Tax Expense Trends on Midwest Farms
Historically, looking at the macro view of real estate & non-real estate tax expenses for agriculture within selected Midwest states there are steady increases in all the states. As productivity has increased, the amount of money that can be extracted from the ground in the form of crops per acre has increased as well. The number of acres being farmed, in some cases being less than previous years, and still yielding more. This fosters greater tax revenue for the government and higher tax expense for the producer. The question that each producer needs to consider is if the increase in tax expense is proportional to the increases in revenue and, subsequently, profits.
Additionally, there are many factors that play into what is being taxed and how much those taxes will be. In Figure 1, the nominal tax expenses are increasing in all the Midwest states over time, some more than others. This does not necessarily mean that tax rates are increasing, simply that more dollars are being generated and taxed. Tax expense increases from 2003-2015 are as follows State followed by percent increase in parentheses: Illinois (15%), Missouri (48%), Iowa (84%), Indiana (109%), Minnesota (165%), Kansas (186%), and Nebraska (246%).
Figure 2, shows the increase in tax expense per farm from 2003 to 2015. However, tax expense may be increasing, but the number of farms at the same time is decreasing, and as this is an average this must be considered. It is likely this is a factor in the rapid uptick in tax expenses per farm. Interestingly, Nebraska has the least number of farms of all the states in this report while also remaining relatively steady in their number of farms between 2003-05. This signals to the fact that not all the onus can be placed on decreasing farm numbers but also to other factors such as increasing farm land value, or even various government budget increases requiring increased funding.
What can be concluded? Tax expenses have risen significant amounts in the last decade especially for Iowa, Indiana, Kansas, Minnesota, and drastically in Nebraska. Several factors including, but not limited to, land consolidation, increasing productivity on less land, and increasing land values contribute to this trend. As farmers often work in an industry with tight profit margins, our awareness of these types of trends are important to plan for successful financial futures.
Preston Lyman is a Research Analyst with Decision Innovation Solutions (DIS). DIS is an Iowa-Based economic research firm which provides regular farm economics research and analysis to the Iowa Farm Bureau staff and members.
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