Walsh Legislation Wins Inheritance Victory for Family Farms

The 2014 state budget bill that is making its way to the governor after passing the General Assembly today contains a significant win for family farms.

Legislation introduced by Rep. Donna M. Walsh and Sen. Walter S. Felag Jr. to assess inherited working farmland at its use value, not its higher cash value, for inheritance tax purposes has been incorporated into the budget bill.

The concept is a way to prevent family farms from being driven out of business or sold off in whole or in part when one generation passes them along to the next.

Under current law, family farms are assessed at their “full and fair” cash value, the value of the land if it were to be developed. Although an average Rhode Island family farm is about 50 acres and might be worth about $650,000 as a working farm, it could be worth around $5 million as house lots, costing the heirs about $500,000 in inheritance taxes. The result is that often, heirs of working farms have to sell all or part of the land as house lots to pay that tax bill, resulting in a loss of agricultural lands in the state. If the estate tax were applied to farms at their current use value as farms instead of their potential use as developable residential property, that same average farm of 50 acres would fall under the exemption for estate taxes, currently set at $910,725, so the heirs would not pay any estate tax.

“Farmland is a valuable asset for Rhode Island, but our current tax law flies in the face of our state’s interest in preserving it. Saving rural spaces and places where food can be grown or raised locally vastly improves our quality of life in Rhode Island, and I’m glad we are finally reversing this backwards tax law so family farms can be passed down as working farms instead of being turned into house lots,” said Representative Walsh (D-Dist. 36, Charlestown, Westerly, South Kingstown, New Shoreham).

Said Senator Felag (D-Dist. 10, Warren, Bristol, Tiverton), “It doesn’t make sense to tax farmland as residential land if we, as a state, would prefer that it stays farmland. Under our current system, the next generation is basically forced to sell off at least part of the farm to pay the inheritance tax. Now they won’t be in that situation. The state may take in less in estate taxes, but the return – preserving our local farms – is well worth the investment.”

The two legislators pointed out that farmland is a great bargain for the public, because farms generally draw much less from public resources than they pay in taxes, where as residential properties generally draw more than they generate in taxes. According to Alfred Bettencourt Jr., executive director of the Rhode Island Farm Bureau, who testified in favor of the bill, farmland costs only about 40 cents in public services for every dollar in taxes it generates, but residential properties cost about $1.20 for each dollar they pay.

Cosponsors of Representative Walsh’s version of the bill (2013-H 5036) include Rep. Teresa Tanzi (D-Dist. 34, South Kingstown, Narragansett), Rep. Larry Valencia (D-Dist. 39, Richmond, Hopkinton, Exeter), Rep. Deborah Ruggiero (D-Dist. 74, Jamestown, Middletown), and Rep. Lisa P. Tomasso (D-Dist. 29, Coventry, West Greenwich.) Cosponsors of Senator Felag’s version of the bill (2013-S 18) include Sen. Louis P. DiPalma (D-Dist. 12, Middletown, Little Compton,Newport, Tiverton), Sen. Catherine Cool Rumsey (D-Dist. 34, Exeter, Charlestown, Hopkinton,Richmond, West Greenwich), Sen. V. Susan Sosnowski (D-Dist. 37, South Kingstown, New Shoreham) and Sen. Christopher Scott Ottiano (R-Dist. 11, Portsmouth, Bristol).