All posts by Nicholas Leonard

Biography

Tax Incentives for Michigan’s Urban Farmers

As detailed in the last post, several cities are exploring ways to promote urban farming with property tax incentives. Cities like San Francisco, Los Angeles, Baltimore, and Washington D.C. have all recently passed local ordinances that give urban farmers tax credits in some form or fashion. Given the recent trend of cities incentivizing urban farming with tax credits, it is worth exploring if this is a policy that makes sense for Detroit.

Michigan property taxes are derived from the Michigan Constitution and the Michigan General Property Tax Act. The Michigan Constitution states that the “legislature shall provide for uniform general ad valorem taxation of real…property not exempt by law except for taxes levied for school operating purposes. The legislature shall provide for the determination of true cash value of such property.”

Michigan case law has established that the true cash value of real property is the equivalent of the fair market value. This value is determined by a tax assessor, who considers factors such as the location of the property, the quality of the soil, zoning, the existing use, the present economic income of structures, and any minerals or other valuable deposits that may be on the land.

In plain English, this means that the Michigan Constitution requires real property to be taxed at its fair market value unless the state legislature determines otherwise. Even for vacant properties in Detroit, the assessed fair market value of a property may be quite expensive. In order to provide any urban agriculture specific tax breaks, the state legislature must get involved by passing legislation that authorizes local tax breaks.

However, not all urban farmers have to wait! Currently, there are a few property tax exemptions that are relevant for urban farmers. The most common exemption is contained in § 211.70 of the Michigan General Property Tax Act. The section states:

“Real or personal property owned and occupied by a nonprofit charitable institution while occupied by that nonprofit charitable institution solely for the purposes for which that nonprofit charitable institution was incorporated is exempt from the collection of taxes under this act.”

The above language contains four basic requirements for non-profits that want to be excluded from property taxes.

1.) Nonprofit must own the property

2.) Nonprofit must occupy the property

3.) Nonprofit must be a charitable institution

4.) Nonprofit must occupy the property for its charitable purpose

The nonprofit property tax exemption is a complete exemption. Organizations that believe their property meets the above qualifications must apply to the Detroit Finance Department.

Another possible exemption for urban farmers is the qualified agricultural property exemption. A qualified agricultural property is defined as an “unoccupied property and related buildings located on a property devoted primarily to agricultural use…” A property is considered to be primarily devoted to agriculture if more than 50% of the parcel’s total acreage is devoted to agricultural use.

The qualified agricultural property exemption is not a complete exemption. It only exempts the property from taxes levied by a local school district for school operating purposes. This amounts to about an 18.18 mill reduction for properties in Detroit from 86.62 mills to 68.44 mills. To be eligible for this exemption, an urban farmer must file Form 2599 with a local tax assessor before May 1st.

Urban farmers should be aware and taking advantage of the property tax exemptions that are currently in existence. However, urban farmers may also want to push for policy that specifically incentivizes urban agriculture with tax incentives as many other cities are currently doing or considering doing. However, in order for that the happen, the Michigan legislature must pass a law authorizing the tax incentive.

Many urban farmers have asked me what role the state should be playing in regards to urban agriculture policy in Detroit. Tax policy at the state level has been instrumental in driving much of the redevelopment in the Midtown and Downtown neighborhoods. Developments such as the Compuware World Headquarters, the Book Cadillac Hotel, and the Park Shelton Apartments have all received several millions of dollars in tax incentives. If urban farmers want an innovative tax policy that specifically works to incentivize urban farming, they must first go to the state legislator.

 

Promoting Urban Agriculture With Tax Incentives

One of the key issues for many urban farmers is paying property taxes. According to the Michigan General Property Tax Act, only nonprofit organizations that own their property are eligible to be exempt from property taxes. This is an obvious problem for many because land acquisition has been one of the largest obstacles for many urban farmers. It also leaves for-profit farms to pay a higher tax rate based on the property’s market value as opposed its agricultural use.

This obstacle is not unique to Detroit, and a growing number of states and cities are addressing it with innovative legislation that gives tax incentives to urban farms. Profiled in this post will be a law enacted by the state of California, as well as laws currently being considered in Washington D.C. and Baltimore.

Earlier this year, California enacted the Urban Agriculture Incentive Zones Act. The state law permits local units of government to create urban agriculture incentive zones. After establishing an urban agriculture incentive zone, the local unit of government may then enter agreements with private landowners within the zone to restrict the use of the land to urban agriculture. There are certain conditions for the landowner. The term of the agreement must be at least 5 years and the entire property must be dedicated to agricultural use. However, in return the landowner’s property is taxed at a rate based on the average per-acre value of irrigated cropland in California as opposed to it being taxed based on its market value. So far, San Francisco is the only city to have created an urban agriculture incentive zone but other California cities, such as Los Angeles, are looking to create urban agriculture incentive zones as well.

Washington D.C. is also considering a similar bill that would encourage urban agriculture through tax incentives. The bill, titled the D.C. Urban Farming and Food Security Act, seeks to change the city’s tax regulations to encourage urban farming on both publicly and privately owned vacant lots.

To encourage urban farming on publicly owned land, the bill calls on the Mayor to identify 25 vacant lots owned by Washington D.C. that could potentially be used for successful urban farming ventures. The bill also requires the Mayor to set up a leasing initiative where applicants will be selected to develop urban farms on the identified vacant lots. In order to be eligible, an applicant must be a resident of Washington D.C. for at least 1 year and have at least 1 year experience in farming. All land leased under this program, which is known as the Urban Farming Land Initiative, would be exempt from property taxes and must be leased for at least 3 years.

The Urban Farming and Food Security Act proposes to incentivize urban farming on more than city-owned land. The Real Property Tax Abatement Initiative would apply to privately owned land, and would reduce real property taxes by 50% for an owner of unimproved real property if they leased that property to an unrelated third party for urban farming purposes. The property owner is required to provide the urban farmer with at least a 3-year lease to be eligible.

Lastly, the Baltimore City Council is currently considering a bill that would provide tax breaks to urban farmers. This bill is being considered in the wake of the Maryland legislature passing a law that enables counties and cities to provide tax credits to urban farmers. The bill, proposed by Councilman Welch and supported by Baltimore Mayor Stephanie Rawlings-Blake, proposes to provide a 90% break on property taxes to farmers who grow and sell at least $5,000 worth of fruits and vegetables in a year. According to the bill, the credits are initially good for 5 years, but may be renewed for up to a total of 10 years.

While the above policies are all attempts to innovatively promote urban agriculture, they are not without their critiques. In Baltimore, a bill similar to the one described above died in committee because many argued that it would set a bad precedent for a city that was already in financial trouble. The Washington D.C. Urban Farming and Food Security Act also has its shortcomings. The Urban Farming Land Initiative, which is meant to set aside 25 city-owned plots for urban farming, could contain stronger language that would mandate the city government to set aside and utilize 25 plots for urban agriculture. The Real Property Tax Abatement Initiative, which applies to privately owned land, only requires the private landowner to lease their land for urban agriculture use for a minimum of 3 years to be eligible for the tax incentive. Typically, a 3-year agreement doesn’t provide enough security to many urban farmers.

Looking to all of the above policies, the bill being considered in Baltimore is the strongest for urban farmers. It is the only bill that doesn’t rely on short-term leases. It is also seemingly the only bill that envisions urban farms not only becoming a permanent land use, but also provides incentives so that individual farms can become fixtures in the community. Despite the debates above, the fact that these cities and states are attempting to create innovative urban agriculture policies is encouraging, and the state of Michigan and the city of Detroit would be wise to follow.

Was Hantz Woodlands Use of Volunteers Legal?

hantztrees

 

Last spring, Hantz Woodlands utilized hundreds of volunteers to plant more than 15,000 trees on more than 140 acres property that it controversially purchased from the city of Detroit. The volunteer event was a great success for Hantz Woodlands, a for-profit limited liability company, and it was favorably covered by most of the major news outlets in the area.

However, there are serious question about the legality of Hantz’s use of volunteers regarding his for-profit business. This is significant because if the workers that Hantz used to plant his trees were not volunteers, they may have been regarded as employees. Employees, by law, are due minimum wage amongst other benefits. This is true even if the workers agreed to plant the trees for no compensation, because an employer and a worker cannot contract around the law. Instead, who is and is not an employee rests entirely on the legal definitions of those terms as written in our employment laws and as interpreted by our courts.

The United States Supreme Court has defined a volunteer as “[a]n individual who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, work[s] in activities carried on by other persons either for their pleasure or profit.” While the Supreme Court has recognized that the heart of volunteerism are individuals working for charitable, civic, or religious nonprofits with no expectation of compensation, other courts have been hesitant to categorically prohibit all for-profit enterprises from utilizing volunteers.

In order to help determine who is an employee and who is a volunteer, the Department of Labor has developed a six-factor test. No factor is conclusive and the determination is made based on a consideration of the totality of the circumstances. The factors are:

  • What is the nature of the entity receiving the services?
  • Did the worker receive or expect to receive any form of benefit for the services provided?
  • Was the activity less than full-time occupation?
  • Were regular employees displaced?
  • Were the services offered freely?
  • Where the services the kind typically associated with volunteer work?

Looking at the above factors, there is a good argument that the workers utilized by Hantz Woodlands were employees rather than volunteers.

Certainly, the workers in this instance were charitable people who had no expectation of compensation. It is also certain that they offered their services freely. However, the entity receiving the work was Hantz Woodlands, a for-profit company. The work was directly related to the trees that will be the assets from which the company plans to draw its profits. While the work was only for one day, that is only because of the large number of volunteers recruited for the project. Had Hantz Woodlands utilized a group of employees and given them all of the benefits an employer is required to give employees, the work would have taken weeks if not months. Therefore, there is a strong argument that the volunteers displaced employees as well, or at least made it possible for Hantz Woodlands to not hire employees.

The last point is perhaps the most important and gets to the heart of what was legally wrong about Hantz Woodland’s use of volunteers and why many have been frustrated with the project. Hantz Woodlands is a for-profit company that is growing trees to harvest for a profit. Even though the woodlands project arguably has a socially beneficial purpose as well, volunteers generally are not used to help the business of a for-profit enterprise, especially when those volunteers are working to further the heart of the business’s commercial purpose. Therefore, Hantz Woodlands should have paid employees, and perhaps they could have found a few in the neighborhood they claim to be eager to help.

The above analysis begs the question of why there has been no legal action against Hantz Woodlands? The answer is likely that since the Department of Labor and the Michigan Wage and Hour Division have limited resources, enforcement regarding such big, one-day volunteer events are lax. The Michigan Wage and Hour Division only investigates an employer if they receive a complaint from a worker, and the Federal Department of Labor is likely more concerned with repeat, flagrant violators of employment laws. Also, most of employment law has been constructed to protect individual workers in negotiating for their personal employment with an employer. It is not as well suited for governing situations like this where a for-profit business uses a large group of ready-and-willing volunteers for a one-day event as a labor force instead of paid employees. Regardless of the enforcement loopholes that may exist, the law is the law and Hantz Woodlands appears to be on the wrong side of it in this instance.