Bills Aimed at Closing Ag Property Tax Loopholes Fall Short as Lawmakers Balk at Raising Taxes

The failed bills mean rural luxury properties without documented agricultural production can continue benefiting from light-touch tax treatment intended for farms and ranches

By Eric Dietrich for Montana Free Press

A Montana flag flies in front of the Capitol building, photographed January 26, 2023. Credit: Samuel Wilson / Bozeman Daily Chronicle

A push to address concerns that loopholes in Montana’s agricultural tax system allow luxury homes to claim benefits intended for working farms and ranches has fallen short, with the second of two bills advanced as potential reform measures this year failing on a 40-59 vote on the House floor Thursday.

That bill, House Bill 27 would have reworked the state tax code so it no longer automatically awards agricultural tax status to large properties without documented agricultural income. It also would have adjusted a policy that automatically grants a partial agricultural tax treatment to mid-size properties of at least 20 acres, instead classifying them as “idle” land if their owners don’t report income from farming or ranching.

The other bill, Senate Bill 4, would have changed tax calculations for land beneath homes on agricultural land to provide less tax benefit for lakefront parcels and other properties that would otherwise be taxed as high-value real estate. It was voted down by the Senate Taxation Committee Feb. 13.

Previous reporting by Montana Free Press and High Country News found that Montana’s current tax system allows thousands of million-dollar homes across the state to claim agricultural status, saving many of them hundreds or thousands of dollars a year versus what they would pay if taxed like most residential properties.

One of those properties is Republican Governor Greg Gianforte’s Bozeman home, where an agricultural designation means Gianforte pays an effective land tax rate that is about 1/144 what a neighbor is paying across the street. (The governor’s office has said his family’s land is used for barley and alfalfa production and to board horses and mules.)

Both bills were supported by the Montana Department of Revenue, which developed them through a stakeholder working group convened after bills trying to address the issue failed to pass the Legislature in 2023. Gianforte’s Lieutenant Governor, Kristen Juras, also testified in support of HB 27 at a February committee hearing.

As HB 27 came up for debate on the House floor Thursday, however, it stalled amid opposition from lawmakers who said they couldn’t stomach voting for a potential tax increase.

“Our constituents sent us up here with a mandate to lower property taxes. House Bill 27 will raise taxes for a vast number of Montanans and drive Montanans off their land,” said Representative Jedediah Hinkle, R-Belgrade.

Supporters argued that any property owner able to document $1,500 a year or more in agricultural income would be allowed to maintain an agricultural status, meaning their taxes would be unaffected. Combined with an option to claim a property as a subsistence farm, they said, that approach would direct agricultural tax benefits only to taxpayers who are actually farming or ranching.

“For too long, we’ve seen speculators buy up thousands of acres, take them out of production and turn them into their personal playgrounds — all while paying a fraction of their fair share in property tax,” argued Representative Sherry Essmann, R-Billings, the bill’s sponsor.

“If you’re engaged in production ag, you should get the production rate. If you’re not engaged in production ag, you should not get the ag rate,” said Representative Mark Thane, D-Missoula. The current law, he argued, produces a “tax system that’s not necessarily fair and equitable.”

The other bill, sponsored by Senator Becky Beard, R-Elliston, was voted down 2-6 by the Senate Taxation Committee, following a discussion last month where both the committee’s senior Republicans and Democrats said they were worried about imposing a sudden tax hike on certain taxpayers.

“I like the intent of it, but I think some folks will really see some increases that will make it very difficult for them, so I’m going to oppose the bill,” said Senator Dave Fern, D-Whitefish.

Senate Taxation Chair Greg Hertz, R-Polson, said he agreed. “I see this raising taxes significantly on some small agricultural land and providing the rest of us with maybe a dollar reduction in our property taxes,” he said.

Under current law, properties of 160 acres or more are automatically classified as agricultural, which means the land, excluding any structures, is valued for tax purposes based not on how much it would sell for but rather how much money its owner could theoretically earn farming or ranching. Smaller properties can qualify for the agricultural designation if they demonstrate at least $1,500 a year in farm or ranch income, a threshold that hasn’t been updated since the 1980s.

The defeat of the two bills means the law is likely to stay unchanged through this year’s legislative session. Other tax relief proposals generally focus on the residential portion of the property tax code while leaving the agricultural side untouched. For example, a Gianforte-backed bill that aims to lower taxes on primary residences by, in part, raising them on second homes explicitly exempts homes on agricultural land from its proposed tax rate shifts.