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As detailed in the last post, several cities are exploring ways to promote urban farming with property tax incentives. Cities like San Francisco, Los Angeles, Baltimore, and Washington D.C. have all recently passed local ordinances that give urban farmers tax credits in some form or fashion. Given the recent trend of cities incentivizing urban farming with tax credits, it is worth exploring if this is a policy that makes sense for Detroit.
Michigan property taxes are derived from the Michigan Constitution and the Michigan General Property Tax Act. The Michigan Constitution states that the “legislature shall provide for uniform general ad valorem taxation of real…property not exempt by law except for taxes levied for school operating purposes. The legislature shall provide for the determination of true cash value of such property.”
Michigan case law has established that the true cash value of real property is the equivalent of the fair market value. This value is determined by a tax assessor, who considers factors such as the location of the property, the quality of the soil, zoning, the existing use, the present economic income of structures, and any minerals or other valuable deposits that may be on the land.
In plain English, this means that the Michigan Constitution requires real property to be taxed at its fair market value unless the state legislature determines otherwise. Even for vacant properties in Detroit, the assessed fair market value of a property may be quite expensive. In order to provide any urban agriculture specific tax breaks, the state legislature must get involved by passing legislation that authorizes local tax breaks.
However, not all urban farmers have to wait! Currently, there are a few property tax exemptions that are relevant for urban farmers. The most common exemption is contained in § 211.70 of the Michigan General Property Tax Act. The section states:
“Real or personal property owned and occupied by a nonprofit charitable institution while occupied by that nonprofit charitable institution solely for the purposes for which that nonprofit charitable institution was incorporated is exempt from the collection of taxes under this act.”
The above language contains four basic requirements for non-profits that want to be excluded from property taxes.
1.) Nonprofit must own the property
2.) Nonprofit must occupy the property
3.) Nonprofit must be a charitable institution
4.) Nonprofit must occupy the property for its charitable purpose
The nonprofit property tax exemption is a complete exemption. Organizations that believe their property meets the above qualifications must apply to the Detroit Finance Department.
Another possible exemption for urban farmers is the qualified agricultural property exemption. A qualified agricultural property is defined as an “unoccupied property and related buildings located on a property devoted primarily to agricultural use…” A property is considered to be primarily devoted to agriculture if more than 50% of the parcel’s total acreage is devoted to agricultural use.
The qualified agricultural property exemption is not a complete exemption. It only exempts the property from taxes levied by a local school district for school operating purposes. This amounts to about an 18.18 mill reduction for properties in Detroit from 86.62 mills to 68.44 mills. To be eligible for this exemption, an urban farmer must file Form 2599 with a local tax assessor before May 1st.
Urban farmers should be aware and taking advantage of the property tax exemptions that are currently in existence. However, urban farmers may also want to push for policy that specifically incentivizes urban agriculture with tax incentives as many other cities are currently doing or considering doing. However, in order for that the happen, the Michigan legislature must pass a law authorizing the tax incentive.
Many urban farmers have asked me what role the state should be playing in regards to urban agriculture policy in Detroit. Tax policy at the state level has been instrumental in driving much of the redevelopment in the Midtown and Downtown neighborhoods. Developments such as the Compuware World Headquarters, the Book Cadillac Hotel, and the Park Shelton Apartments have all received several millions of dollars in tax incentives. If urban farmers want an innovative tax policy that specifically works to incentivize urban farming, they must first go to the state legislator.