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Farm Tax Proposals Sowing Seeds of Discontent in Kansas

20:14PM Mar 04, 2015

By Amy Bickel, The Hutchinson News, Kansas

The emails have been pouring into Rep. Joe Seiwert's inbox -- rural constituents voicing their concerns about what is happening in Topeka.

It's not falling on deaf ears. The Pretty Prairie farmer has his own worries about two bills that would affect agriculture and farmers' pocketbooks.

In the past two weeks, agriculture, it seems, has been under an attack by urban lawmakers trying to find a way to shore up the budget gap in Topeka. Two ag taxation bills introduced in the Senate -- SB 178 and SB 264 -- could generate more than $900 million combined.

The projected budget shortfall for the next fiscal year that begins July 1 is estimated at more than $600 million.

Seiwert, whose daughter, Toni, is working to take over the farm, said it scares him how it could impact the next generation like his daughter just getting into the business.

"They might think it is funny in Kansas City and joke about it, that it is time farmers pay up," he said. "But the difference between the farm and a business is a farmer can't set the price for his grain."

Bills Target Ag

For those reasons, two bills have caused uneasiness across farm country -- bills farmers say don't account for fluctuating input costs, declining commodity prices or the impact of Mother Nature.

Introduced by Sen. Jeff Melcher, R-Leawood, Senate Bill 178 targets 46 million acres of farm and ranch land across Kansas, amending the formula for how it is appraised. One Kansas lawmaker estimates the bill would increase agricultural land values by an average of 473 percent.

New estimates by the Kansas Department of Revenue show that, if passed, the bill would collect an additional $173 million in property taxes for the state general fund, while counties, school districts and local communities would take in an additional $717 million.

Melcher told a news program in late January that since Gov. Sam Brownback introduced the elimination of income tax a few years ago, the state now has to make up the difference with sales and property tax revenues.

"To be able to do that, you have to have a broad base where everyone is paying into the system," he said, adding that ag land has "enjoyed a 99 percent exemption in property tax."

Meanwhile, the rest of the burden for city and county government is on the shoulders of residents and businesses, causing them to leave rural areas because they can't afford the tax.

"When you starve them of revenue, everybody leaves, and that is what is happening to western Kansas. And I think allowing the farmers to pay a portion of the property taxes is probably the last hope for Kansas in the central and western parts to keep it from dissolving into strictly nothing but land," he said. "Much of this is corporate farmland, too, and they aren't really struggling."

Melcher told The News in mid-February that he has heard the complaints from the ag community. But, he said, it feels that their neighbors are picking up the tab.

"I'm sensitive to the farmers' concern that it would be a tremendous burden for them," Melcher said. "But this burden is already on every residential and commercial property today. The farmers don't realize how good they have had it for so many years now that we are trying to put them in an equal playing field."

Meanwhile, introduced at the request of Wichita senator and car dealer Les Donovan early last week, Senate Bill 264 would eliminate the sales tax exemption for farm machinery and equipment. A Kansas legislative researcher said that in 2014, farm machinery sales tax would have been worth about $68 million.

Jason Pavlu, a salesman at Simpson Farm Enterprises in Ransom, which sells Apache, New Holland and MAKO sprayers, said at first such legislation would affect sales and hurt the economy in small towns like his in Ness County.

But Pavlu, who also farms, said farmers would eventually have to update equipment and perhaps, considering purchasing used equipment, which would have better value.

But as a farmer, a 400-plus increase in property taxes would be horrible.

"As a salesman and farmer, I could stomach eliminating sales tax; I could live through the next day," he said, adding he wouldn't like it. "But the other would devastate all of rural Kansas."

There is a disconnect between urban areas and rural Kansas, he said, noting the growing rural-urban divide.

"They drive by a farmers' headquarters and see a lot of equipment and they lick their chops," he said. "But they don't realize how thin margins are."

Rural Backlash

In rural Kansas, farmers and ag leaders aren't bashful about getting their voices heard -- and the backlash is strong from all corners of the state.

Farmers and ag groups like the Kansas Farm Bureau have used social media engines like Facebook and Twitter to push back. Residents are writing letters to their newspapers. They also are writing their lawmakers.

"There are two current mega-threats to farming," said Lane County farmer Vance Ehmke, who wrote a letter to Donovan about his concerns that he wasn't putting everything on the table. For instance, the sale of airplanes, manufactured in Donovan's hometown of Wichita, are tax-exempt, he said.

"A lot of people are saying, 'Why are we doing this? What is the matter with the old way where everyone paid income taxes?' " said Vance Ehmke, who farms in Lane County.

The ag land tax bill, he said, could put some farmers out of business.

For instance, in northwest Kansas, said Ehmke, quoting information from Kansas State University, dryland wheat in recent years averaged a net return of $31 an acre. Any tax hikes would eat up the profit.

Mark Smith, who farms and ranches in Greeley and Wallace counties, noted corn is selling below the cost of production. At Cargill in Hutchinson, the price was $3.74 a bushel Friday.

He said the law now takes out the highs and lows and smooths that out so ag producers can plan and know the trends -- trends that they can figure into their budgets.

"It seems like they are putting the deficit on the back of the property owner," he said.

Seiwert said his valuations increased 7 percent from a year ago to about $1,700 an acre. If Melcher's bill passes, he'd pay about $7,000 an acre in taxes.

He knew of some colleagues in the Kansas City area who have told him "farmers should start paying their share." He thought most wouldn't vote for it.

Tom Giessel, who farms in Pawnee County, said lawmakers need to reinstate the three-legged stool that includes income taxes -- which is based on wealth and ability to pay.

"I believe we need that balance," he said, adding, "we need to fund things important and critical to our future, and I'd rate education at the top of that list."

"If we ran our farms like the state government, we'd all be broke in a couple of years," he said. "That is not the way business operates."

Are your state's legislators looking at tax increases that would affect farmers or ranchers? Let us know on the AgWeb discussion boards.