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Various Local, State, and Federal Programs Available to Virginia Farmers
Farm Business Management Update, June 2001
By Jack Dunford
Local, state, and federal governments provide a number of programs, tax credits, tax exemptions, and other business-related benefits to the farming community. These programs are in addition to the state and federal programs such as disaster payments, cost-share programs, feed-grain programs, etc. available through agencies such as FSA, NRCS, DEQ, NRCS, and the local Soil and Water Conservation districts. The intent of this summary is to compile and briefly describe those benefits in one concise list.
- Land-Use Taxation - A program in existence since the 1970's which values farmland based on its income producing potential rather than market value. It can result in significant real estate tax savings for farmers. Land-use taxation is available in many Virginia counties and is administered through the local Commissioner of the Revenue office where landowners must apply and re-certify annually. Generally, full-time farmers qualify, but minimum farming activities must be approved for part-time farmers or rural landowners to qualify. Rules vary by county, so contact your Commissioner of the Revenue for details.
- Exemption from Personal Property Tax on Farm Equipment - Many local governments exempt farm equipment from local personal property taxes. Since this varies from county to county, contact your Commissioner of Revenue for your locality.
- Agricultural Districts - Counties have the flexibility under Virginia law to establish agricultural districts within their jurisdictions. These are formed voluntarily by single landowners or groups of landowners. The intent of a district is to protect the area from residential development and to maintain open space and agriculture. Once a district is formed, it must be renewed periodically. Contact your local planning/zoning office for the rules governing agricultural districts in your county. Similar legislation for forest districts exists in some jurisdictions.
- Conservation Easements/Purchase of Development Rights - A fairly new alternative available in some counties that permits landowners to protect lands from development. Check with your local planning/zoning office to see if such programs might be available.
- State Income Tax Credits - At least five Virginia income tax credits are currently in the state code that apply to farmers/landowners. They are computed on the Schedule CR and filed with the Virginia income tax return. These credits are not applicable to federal income taxes. See the Virginia Schedule CR Instructions for more details on these credits and to determine what supplemental information must be provided with the tax return for each credit. The total tax credits cannot exceed the Virginia income tax due in a particular year; however, the unused credits may be carried forward for five years.
- Conservation Tillage Equipment Credit - A taxpayer investing in conservation tillage equipment (i.e., no-till planters or drills) for the purpose of farming may claim this tax credit. The credit is 25% of the cost of the equipment or $2,500, whichever is less.
- Fertilizer and Pesticide Application Equipment Credit - Twenty-five percent of all expenditures for equipment certified as providing more precise pesticide and/or fertilizer application or $3,750, whichever is less. Applicants must be engaged in agricultural production for market and have in place a nutrient management plan approved by the local Soil and Water Conservation district.
- Agricultural Best Management Practices Tax Credit - The agricultural producer must have in place a soil conservation plan approved by the local Soil and Water Conservation District. The credit is 25% of the first $70,000 that is spent for approved agricultural best management programs (BMP). The maximum credit available is 25% of the cost of the BMP up to $17,500, or the total amount of state income tax due, whichever is less.
- Riparian Waterway Buffer Credit - Contact the Virginia Department of Forestry for details. This credit is for landowners who refrain from cutting timber on lands adjacent to waterways. The credit is 25% of the value of the timber (established by the Virginia State Forester) up to $17,500, or the total amount of the income tax due, whichever is less.
- Preservation of Land Tax Credit - A Virginia tax credit is offered for taxpayers donating land for preservation purposes. The credit is 50% of the fair market value of the land transferred, not to exceed $50,000 in 2000, $75,000 in 2001, and $100,000 in 2002.
- Virginia Sales and Use Tax Exemption - Farmers are generally exempt from paying this tax on items considered tangible personal property used in the production of agricultural products for market. Examples of qualifying items include feed, seed, fertilizer, chemicals, most farm machinery, etc. A Form ST-18 must be filed with each dealer from which the farmer purchases farm supplies/equipment. Not all agricultural inputs qualify for this exemption - contact the State Sales Tax Office for detailed information.
- State Fuels Tax Refund - State taxes that a farmer pays on fuels used exclusively for agricultural production are refundable. Form FAA 216 is available from DMV. This refund is filed with the Refund Section of DMV in Richmond.
- Farm Vehicle Tags - Vehicles used exclusively for agricultural purposes on lands owned or leased by the owner are exempt from registration and license plate requirements. These vehicles can be operated along a highway for no more than 30 miles from home for certain agriculturally related purposes as outlined in the Virginia Code (46.2-698).
- Section 2032A Use Valuation for Estates - For estate tax purposes, a closely held farm business may elect to value farm real property at its special use value rather than fair market value. In 2001, the maximum reduction available for an estate is $800,000. One of the many provisions to qualify for this tax treatment is that qualified heirs must farm the property for at least 10 years after the death of the owner. Contact an accountant and tax attorney with experience in farm estate taxes for more information.
- Section 2057 Deduction of a Qualified Family-owned Business Interest (QFOBI) - Up to $675,000 of a qualified business interest (farm) can be deducted from the decedent's gross estate. This deduction can be used in addition to the 2032 special use valuation and the installment payment of estate tax provisions. The stringent qualification rules are outlined in the Internal Revenue Code.
- Election to Pay Estate Tax in Installments - If an estate includes a farm or other closely held business that meets several strict rules, the executor may elect to pay the tax in as many as ten annual installments. The value of the closely held business must exceed 35 percent of the adjusted gross estate, and the amount of tax that can be deferred is limited to the tax attributable to the business interest (farm). An indexed maximum amount ($1,030,000 in 2000) of the business value also qualifies for this treatment.
- Soil and Water Conservation Expenses (Schedule F) - See the Farmers Tax Guide (IRS Publication 225) for details on deducting soil and water conservation expenses on a farm.
- Federal Gasoline Tax Refund - Farmers are exempt from paying federal gasoline/diesel taxes for fuels used on a farm for farming purposes. File Form 4136 with your income tax return. See the Instructions for Form 4136 for more information on this credit. Federal and state gasoline or fuel tax credits or refunds must be reported as income on line 10 of the Schedule F in the year that they are received.
- Crop Insurance - This insurance is now available for most major crops grown in most Virginia. Contact your local crop insurance representatives for more information.
- Cash Accounting - Farmers and fishermen are two categories of businesses that are exempt from the accrual accounting method. Accrual accounting involves keeping track of inventory changes that are included in calculating income taxes. Farmers are permitted to use the simpler cash accounting method.
- Exemption from Quarterly Estimated Tax Payments - Farmers who have at least two thirds of their gross income coming from agricultural production are exempt from filing and paying quarterly estimated taxes. In return for this privilege, qualifying farmers must file and pay their federal taxes by March 1. See Chapter 2 of the Farmers Tax Guide (Pub. 225) for more information.
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