Department of Revenue briefs House Taxation Committee on agricultural land classification, valuation and tax effects

Bureau Chief Bryce Kautz of the Department of Revenue’s Property Assessment Division gave the House Taxation Committee a detailed briefing on how Montana classifies and values agricultural land.

"As you may be aware, Montana is a classification state," Kautz told the committee, explaining that the Legislature sets property classes and valuation standards and the Department is responsible for classifying and valuing property within that framework.

Kautz and other department staff described key thresholds and mechanics: any contiguous parcel of 160 acres or more under one ownership is automatically classified as Class 3 (qualified agricultural land) regardless of use, unless the use is industrial or commercial; parcels of 20 to 160 acres automatically receive a "nonqualified agricultural land" classification unless the owner applies and proves bona fide agricultural use and a minimum gross income of $1,500; parcels under 20 acres must apply and show they meet the $1,500 gross-income test to qualify as agricultural. Grazing land uses a carrying-capacity test computed by Montana State University (AUM threshold was 25 for the prior cycle and 22 for the coming cycle).

Department staff summarized how productive-value appraisal differs from market valuation. Agricultural (Class 3) land is valued by an income approach: productivity (yield or AUM) times commodity price, adjusted by a crop-share factor to produce net operating income, then capitalized using a statutory floor capitalization rate of 6.4 percent. The department uses NRCS soil-survey productivity data, Montana agricultural statistics for commodity prices (10-year Olympic average), and a crop-share assumption (typically 25%; summer fallow 12.5%; grazing 75%). Irrigated acres receive a flat $50 per-acre water-expense deduction for valuation and a statutory minimum per-acre floor for irrigated land values.

Kautz illustrated the practical effect with three adjacent Lewis and Clark County parcels (about 20–23 acres each) taxed differently because of classification and the one-acre homesite treatment. A parcel classified as qualified agricultural land paid $80.63 in taxes in 2024; a similar-sized parcel designated nonqualified agricultural land paid $486.97; and a parcel taxed at full market (below the 20-acre threshold) paid $1,583.64. The department said the different treatments for the one-acre homesite (productivity value for qualified ag vs. market value for nonqualified) drive much of the difference.

Kautz noted that the ag valuation system is guided by an Agricultural Land Valuation Advisory Committee established in statute (cited in the briefing as 15-7-201) and that the department is available to provide further, parcel-level detail to members and staff as bills related to agricultural taxation move through the committee.

Ending: Committee members asked follow-up questions and staff offered to provide additional data and meet with members as bills arise; the Department of Revenue said it would supply requested materials to aid future deliberations.