MADISON, Wis. (AP) -- A state law that provides farmland property tax breaks has allowed developers to shift nearly $5 million in taxes to residential and commercial property owners in roughly a dozen Wisconsin municipalities, according to a study state auditors released Thursday.
Under the state's use-value law, property taxes on agricultural land are based on the land's ability to produce farm income, not its market value. Forty-eight other states have similar statutes.
The law was meant to give farmers a tax break, but some say builders have been taking advantage of the law by planting crops on parcels intended for development.
Senate Majority Leader Russ Decker, who called for the review last year, said the Legislative Audit Bureau's study confirms developers are exploiting the law.
"Land that is clearly going to be developed in the near future should not be getting a tax break meant to be used to preserve farmland," the Weston Democrat said in a statement. "This audit proves that we need to makes some changes to this program to protect homeowners from being forced to pick up the bill for wealthy developers."
Jerry Deschane, executive vice president of the Wisconsin Builders Association, said developers are simply following the statutes.
"The law says if you're farming it, you pay use value-based taxes on it," he said. "There's no question what these people are doing is what the Wisconsin Legislature said is legal to do."
The Legislative Audit Bureau examined the effects of the law last year on 14 municipalities, including Appleton, Brookfield and Wausau.
It found real estate or property development businesses owned about 9 percent of the roughly 42,100 agricultural acres across the municipalities.
The total market value of land in the municipalities defined as agricultural under the law but zoned for non-farming was $251 million. The land was assessed at only $1.6 million under use value.
If the land had been assessed at market value, the owners would have been liable for about $4.7 million more in property taxes. Instead, other property taxpayers covered that amount, the report said.
Taxpayers in the town of Akan in southwestern Wisconsin, for example, had to cover about $7,000. Taxpayers in the village of Twin Lakes in the state's far southeastern corner had to take on about $911,000 in additional taxes.
Auditors noted ownership and zoning has no bearing on whether land qualifies for the tax breaks.
Lawmakers could restrict eligibility based on ownership, farm income and parcel size to ensure farmers are the sole beneficiaries of the law, the report said. Minnesota, for example, has adopted a 10-acre minimum for use-value breaks, the report added.
But the report warned that changes could be difficult. Zoning practices vary across the state, a minimum parcel size could exclude smaller farms and any modifications could generate legal challenges.
Twin Lakes village Administrator David E. Cox said the law helps farmers but could use some tweaks. Cox said he gets frustrated when developers use the provisions, but acknowledged the break is available to them and in these economic times, "it's harder to say to somebody you should be paying more taxes."
The use-value law is appropriate for a farming state such as Wisconsin, but it may need changes, said Rep. Peter Barca, co-chairman of the Legislature's Joint Audit Committee, which reviews the audit bureau's work.
The Kenosha Democrat said he would have to examine other states' laws before offering any specifics.
"We need to continue to look out for farmers, but we also need to protect property taxpayers, especially senior citizens and others on a fixed income, to ensure they aren't asked to unnecessarily contribute more than their fair share of property taxes," he said.
Deschane, with the Wisconsin Builders Association, said the study was too narrow to draw any conclusions and legislators should leave the law alone.
"The development industry is in a deep recession," he said. "You don't raise taxes on an industry that's already struggling to survive. That would be poor public policy."
Copyright 2010 The Associated Press.