By MATEUSZ PERKOWSKI/Capital Press
A simplified method of estate tax relief for Oregon farmers may soon become law despite complaints it will reduce state revenues to benefit the wealthy.
Senate Bill 498, which creates a tax exemption for family farm, forest and fishing estates worth up to $15 million, is intended to ease the succession problems such operations often face.
“We need to do all we can to help families stay farming,” said Sen. Bill Hansell, R-Athena, a chief sponsor of the bill.
Otherwise, larger entities may “gobble up” available farmland once owned by families, he said.
The tax legislation is awaiting Gov. Tina Kotek’s signature after winning bipartisan approval in the Legislature last month, passing the Senate 16-9 and the House 35-20 in the session’s final days.
A representative for the governor said she hasn’t yet committed to signing SB 498 or other bills that are still undergoing routine legal review.
While the state already has a tax credit meant to reduce the “death tax” burden for farmers, the provision is saddled with 36 requirements that often hinder families from using it, said Rep. Kevin Mannix, R-Salem.
“It’s an accountant’s and a lawyer’s dream and a family’s nightmare,” said Mannix, a chief sponsor of SB 498.
Currently, farm families can use the credit to reduce their estate tax burden by up to $7.5 million, but only if the inherited assets are valued below $15 million and consist of at least 50% natural resource properties.
Natural resource properties include farmland, forestland, fishing vessels, livestock, crops, nursery stock, machinery, equipment and other assets used in qualifying activities, including licenses.
Some lawmakers said these “sideboards” are necessary to ensure that genuine family farms — rather than investors — benefit from estate tax relief, which is why they opposed SB 498.
“This revision allows some loopholes that make this device vulnerable to use by folks who are more speculators than they are family farmers,” said Sen. Jeff Golden, D-Ashland.
The existing tax credit is a “well-crafted vehicle” for the purpose of keeping farm, forestry and fishing operations in family hands, he said.
However, the current restrictions can unexpectedly disqualify farm families from taking advantage of the credit if asset values change by the time an estate’s owner dies, Mannix said.
“It’s hard to predict whether your descendants are going to be able to use the credit,” he said.
For example, an estate’s value may appreciate beyond the $15 million threshold, or the natural resource assets may depreciate below 50% of its total value.
How exemption works
Under SB 498, the tax exemption would apply regardless of the estate’s total worth or its proportion of natural resource properties — however, only the natural resource assets can benefit from the provision.
Anything beyond that would be taxed at the rate of 10-16% depending on total adjusted value.
“It’s a much cleaner approach. It’s designed to be simple,” Mannix said, adding that the existing tax credit will also remain available.
Not everybody is thrilled with the new approach, which has come under fire for potentially helping “billionaire” investors and the “heirs of gentlemen farms.”
Tax Fairness Oregon, an advocacy group that opposes special interest tax cuts, argues that a diversified estate worth a hundred million dollars or more could exploit the exemption and avoid taxes on $15 million worth of natural resource assets.
Supporters of SB 498 discount that argument because the bill requires that family members be actively engaged in farming, forestry or fishing.
“They were trying to make it sound like some silk stocking New Yorker can take advantage of it,” Mannix said.
For five years before and after the transfer of an estate, its owner or a family member must spent at least 75% of their days involved in farming, forestry or fishing.
The provision would still apply, for example, if the estate owner allows his grandson to operate the farm for five years before his death, and the grandson continues for at least five years afterward, Mannix said.
“You can’t have fallow farmland that for five years nobody does anything with it,” he said.
Tax Fairness Oregon worries the bar for “material participation” in natural resource activities is low and will be further weakened by the 75% time requirement.
Since there’s no case law for the time provision, it’s likely to cause confusion and require further regulation and litigation to clear up, the group said.
Critics have also raised concerns about the bill’s impact on Oregon’s tax revenues, which would decrease by $8 million in the current biennium and $15.5 million in the next biennium under the new approach.
A majority of farms are eligible to benefit from the current tax provision, while the bill opens the door to cutting taxes for much larger estates with varied asset classes, said Rep. Khanh Pham, D-Portland.
“We’ll just be protecting the very wealthy from taxes, which is not a problem we need to solve,” she said.