed House Bill 594, which amends the property tax law to ensure the agricultural equipment exemption from property tax includes hops equipment. The law will expire after two years, giving the property committee time to sort out the issue.
For growers of hops and some other crops, the first “sellable unit” is often created off the field. Hops, for example, require drying before they can be sold.
Alan Dornfest, the commission’s property tax bureau chief, said more work needs to be done to clarify the meaning and application of “production” in applying the state’s exemption on property tax for agriculture equipment. That’s what the new committee, headed by commission Tax Policy Specialist Rick Anderson, will aim to do.
“Where does ‘production’ stop?” Dornfest said in an interview. “Now we say it’s only in the field, but that is not in rule — it’s only an interpretation.”
He said the new law’s reference to “production” should be clarified given that a food processing plant may argue its equipment should be exempt from property tax because it is needed to make the first sellable product.
Canyon County Chief Deputy Assessor Joe Cox said the southwest Idaho county early this year sent assessment notices to hop farmers. Members of the commission’s Property Tax Rules Committee said Boundary County, in north Idaho, also wants to tax hops equipment.
Cox said it’s a county assessor’s responsibility to tax all property unless it is explicitly exempted. Canyon County traditionally viewed the ag equipment exemption as ending “once the crop hits the road” for processing or storage, he said.
Hop growers say off-field steps such as separating the cones from vines and cleaning and drying them are required before shipment-ready bales are produced.
The 2018 law adds hops to the agricultural equipment and machinery that is exempt from property tax — specifically, that used in “hop crops including, but not limited to, stationary picking machines, drying kilns, fans and burners, conveyors and other equipment to move hop crops and baling equipment; hop crops including, but not limited to, rhizomes, bines, leaves, stems and cones,” House Bill 594 text reads.
Cox said the existing law exempting production-ag equipment from property tax was unclear on hops, and the tax commission’s new subcommittee is a good idea.
Rep. Robert Anderst, R-Nampa, who co-sponsored the legislation, said the new law expires after two years “to protect hop growers from an immediate tax increase, yet create an opportunity in time to address the issues.”
Definitions of agricultural production, raw product and sellable good can be addressed by the new committee, he said. Other crops that go through post-field procedures during harvest, such as mint and honey, also could be explored, he said.
“My guess is we will come out of here with at least a recommendation or options to address questions — where production ends and processing begins,” Anderst said.
Hop grower Mike Gooding of Parma said that legislation would more clearly direct counties than rules, which can be open to interpretation and easier to change.
He said the hops industry in southwest Idaho has spent nearly $30 million in the last five years on new or expanded harvest equipment facilities.