Virginia Use-Values Increase Slightly

Farm Business Management Update, December 2006/January 2007

By Lex Bruce (fbruce@vt.edu), Project Associate, Department of Agricultural and Applied Economics, Virginia Tech.

From tax year 2006 to 2007, use-values for agricultural and horticultural sectors across the state show an average increase.  The State Land Evaluation Advisory Council (SLEAC) reported that the average use-value cropland in Virginia was $16 per acre more (a 15 percent increase) for no risk Type 3 soil classified land.  Of the 95 participating use-value jurisdictions (i.e., counties and cites) within the state, 84% had actual changes in their respective use-value estimates of $100 or less per acre while just over one-half had actual changes of $50 or less per acre.    

This modest increase in use-value estimates is most often the result of increased returns associated with hay crops.  Data used in calculating use-value estimates lags two years behind the current tax year (TY).  For example, TY 2007 use-value estimates are based on data from 2005 and earlier.  A jurisdiction’s annual crop net return would be an average of seven years of annual returns beginning in 1999.  An Olympic averaging process is used which moderates major swings from year-to-year in annual net returns by dropping the high and low values and calculating an average of the remaining 5 values.  However, even when an Olympic averaging process is employed, major increases and decreases in values can still occur and affect a jurisdiction’s net returns.  Such was the case during TY 2007 when annual hay net returns showed increases in many jurisdictions for the last several years.  While Olympic averaging helps moderate swings in data, the consistency of increased hay prices by Virginia Agricultural Statistics Service (VASS) affected many jurisdictions’ overall average net returns and thus their respective use-value estimates. 

Perhaps a question to ask regarding the recent use-value increases is, “Will use-values continue to increase in the future?”  While Virginia agricultural producers continue to combat increases in production costs (e.g. fuel prices and interest rates), on average use-value estimates in Virginia have been on the increase during recent years.  The future is hard to predict, yet as Virginia producers experiment with alternative crops and turn their attention more toward global marketing.  Use-values can be expected to reflect that progression.

For more information on Virginia use-values, see http://usevalue.agecon.vt.edu/.

Background for Use-Value Taxation
The synopsis of section 58.1 – 3229 of the Code of Virginia declares that “the preservation of real estate for agricultural, horticultural, forest and open space use is in the public interest and … the classification, special assessment and taxation of such property in a manner that promotes its preservation help foster long term public benefits.” Virginia law allows for eligible land in any of these categories to be taxed based upon the land’s value in use (use value) as opposed to the land’s market value. Section 58.1 – 3239 of the Code establishes the State Land Evaluation Advisory Council (SLEAC) and directs it to estimate the use value of eligible land for each jurisdiction participating in the land-use program.

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