The agricultural property tax loophole we first told you about in March was closed on Monday when Gov. John Hickenlooper signed HB1146. Tom Cruise was among the most famous beneficiaries of the loophole, saving thousands of dollars in taxes because of his decision to allow sheep to “graze around the mansions for brief periods each year.”
At this point, it remains unclear whether this new law will cause farmer Cruise to put away his shears and focus on his acting career.
Prior to the enactment of HB1146, property owners in Colorado were eligible for hefty agricultural tax breaks if they could prove that they tried to make a profit through agriculture. As the Denver Post points out, “that's a standard so lenient that some property owners qualify by letting cattle [or sheep] graze a few days out of the year.”
Unsurprisingly, many very influential people jumped at the chance to exploit this obvious flaw in the state’s tax code. In addition to Tom Cruise, the Denver Post reported that Kurt Russell, Goldie Hawn, a state senator, the state’s treasurer, an energy industry billionaire, a media mogul, and the chairman of Discovery Communications all benefited from this loophole. Countless other well-off of landowners in Colorado undoubtedly benefited as well.
The new law mostly fixes this problem by allowing county assessors to apply the normal, residential tax rate to up to two acres of land inside an agricultural parcel, including the land located underneath a residence.
In order to protect real farmers, assessors will not be allowed to apply the residential rate to any part of the land if the actual residence is “integral” to a farming operation. Pseudo-farmers like Tom Cruise, however, will almost certainly see their homes taxed at the residential rate, assuming they don’t fill their mansions with farming equipment in the very near future.
A state task force reportedly found that most taxpayers affected by the change live in Colorado’s resort areas.
Unfortunately, this new law left another glaring agricultural tax loophole intact. Developers and big businesses are still allowed to save millions in property taxes by conducting a similar style of “farming” on large swaths of vacant land. Assessors in the state are continuing to push for the closure of this loophole as well.