More Briefs in Tax Court

A decision in the Sommerdorf equine property tax case is delayed another month. The Court has requested copies of boarding contracts and ordered another round of briefing on the issue whether a "sale" of pasture occurred when boarders signed their boarding contracts.

As we argued in the first and second round of briefs, pasture is forage, and forage is an agricultural product that qualifies a horse boarding property for agricultural classification. But agricultural products must be sold, not just grown; so the issue has come down to whether the pasture horses grazed was "sold" to boarders as food for horses under their boarding contracts.

We'll have a decision by the end of November. But the Court's interest in individual boarding contracts signals the possibility of a decision that won't have much impact on other equine property owners even if we win. Although court decisions have precedential value that courts (and other divisions of government) are supposed to follow, the more fact-specific a case is, the less relevant it may be deemed in other situations. Ultimately this issue will have to be resolved either by legislation or state-wide guidelines establishing which equestrian uses of land are agricultural, and whether additional agricultural products must be sold in order for horse boarding to qualify.

Minnesota Tax Court decision due October 21, 2009

A long-awaited decision of the Minnesota Tax Court in the case of Sommerdorf v. County of Sherburne is due to be released on or before October 21, 2009.

County assessors and equine property owners stand to be affected by the decision in this case. The main issue is whether horse pasture is an agricultural product that may be raised in conjunction with the commercial boarding of horses to qualify a property for agricultural classification. Although "pasture" is listed as an agricultural product in the statute, assessors -- backed by the Minnesota Department of Revenue -- argue that the pasture must be harvested as hay, baled, and sold to third parties rather than used to feed horses by grazing.

A second issue in the case is whether a horse boarding property that otherwise qualifies as agricultural is somehow transformed into a "commercial-industrial" operation if horse training, riding instruction, or other services are offered for hire rather than merely raising livestock, crops, or other agricultural products for sale.

Conflict over this issue, as well as significant changes in the tax treatment of equine property, has spread to Washington County and resulted in unprecedented attention at the State Capitol in the last legislative session. While some property owners have appealed to the Commissioner of Revenue or consider court challenges to their property tax classification, the Legislature will take up the issue again starting in early February 2010.

Notice to Equestrian Property Taxpayers

During the contentious last legislative session, controversial bills to amend Greenacres and protect horses and equestrian use of property as agricultural received scrutiny, especially in the State Senate. At issue with respect to equestrian property was the sudden and surprising change for many equine property owners--especially in Washington County--that the County Assessor had decided to disqualify their property from agricultural classification, which has a favorable base tax rate of 0.5% of market value. Classifications that changed from agricultural to residential or rural/vacant land effectively doubled the tax rate to 1.0% of market value, and a change to commercial-industrial classification tripled the base tax rate to 1.5%. Many taxpayers saw their taxes raised suddenly and quite unexpectedly by thousands of dollars, simply because the assessor chose to view their equestrian use of the land as something other than agricultural.

I wrote language for bills that were introduced that would have strengthened the state law that gives horse boarding agricultural classification, but the measure failed to pass. On the question of equestrian property taxes and classification, a compromise measure was enacted which compels the Department of Revenue, in consultation with the Department of Agriculture, to complete a study of the ways "horse breeding and horse boarding properties" are classified under current law and make recommendations for "needed or useful law changes" to state legislative leaders by February 1, 2010.

In the meantime, equine property taxpayers whose property use has not changed but whose classification was changed from agricultural to a classification with a higher tax bracket may appeal by sending a letter to the Commissioner of Revenue no later than September 1, 2009. The Commissioner's response letter, which must be sent by December 31, 2009, is appealable to Minnesota Tax Court.

It's possible, however, that many taxpayers haven't looked closely at their 2009 Notices of Property Tax Classification and Assessment to notice whether their classification has changed or not. If they don't take action before Truth in Taxation notices go out in November--when steep increases in calculated 2009 property taxes due by April 30, 2010 will surely get people's attention--it will be too late to appeal to the Commissioner.

Are you affected? Be sure to check your January 2009 Notice of Property Tax Classification and Valuation. If your use of your horse property hasn't changed but your previously agricultural classification has, then you should consider appealing directly to the Commissioner of Revenue. Feel free to call me to talk about your individual situation.

The new law is published online at the Legislature's web site, in 2009 Session Laws, Chapter 88, Section 47.

Equine Law Presentations at the Minnesota Horse Expo

I am scheduled to speak on the topic of equine law every day of this year's Minnesota Horse Expo, April 24, 25 and 26, at the Ramberg Building of the Minnesota State Fairgrounds. Visit www.mnhorseexpo.org for more information, or click here to go directly to the speakers' web page.