Update on Farmland Development (P.A. 116) Situation

Thursday, July 7, 2011

In March I blogged about Governor Snyder's proposed budget plan, which purports to eliminate all tax credits, in what he articulates as a "leveling of the playing field." Whether you buy that or not, it is clear that his approach is moving in that direction.

Last month, the new Michigan Corporate Income tax was enacted and signed into law by the Governor. Somewhat to the surprise of many of us, this new corporate tax is the primary significant new tax. While there are also adjustments to the credits allowed for certain personal income tax returns beginning in 2012, the proposal to eliminate the P.A. 116 credit was not part of the new legislation, except as it relates to corporate-owned farmland. The law recognizes a potential unfairness to corporations that have unused credits, and provides for an election to continue filing under the former "Michigan Business Tax" until they have exhausted their unused credits. This would, presumably, include P.A. 116 credits available to the corporation for land it owns.

It is very important not to confuse this with corporate farming operations, which are common in Michigan. Usually, these farming corporations involve some aspect of operations, only. They generally do not own land—or if they do—it is small parcels which house barns, elevator operations, offices, tool sheds, and the like. Unless the acreage is significant, it is probable that the benefit from the P.A. 116 credit alone is not enough to cause a taxpayer to elect under the old taxation scheme.

On June 30, Michigan Farm Bureau's Michigan Farm News reported that the Snyder proposals have yet to be introduced in the Michigan Legislature. Thus, at this point the proposal to eliminate the P.A. 116 tax credit program remains conjecture. However, numerous factors, including continuing state budget deficits, the current administration's views, and a currently supportive legislature, strongly suggest it may still be coming.

The "reprieve" does not appear to have impressed the majority of my farm clients. I am still being told by most of them that it is their intent to extend all their agreements, and enroll land that was not previously enrolled, at the earliest possible opportunity. Many have already officially made this request. We are currently assisting a number of others with that.

As I noted in my previous blog, the analysis has changed. Where many farmers previously "managed" the agreements for the shortest duration with a plan to extend periodically, today farmers are looking at how long the extension should be. For "legacy" operations, the consensus seems to be to extend to the maximum allowable duration (90 years from the time the land was originally enrolled). Others are trying to make the difficult prediction of how long the land might stay in agricultural production and whether they have heirs that will continue to maintain farming operations.

The MDA-Farmland division is significantly backlogged with extension requests. The Michigan Farm New article above, quotes Richard Harlow, director of the MDA-Farmland Program as saying they had received, over 10,000 contract renewal/extension requests already in 2011. He notes that in a normal year, they get round 3,000 annually. With a November 1 deadline in order to be eligible for 2012 credits, I expect this number to increase significantly. Do not expect a rapid turnaround. As far as I am aware, there has not been a significant increase in resources available to process these requests.


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