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New Needs and Uses of Farm Rental Data <br /> <br /> Douglas G. Tiffany <br />Agricultural Economist <br />Minnesota Department of Revenue <br /> <br />IA year ago for this same short course I discussed aspects of the rental market <br />on farmland. At that time I explained how, since 1977, rental data on farms <br />was being utilized in the process of school-aids allocations. Today my remarks <br />will again be based on the topic of farm rentals; however, this time I shall be <br />discussing the potential usefulness of rental data in establishing farmland <br />valuations for purposes of real estate taxation. <br /> <br />As many of you are aware, the 1981 Legislature enacted two provisions related <br />to farm rental data including: <br /> <br />A METHOD FOR VALUATION OF AGRICULTURAL LANDS <br /> <br />Section 4 provides that agricultural.land is to be valued at the <br />lesser of its market value or the value which could be derived <br />from its free market gross rental rate capitalized at a rate of <br />5.8 percent. Each county assessor is to survey the farm rental <br />values of each grade of farmland in each township in the county <br />and this information is to be used by the town boards of review <br />in the reviews of valuations. This section is effective for <br />taxes.levied in 1983 and later years, payable in 1984 and <br />later years. <br /> <br />IAs this section describes, one may calculate value for agricultural land by <br />capitalizing its free market gross rental rate by 5.8%. This method conforms <br />to the income capitalization formula which some of you may have used on other <br />Itypes of property such as apartments or commercial buildings. The formula <br />below characterizes the income capitalization process: <br /> <br />I Value = <br /> Annual <br /> Income <br /> Annual Capitalization Rate <br /> <br />I <br />I <br />I <br />I <br /> <br />The following formula has been chosen by our legislature as an alternative means <br />of valuing farmland in the state. <br /> <br />Example: <br /> <br /> Free Market Gross Rent <br />Value : .05~ <br /> <br />Tillable farmland rents for $50 per acre per year. <br /> <br /> Value = $50 <br /> <br /> (Instead v}di~.~ ,'r'- ..... ~:'~.et gross rent by .058, one may obtain the same <br />Ianswer by multlplj,'~ ~' 17.241379, or more simply 17.24.) <br /> <br /> <br />