TAXATION ‑- PROPERTY ‑- FARM AND AGRICULTURAL LAND ‑- VALUATION OF PERENNIAL CROPS
RCW 84.34.065 sets forth a special method of valuation for property tax purposes which is applicable to farm and agricultural land only, and not the valuation of perennial plants located thereon; therefore, for purposes of ad valorem taxation, farm and agricultural land and taxable perennial plants located thereon should be listed and valued separately rather than being listed and valued as a unit.
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July 21, 1977
Honorable Curtis L. Ludwig
P.O. Box 510
Prosser, Washington 99350
Cite as: AGO 1977 No. 16
Attention: !ttMr. Dennis D. Yule
Deputy Prosecuting Attorney
By recent letter you have requested our opinion on a question pertaining to property taxation which we paraphrase as follows:
Pursuant to the provisions of chapter 84.34 RCW, should farm and agricultural land and taxable perennial plantings which are situated thereon be listed and valued as a unit rather than being listed and valued separately for purposes of ad valorem taxation?
We answer your question in the negative for the reasons set forth in our analysis.
Your question involves the procedure used by a county assessor in arriving at the taxable value of farm and agricultural land pursuant to chapter 84.34 RCW. Under this law "farm and agricultural land"1/ is valued for tax purposes with reference to its "current use" (i.e., its value as farm and agricultural land) rather than its "highest and [[Orig. Op. Page 2]] and best use" as in the case of most other real property. See,Bitney v. Morgan, 84 Wn.2d 9, 523 P.2d 929 (1974). This approach, in turn, is sanctioned by Article VII, § 11 (Amendment 53) of the state constitution which provides as follows:
"Nothing in this Article VII as amended shall prevent the legislature from providing, subject to such conditions as it may enact, that the true and fair value in money (a) of farms, agricultural lands, standing timber and timberlands, and (b) of other open space lands which are used for recreation or for enjoyment of their scenic or natural beauty shall be based on the use to which such property is currently applied, and such values shall be used in computing the assessed valuation of such property in the same manner as the assessed valuation is computed for all property."
At the outset, we note that such "perennial plants"2/ as fruit trees, vines, hops, etc., are subject to ad valorem taxation even though RCW 84.40.030 provides that:
". . . In valuing agricultural land, growing crops shall be excluded."
Simply stated this exemption for growing crops does not apply to perennial plants. Accord, the reasoning of such cases as Cottle v. Spitzer, 65 Cal. 456, 4 Pac. 435 (1884), [fruit trees]; Miller v. County of Kern, 137 Cal. 516, 70 Pac. 549 (1902), [alfalfa];Kirby Lumber Corp. v. Hardin Independent School District, Tex.Civ.App. 351 S.W.2d 310 (1961), [cultivated forest trees]; andEl Tejon Cattle Co. v. County of San Diego, 64 Cal.2d 428, 413 P.2d 146 (1966), [natural pasturage]. The basis for those decisions is that the term "growing crops" includes only the annual products of the soil, as distinguished from perennial plants which, although producing fruit or other vegetation which is harvested annually, do not require annual planting.
Similarly, inMiethke v. Pierce County, 173 Wash. 381, 23 P.2d 405 (1933), our own court held that deciduous and evergreen trees being grown as "nursery stock" (and thus not marketable for from three to fifteen years) were not exempt as a "growing crop" under RCW 84.40.030, supra, but rather were to be listed and assessed as merchandise pursuant [[Orig. Op. Page 3]] to the then existing version of what is now RCW 84.40.220 ‑ although that statute has since been amended to provide that:
". . . The growing stock of nurserymen, which is owned by the original producer thereof or which has been held or possessed by the nurserymen for one hundred eighty days or more, shall, whether personal or real property, be considered the same as growing crops on cultivated lands: . . ."
In a sense, it is to be noted that the ruling in the Miethke case actually involves an even narrower view of the "growing crop" exemption than do such cases as Cottle v. Spitzer, supra. InCottle the court held that fruit trees were not a growing crop ‑ but presumably the fruit itself was for the latter was what was being grown and harvested annually; the crop, in short, was the fruit and not the trees. InMiethke, on the other hand, the nursery stock did constitute what was being grown and harvested but because it was not harvestedannually, it was held, nevertheless, not to be a growing crop. This difference in approach, however, is really of no consequence insofar as your present question is concerned. Under either view a perennial plant (such as a fruit tree) would not be entitled to the "growing crop" exemption even though the annually harvested fruit which it bears would be so entitled.
From the foregoing it follows that whatever method of valuation is followed by an assessor in valuing farm land upon which taxable perennial plants exist, the method chosen must be one which reflects both the value of the landand the value of the perennial plants. A valuation method which fails to reflect the combined value of land and perennial plants located thereon would, in effect, at least partially exempt such perennial plants from taxation. Exemptions from taxation, however, are an exclusive matter of legislative concern and administrative officers thus cannot create a tax exemption where none exists by statute. Matheson v. Kinnear, 393 F.Supp. 1025 (D.C.Wash. 1975).
With that in mind we turn, now, to your specific question dealing with the method of valuing farm and agricultural land upon which perennial plants are situated. The basic statute governing the method of computing the "current use" value of farm and agricultural land is RCW 84.34.065, which provides, in pertinent part, as follows:
[[Orig. Op. Page 4]]
"The true and fair value of farm and agricultural land shall be determined by consideration of the earning or productive capacity of comparable lands from crops grown most typically in the area averaged over not less than five years, capitalized at indicative rates. The earning or productive capacity of farm and agricultural lands shall be the 'net cash rental', capitalized at a 'rate of interest' charged on long term loans secured by a mortgage on farm or agricultural land plus a component for property taxes.
"For the purposes of the above computation:
"(1) The term 'net cash rental' shall mean the average rental paid on an annual basis, in cash or its equivalent, for the land being appraised and other farm and agricultural land of similar quality and similarly situated that is available for lease for a period of at least three years to any reliable person without unreasonable restrictions on its use for production of agricultural crops. There shall be allowed as a deduction from the rental received or computed any costs of crop production charged against the landlord if the costs are such as are customarily paid by a landlord. If 'net cash rental' data is not available, the earning or productive capacity of farm and agricultural lands shall be determined by the cash value of typical or usual crops grown on land of similar quality and similarly situated averaged over not less than five years. Standard costs of production shall be allowed as a deduction from the cash value of the crops."
In our opinion this statute sets forth a method of valuation which is applicable to the land only and is not intended to be used as a method of valuing perennial plants located thereon.
In so concluding we note, first, that "farm and agricultural land" is defined in RCW 84.34.020 asland devoted to agricultural use within certain limitations of productivity, i.e.,
[[Orig. Op. Page 5]] "'Farm and agricultural land' means either (a) land in any contiguous ownership of twenty or more acres devoted primarily to the production of livestock or agricultural commodities for commercial purposes; . . . Agricultural lands shall also include farm woodlots of less than twenty and more than five acres and the land on which appurtenances necessary to the production, preparation or sale of the agricultural products exist in conjunction with the lands producing such products. . . ." (Emphasis supplied.)
Words in a statute should be given their ordinary meaning absent some special statutory definition. Garrison v. Washington State Nursing Board, 87 Wn.2d 195, 550 P.2d 7 (1976). The ordinary meaning of the term "land" as stated in Webster's International Dictionary, 3rd ed., 1971, is:
". . . The solid part of the surface of the earth in contrast to the water of oceans and seas: . . . 3a. Ground or soil in respect to its situation, nature, or quality. . . ."
In ordinary usage, then, the term "land" does not refer to improvements or structures but rather the solid ground or soil upon or within which such improvements or additions exist.
Secondly, RCW 84.34.020 would seem to recognize this same distinction to the extent that provision is made therein to qualify land as "farm and agricultural land" if it is:
". . . land on which appurtenances necessary to the production, preparation or sale of the agricultural products exists in conjunction with the lands producing such products. . . ." RCW 84.34.020(2).3/
[[Orig. Op. Page 6]]
Thus, as used in the context of chapter 84.34 RCW the term "farm and agricultural land" means the land only, and does not include structures, improvements, or other types of appurtenances located on the land.
This becomes even more apparent when one considers that the true and fair value of farm and agricultural land is to be determined according to the earning or productivecapacity of similar lands from crops grown most typically in the area. RCW 84.34.065,supra. It is obvious that structures and improvements located on land have little, if anything, (except in an indirect sense) to do with the earning or productivecapacity of land alone. The productivecapacity of a parcel of land is the same, whether there are barns on the land or not, and, indeed, whether the farmer has decided to grow anything on it or not. Thus, for example, adjoining parcels of land having exactly the same soil characteristics, access to water, and other determinants of productivity, may very well contain different plants ‑ e.g., mint and hops ‑ or no plants at all. Under RCW 84.34.065,supra, the "earning or productive capacity" of the land itself should be the same, regardless of the particular farmer's choice of what he plants, and regardless of his choice to plant nothing.
Our conclusion (i.e., that the method of valuing farm and agricultural land under RCW 84.34.065,supra, is applicable only to the land itself, and not to any perennial plants growing thereon) is also supported by consideration of the manner of listing property for purposes of taxation. It should be recalled that Article VII, § 11 (Amendment 53) of the constitution,supra, provides that current use values are to be used in computing the assessed valuation of farm property ". . . in the same manner as the assessed valuation is computed for all property." The manner in which assessed valuation is thus computed is set forth in RCW 84.40.040, which provides in pertinent part as follows:
"The assessor . . . shall actually determine as nearly as practicable the true and fair value of each tract or lot of land listed for taxation and of each improvement located thereon and shall enter one hundred percent of the value of such land and of the total value of such improvements, together with the total of such one hundred percent valuations, opposite each description of property on his assessment list and tax roll."
[[Orig. Op. Page 7]]
Thus, an assessor is directed to list land and improvements separately, adding the two together to arrive at an aggregate fair market value for each parcel of real property subject to taxation. In the case of farm and agricultural land, the assessor
". . . shall, as to any such land, make a notation each year on the assessment list and the tax roll of the assessed value of such land for the use for which it is classified in addition to the assessed value of such land were it not so classified." RCW 84.34.035.
In making this separate listing of farm and agricultural land, an assessor must determine the true and fair value of the land itself without any consideration of the value of perennial plants. This is so because the land itself is the only item of property which can be subject to a higher and better use. It would seem self-evident that both the "highest and best use" and the "current use" of perennial plants are the same (i.e., as perennial plants) and the "compensating tax" in the event of cessation of use is not applicable to such plants. Thus, in order to properly compute the "compensating tax" called for in RCW 84.34.108(3),4/ the assessor must segregate and compute a "current use" value and a "highest and best use" value for the land itself, without any consideration of the value of perennial plantings existing on the land.
Thus, our interpretation of RCW 84.34.065, supra, not only gives full force and effect to all of the relevant statutory language of chapter 84.34 RCW, but it also avoids the absurd consequence of requiring the compensating tax called for in RCW 84.34.108(3) to be paid on theperennial plantings in the event of cessation of use of the property as farm and [[Orig. Op. Page 8]] agricultural land. And, as you know, absurd consequences are to be avoided in the construction of a statute. Yakima First Baptist Homes, Inc. v. Gray, 82 Wn.2d 295, 510 P.2d 243 (1973);Krystad v. Lau, 65 Wn.2d 827, 400 P.2d 72 (1965).
For all of the foregoing reasons, it is therefore our conclusion that RCW 84.34.065,supra, sets forth a method of valuation which is applicable to farm and agricultural land only, and is not intended to be used as a method of valuing perennial plants located thereon. It follows that for purposes of ad valorem taxation under chapter 84.34 RCW, farm and agricultural land and taxable perennial plantings located thereon should be listed and valued separately rather than being listed and valued as a unit.
We trust the foregoing has been of some assistance to you.
Very truly yours,
RICHARD D. HICKS
Assistant Attorney General
MATTHEW J. COYLE
Assistant Attorney General
*** FOOTNOTES ***
1/See, RCW 84.34.020(2), quoted below at p. 5.
2/By "perennial plants" we mean plants of a semi-permanent nature such as fruit trees, vineyards, hops, asparagus, etc., which do not require resowing.
3/"Appurtenance" is defined in Black's Law Dictionary, 4th ed. (1951) as:
"That which belongs to something else; an adjunct; an appendage; something annexed to another thing more worthy as principal, and which passes as incident to it, as a right of way or other easement to land; and outhouse, barn, garden, or orchard, to a house or messuage."
4/The reason the assessor is required to maintain a listing of the value of farm and agricultural land at its "current use" as well as at its "highest and best use" is, of course, to provide a basis for computation of the "compensating tax" due pursuant to RCW 84.34.108 when the use of the land ceases to be for farm and agricultural purposes. The compensating tax in such a case is the difference between the amount of property tax paid on the basis of assessment as farm and agricultural land and the amount of property tax which would have been paid had the land not been assessed at "current use." See, RCW 84.34.108(3).