How the Program Works
Vermont requires local listers to use fair market value for property tax appraisals. Fair market value incorporates data from local real estate sales to assign values to property within the municipality. The listers’ use of this data varies depending on the municipality, but the basic method of valuation for one acre of land is based on the average price per acre among real estate sales. This determination of the “highest and best use” of property is how the state predicts fair market value. Because the vast majority of real estate sales involve the development of land (very few people buy a housing development and turn it into farmland), the vast majority of the state’s valuation of land for property tax purposes is based on the development value of land.
Rather than force farmers and owners of forest land to pay property taxes based on fair market value, the state allows eligible landowners to pay property tax based on an appraisal of “Current Use value.” Each year, the state sets a price per acre for agricultural land and forest land. These prices reduce the overall appraisal value because development potential is not a factor in the valuation of the land. The state determines what an acre of farmland is worth as farmland, not what it is worth according to real estate sales of any type of land or development.
There are two important aspects of property tax values where Current Use taxation does not apply. First, it does not apply to homes and other residential improvements. Second, it does not apply to the land beneath the home or improvements. This land is the “homestead” and the state automatically exempts two acres to account for the home, roads, and other improvements. The state considers these two acres developed and therefore exempt from use value appraisals. This land area would be taxed at the market rate.
|Hypothetical Case StudyJim owns 152 acres in the Northeast Kingdom. His property consists of a small cabin and a pole barn. Birch, balsam, and spruce trees surround the property in all directions. The local lister has appraised Jim’s property at $450,000.Land Value: $400,000
Improvements Value: $50,000
Total Value: $450,000
The combined tax rate in Jim’s town is $1.50 per $100. So every year, Jim has to pay $6,750 in property tax based on the fair market value of $450,000.
Jim discovers that his land is eligible for Current Use. The price per acre of forest land in the Current Use program for the tax year is $125/acre. Jim can enroll all of the land that he owns (except for two acres under the homestead exemption) because all of his land is forest land. Jim’s land value becomes $190,000 (150 acres at $125/acre) under Current Use taxation. So Jim’s next property tax statement looks like this:
Land Value: $190,000
Jim’s property tax appraisal went from $450,000 via fair market value to $250,000 via Current Use taxation. Under the same tax rate of $1.50 per $100, Jim will now pay $3,750 per year in property tax as long as his property remains enrolled. The result is a tax saving to Jim of $3,000 per year.