Property Taxes: Current Use

One of the many thorny issues associated with taxation in Alabama is the practice of “current use” when assessing property taxes.   ALFA loves current use and will fight tooth and nail to preserve it.  Poverty advocates see it as yet another tax scheme benefiting the wealthy at the expense of the poor.  Before coming to the Mock Convention I suspected it could lead to “enthused” discussion.

For the uninitiated, real property is typically assessed based on the value.  The government appraises your property and assigns a value to it.  Depending on what type of property it is (business, farm, home, etc.) it is assessed at one of three rates.  Homes and farms are assessed at 10% of value, for example.  Once the assessed value is determined your property taxes are calculated using the prevailing millage rate.

So what is current use?  Current use dictates that certain properties, such as farms and timber land, be assessed based on how they are currently being used instead of their actual value.  For example, if you own a farm and a developer builds a shopping center and high end homes on adjacent property what should happen to your property taxes?  Should they rise dramatically since the value of your land just increased or should they stay roughly the same since you’re using the land for the same purpose?  Will higher taxes force you to sell your farm?  Given Alabama’s rural cultural heritage it isn’t hard to see why this can be a challenging topic.

As part of my research tonight I figured I would isolate a pretty extreme example of our current use law being applied.  Here in Huntsville one of our major roads is Memorial Parkway.  It is packed with shopping centers, restaurants, and other businesses.  However, not too far from my home, right amongst retail establishments, is a small patch of land right by the road that is used to grow corn (if memory serves) every year.  I went to the tax collectors website and looked up the tax information for that small chunk of land.  It is just under 10 acres and has an appraised value of $2,047,500.  However, its “use value” is $5,187 and the assessed value is 10% of that ($520).

A nearby developed property measures about 18 acres.  The land value is $3,790,500 and the improvement (building) value is $1,641,700 for a total value of $5,432,200.  The assessed value is 20% of the appraised value, or $1,086,440.  If just the land were assessed at 20% and the parcel size was partitioned to equal acreage of  the nearby farm land the assessed value would be $409,374.  That’s 787 times the current use assessment for a similar property just a few hundred yards away.

To provide further perspective, my house is not too far from the Parkway.  The lot is about 1/3 acre and the assessed value is $1,610 – three times the current use value of the roughly 10 acres sitting alongside the major highway.  If my property magically grew to 10 acres (not likely barring any unforeseen seismic event) and was appraised at the same per acre value then my assessed value would be $48,305.  That’s 93 times the farm land on the highway.

Now this is probably one of the more extreme examples in the state, but I thought the stark contrast in assessments would really drive home what current use means.