Don’t Forget the Form When You Buy the Farm
Originally published by Michigan Farm News on September 8, 2016; republished with permission.
Farmland is bought and sold every day in Michigan, and often without any thought of a short form known as Form 3676 ("Affidavit Attesting that Agricultural Property Shall Remain Agriculture Property"). This form, while relatively simple, can have a big impact the property taxes that are paid year after year on the property.
Setting Form 3676 aside for the moment, real property taxes in Michigan are calculated based on the taxable value of the property. Taxable values may not increase more than an inflation rate or 5 percent, whichever is lower. Often, the property's true market value grows faster than the taxable value (especially if the property has development potential), leading to favorable tax treatment. But when the property is sold, the taxable value is "uncapped" and can be readjusted based on the true market value of the property (which is often the sale price).
This increase in taxable value upon transfer was especially burdensome to farmers, leading the Legislature to create the qualified agricultural property exemption in 2000. The exemption provides that a transfer of qualified agricultural property does not constitute a "transfer of ownership" if the owner of the property files an affidavit with the local tax assessor and the register of deeds, attesting that the qualified agricultural property will remain qualified agricultural property. This affidavit is now contained in a form known as Form 3676.
Take, for example, an 80-acre farm that has a taxable value of $100,000 and is sold for $400,000. Absent the filing of Form 3676, the property's taxable value would be uncapped and likely reset at $200,000 (half of the fair market value), but because of Form 3676, the taxable value will remain $100,000, subject only to inflation increases.
So what happens if the buyer fails to file the form, even though he intends to keep the property in agricultural use? Fortunately, this error can be corrected on prospective basis if Form 3676 is later filed by the property owner.
State law requires assessors to "revise" the current year's taxable value to the value the property "would have had if there had been no transfer of ownership . . . ." The only requirements for recapping the property's taxable value are that the property (1) has been "qualified agricultural property" without interruption since 1999, and (2) that the owner files an affidavit with the local assessor.
While the statute allows for re-capping, it does not allow the taxpayer reimbursement for any property taxes paid during the prior years, illustrating the importance of timely filing of the form.
But what if someone buys a farm, fails to file the affidavit (resulting in uncapping) and then sells the property to another farmer? So long as the current owner (even if the second owner since uncapping) files the affidavit, the Michigan Tax Tribunal has held that the property's taxable value should be re-capped based on the previous taxable value. This conclusion is not without controversy, and some assessors assert (contrary to the statute) that each successive owner must file the affidavit in order to achieve a re-capping.
One last point: The above assumes the buyer intends to keep the property in agricultural production. If that is not the case, then the form should not be used. If the form is filed, but the property later loses its status as qualified agricultural property (by development, for example), the owner of the property has to repay the accrued benefits from