FARGO - A new review of rural Cass County residents who applied for farm home tax exemptions could add the property value equivalent of the entire town of Kindred, N.D., back to the county's tax rolls.
For the first time, Cass County officials are screening applications to ensure that owners of farm homes who seek the property tax exemption are eligible for a break intended to help farmers remain living in rural areas.
So far, the review has denied 63 applicants and officials estimate the taxable valuation of ineligible properties will total $2.45 million, said Paul Fracassi, the county's director of equalization.
"It's roughly the size of Kindred in taxable value," he said, referring to the farming community of 692 south of Fargo, which has property with a cumulative taxable value of $2.5 million.
But the number of rejections could increase significantly once the review is complete, he said.
"Our best guess is that 247 - that's roughly what we think will come on the tax rolls this year," out of 711 exemption applications, Fracassi added.
North Dakota allows farmers who meet certain income and farm activity requirements the tax exemption on their homes, a break that goes back "decades," according to state Tax Commissioner Ryan Rauschenberger. His office advises county officials who evaluate exemption requests.
The farm home exemption has come under increased scrutiny in recent years, and Cass County is one of a growing number of counties reviewing the applications that previously were routinely accepted, he said.
Under another law, buildings used in "farming operations" are exempt from property taxes.
There is no statewide tally of the value of the exemptions for farm homes, an issue that provokes periodic legislative debate between supporters and critics who argue the incentive's merit and potential for abuse.
"There always seems to be discussion about it, but so far it's been keeping the status quo," Rauschenberger said, adding that the issue is likely to resurface next year. "Legislators have this on their radar as a discussion point every session."
A 2017 analysis by the state's tax department found North Dakota is the only Upper Midwest state with a full exemption for rural homes and buildings used for farming operations, he said. Minnesota, by contrast, allows a partial farm home exemption.
The tax breaks stem from an acknowledgement by lawmakers that farmers, usually major landowners, pay significant property taxes.
Grand Forks County conducted its first audit of the farm home exemption in 2013 and found 20 percent of applications were ineligible, said Amber Gudajtes, the county's director of tax equalization.
A review every year since has found between 10 percent and 15 percent of applicants are ineligible, she said. Every year, her office screens a third of rural homes seeking the exemption.
"Change is hard for people, so the first year was difficult," she said. "However, since then I've had good cooperation."
Ineligible applicants were a combination of those who were confused and those who sought to improperly evade their tax obligations, Gudajtes said.
"Some really didn't know," she said, adding that the definition of "farmer" under the exemption law is different than other definitions of what qualifies as a farmer.
In Ward County, the first review, in 2016, resulted in a 16-percent drop in farm home exemptions, with almost 100 rural residents losing the break, the Minot Daily News has reported.
To qualify for North Dakota's exemption, the taxpayer must meet the law's definition of a farmer. Requirements include earning at least 50 percent of annual net income from farming and not having more than $40,000 in off-farm income over a period of three years.
For those in Cass County whose farm homes no longer qualify, Fracassi's office estimates the potential property tax liability will be about $800 per $100,000 in taxable valuation.
The county's review of farm home exemptions, which Fracassi said has the support of the Cass County Commission, began in December.
"It's been a huge task," he said. "I just wanted to make sure we have everything correct and in place."