Ag deserved a hand in deciding their own taxation fate

May 14, 2021

In answer to fears expressed by the agricultural community regarding the lack of capital gains income tax exemptions for the sales of farmland, Rep. Noel Frame noted the concerns could not be addressed because of poor timing.

During the conference committee report for SB 5096, it was noted that all legislators, including Rep. Frame, were emailed three days prior to the conference with the apprehensions of the agricultural community. (7:41)

Along with the concerns of the agricultural community, the emails addressed to members of the House and Senate also included detailed answers from the Washington State Department of Revenue related to the worries of Washington’s farmers and ranchers.

In an excerpt from a last-ditch effort letter sent to both Senate and House lawmakers via email by the agricultural community, dated April 23, 2021, letter authors note the following:

The agricultural community remains concerned about the potential effect of ESSB 5096 on Washington’s farmers and ranchers. We believe a significant amount of farmland could be subject to the capital gains tax. 

Both the Department of Revenue and an independent CPA who specializes in agriculture have informed us that Sec. 6(2)(b)(iii) on page 5 of the bill as passed the House, would result in taxing farmland. We ask that this paragraph be deleted. If that is not possible, please add an exemption for farmland being operated by extended family members and owned by closely held entities as defined by the IRS. …

The bill as passed the Senate does not protect family farms because of the “controlling interest” requirement in Sec. 104 (2). Again, both the Department of Revenue and an independent CPA have advised us that some farmland will be taxed under this definition.

The 2021 Legislative Session was challenging for our state’s food producers on several fronts, including the lack of exemptions in the capital gains income tax legislation. 

Perhaps it is a perception problem.

The myth of the grand land baron has lived long in the West and the pervasive notion of landed farmers and ranchers with masses of wealth have persisted despite the fact that most agricultural operations in Washington state are an average of just 50 acres or less, according to the last USDA Agricultural Census

The more pressing issue is the total exemption of timberland sales from the capital gains income tax while farmland sales are punitively taxed when anecdotal evidence suggests farmland is usually sold under one of three circumstances: generational transfer, retirement, or the need for operating cash. In every instance, the income tax is applied should the sale of farmland exceed $250,000 in income attributable to an individual.

In Washington state, the fair market value of farmland is a complex and difficult topic. Non-irrigated farmland in the Palouse may only sell for $1,200 an acre while farmland in King County may sell for in excess of $35,000 an acre depending upon location and desirability. In King County, the sale of 50 acres of farmland for $35,000 an acre would net a $1.75 million price tag. Not only would that sale likely be subject to the capital gains tax, depending upon zoning, additional buildings on the property, and other factors, it may also be subject to the real estate excise tax (REET) graduated rate rather than the agricultural rate.

As the second-largest economic driver in Washington state, the agricultural community needed certainty and a seat at the table with lawmakers when it came to a discussion about how to manage income taxes. Instead, our state’s food producers were not even given the courtesy of a response from the committee chair regarding their concerns.

If an entire community brings an issue before the legislature with time to spare, as was the case during the 2021 Legislative Session with the agricultural community and the capital gains income tax, lawmakers should prioritize those concerns. Three days’ notice, while not a vast amount of time, is an eternity in legislative time.

The people who put food on the tables of all Washingtonians, lawmakers included, deserved better than to have their repeated requests for a seat at the table and concerns ignored.

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