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Madison — About half the land that gets agricultural property tax breaks in four urban areas of the state is owned by real estate or property development businesses, according to a new study that raises questions about whether the tax breaks are being used as intended.

The report found that $4.7 million in property taxes in 14 communities in 2009 was shifted to homeowners and businesses from property owners who were claiming the tax break for land that was zoned for non-agricultural use.

Those homeowners and businesses each would have seen their property taxes drop by $38 on average if the tax breaks hadn't been given, according to the report by the state Legislative Audit Bureau.

The owners of the land that got the tax break would on average have had to pay an additional $3,516 in property taxes.

The report included photos that showed properties in subdivisions or other urban settings that were receiving the tax break.

"This audit confirms that the Agricultural Use Value Program has a loophole that is being abused by wealthy developers to shift their property taxes onto homeowners," said a statement from Senate Majority Leader Russ Decker (D-Wausau), who requested the audit.

"Land that is clearly going to be developed in the near future should not be getting a tax break meant to be used to preserve farmland."

Among the photos is a picture of a parcel in Eau Claire near a hotel and retail center with a sign that says, "Land for sale. Great restaurant location." Tom Hahn, one of the owners of the property, said it was ridiculous to say he was abusing the law.

"If I develop it, I would be tickled to pay . . . the taxes at the commercial rate," Hahn said.

He said he bought the agricultural land five years ago and developed part of it, which has resulted in increased property, sales and payroll taxes for the city and state. As he waits to develop the final 10 acres - which has been difficult in the down economy - he has been planting wheat on it.

"Do (lawmakers) want us to succeed and pay taxes on it and create 250 (to) 300 jobs? Or do they want us to fail?" he said. "The last thing they need to worry about is getting a couple more bucks out of a wheat field."

Farmland preservation

In 1995, the Legislature passed the state's use value assessment law that says agricultural land should be assessed for tax purposes based on its agricultural value, rather than its market value like other properties. The move was meant to provide farmers with tax breaks and reduce urban sprawl by keeping land in the hands of farmers.

Decker and other critics have charged that developers have been able to exploit the law by planting a few crops on their properties while they wait for building approval.

But Tom Larson, director of regulatory and legislative affairs for the Wisconsin Realtors Association, said the law is working as intended. The purpose of the law is to keep more land in agricultural production, and it makes no difference whether a farmer or developer owns the land as long as it is being farmed, Larson said.

"The land can't tell the difference of who owns it," he said.

Rep. Peter Barca (D-Kenosha), co-chairman of the Joint Audit Committee, said the report exposed problems with the law that need to be fixed but argued that an overhaul of the law isn't warranted because it is generally effective. All other states but one - Michigan - have laws that allow agricultural land to be assessed at different rates, and Barca said Wisconsin could learn from other states how to tighten its law.

Auditors looked at properties in 14 municipalities they selected because of their geographic diversity and differences in population. They found that:

• About half the agricultural acres in four communities - Appleton, Middleton, Sun Prairie and Wausau - were owned by real estate or development companies. About 3,800 acres in all 14 communities were owned by such firms.

• More than 6,300 acres that received the tax breaks were zoned for non-agricultural purposes. That included more than half of the acres of such properties in nine of the 14 municipalities. Four of those communities - Brookfield, Eau Claire, Platteville and Wausau - do not have agricultural zoning.

• In Middleton, 91.8% of the land that received the agricultural tax break had been platted, or divided, for development.

• Property taxes in Twin Lakes in Kenosha County would have been $251 lower on average for homeowners and businesses if the tax break had not been provided to properties that were zoned for non-agricultural use.

In some other communities, the tax effect would be minimal for homeowners, lowering their bills on average by just $2 in Wausau and $5 in Appleton and rural Akan in Richland County. The average savings for non-agricultural property owners in the 14 communities would have been $38.

Such a change also would have meant those getting the tax breaks would have to pay significantly more - nearly $25,000 on average in Eau Claire, and $3,516 on average for those landowners in all 14 communities.

Generally, all property has to be taxed the same way in Wisconsin, but a 1974 amendment to the state constitution allows agricultural land to be assessed differently.