How is the conversion charge calculated?
The number of acres converted is multiplied by a value per acre for each converted acre. That value per acre is a two-part calculation.
- First, calculate the difference between the county's average fair market value of agricultural land (based on previous year sales of land over 38 acres, and intended to be used as agricultural) and the average equalized value per acre of agricultural land (the use value) in the same county
- Then apply a conversion size factor
- If more than 30 acres are converted, multiply the difference by 5 percent to arrive at the conversion charge per acre
- If 10 to 30 acres are converted, multiply the difference by 7.5 percent
- If less than 10 acres are converted, multiply the difference by 10 percent
Example 1: If the county average market value per acre of land sold for agricultural use is $2,000 an acre, and the county average use value per acre of agricultural land is $300 an acre, the difference is $1,700 an acre.
The conversion charge amount per acre is:
- $85 an acre if more than 30 acres are converted
- $128 an acre if 10 to 30 acres are converted
- $170 an acre if less than 10 acres are converted
- If 1.33 acres are converted (less than 10 acres), the conversion charge amount is $226 ($170 x 1.33 ac.). When calculating the number of converted acres, add together all acres owned by the same entity, in the same municipality, in that year.
Use-Value Conversion Charge Guidelines shows the charges per acre, which are based on the number of acres converted. There is no conversion charge if the conversion charge per acre would be less than $25.
If a parcel is split, how is the size calculated when determining which conversion charge to apply?
The use-value conversion charge is based on change of use, not classification. When a property formerly classified as Agricultural is subdivided into lots and reclassified as Residential, but still in agricultural use, a conversion charge is not issued until the use actually changes.
An exception is when a property formerly classified as Agricultural is reclassified to Manufacturing, with a portion of the property still in agricultural use, a use-value conversion charge is due for the entire property. State manufacturing classification law (sec. 70.995(4), Wis. Stats.) requires Manufacturing classification of the entire property regardless if the property is used for other purposes.
The conversion charge and number of acres is based on the total number of acres converted by the same owner in the same municipality.
Example: If a 40-acre parcel on the January 1, 2019 roll was subdivided into eight five-acre parcels, and the person subdividing the land also converted all its use, that person would be liable for a conversion of 40 acres at the 5 percent conversion charge rate. If those parcels were sold before changing use, and a new owner who purchased and converted one five-acre parcel, the conversion charge would be calculated at the higher rate (i.e., less than 10 acres or a 10 percent conversion charge).
Who issues the conversion charge?
The county treasurer administers the conversion charge, which is based on what the local assessor reports as a change in land use. The assessor must identify the person who made the change and the number of acres previously assessed as Agricultural that changed use. The treasurer issues a conversion charge to the person who changed the use.
When are the values used in the conversion charge calculation available?
The conversion charges are posted to the Wisconsin Department of Revenue website in February each year, and used to calculate the conversion charge for land use changes that occurred in the prior year. Even though estimates can be calculated, conversion charges are not issued until the change in use is reflected on the current year assessment roll and the property owner has the opportunity to appeal that classification change at the Board of Review (BOR).
Are there exceptions to a conversion charge?
Yes. If the assessor determines the land should be classified and assessed as Undeveloped Land (sec.
70.32(2)(a)5), Agricultural Forest (sec.
70.32(2)(a)5m), Productive Forest (sec.
70.32(2)(a)6), or Other (sec.
70.32(2)(a)7), the owner is not subject to a conversion charge. Also, there is no conversion charge if the charge per acre is less than $25.
If land converts to Undeveloped Land (class 5), Agricultural Forest (class 5m), Productive Forest (class 6) or Other (class 7) for one year, and then converts to Residential (class 1), is it then liable for a conversion charge?
No. If a conversion is to Undeveloped Land, Agricultural Forest, Productive Forest, or Other, there is no conversion charge. Future conversions are not relevant.
What is the definition of Other as a category on the roll?
State law (sec.
70.32(2)(c)1m, Wis. Stats.), defines Other as the "buildings and improvements; including any residence for the farm operator's spouse, children, parents, or grandparents; and the land necessary for the location and convenience of those buildings and improvements." The residences of eligible relatives should have been part of a parcel the farm operator actually farmed before the change (statutes refer to 'the farm operator,' not 'a farm operator'). The Wisconsin Department of Revenue interprets this to include the residence of the retired landowners if they were farm operators. It is not necessary for the persons residing in the house to work on the farm.
Does Other include a residential home built on five acres split off a tilled 40-acre parcel as a separate parcel if the ownership changed to the farm operator's children, parents, or grandparents before the change in use took place?
Yes. This is considered Other as long as the new parcel was part of the acreage previously classified as Agricultural.
Does the assessor have to reclassify all residential parcels belonging to children, parents, or grandparents of farm operators to Other?
No. The primary intent of the Other classification is to allow for residential homes of certain farm operator relatives to be built without incurring a conversion charge. The existing homes, whether classified as Residential or Other, are not subject to the conversion charge, and are valued at market value. If a property owner makes the request, the assessor may reclassify those properties as Other. However, we suggest the assessor explain there would be no impact to the market value analysis.
An existing farm operation with the majority of its land in agricultural use value tears some buildings down, adds some additional buildings, and changes the total area used for the site. Does a conversion charge apply?
No. The assessor should review what acreage was classified as Agricultural and Other. If additional acreage should now be classified as Other, the assessor should make the adjustment; however, no conversion charge is due if the new classification is Other, because of the conversion charge exception for changes into this class.
A parcel was classified as nine acres Agricultural and one acre of land and buildings classified as Other on the January 1, 2018 assessment roll. The parcel had new construction during 2018. Three additional agricultural acres were converted to site acres, and the improvement's highest and best use changed to Residential. The assessor did not discover the changes until after the 2019 assessment was completed. The 2019 taxes reflected the value of only the original Other site and improvements from 2018. For the January 1, 2020 assessment, the parcel was re-classified as Residential, with a significantly higher improvement value. Does a conversion charge apply?
Yes. When a new construction assessment is missed on a parcel with an existing improvement assessment, the assessor can add the assessed value of the new construction to the following year's assessment roll as omitted property. The improvements must be obvious, tangible, defendable, and measurable. The new improvement value should be entered in a special section of the assessment roll for omitted property. Since the change in use from Agricultural to Residential is first reflected on the 2020 assessment roll, it is recommended that the conversion charge be issued after the BOR, allowing the property owner an opportunity to challenge the change in classification reflected on the roll. The conversion charge amount should be based on the year the actual change took place, in this case 2019 (which should have been when the Residential classification was placed on the roll).
What should an assessor do when he/she discovers land was misclassified?
The current use-value conversion charge is based on land used as Agricultural, that has a change in use. In this instance, the use did not change (though the classification will). No conversion charge is due.
Is land previously classified as Agricultural that is left fallow, subject to a conversion charge?
- There is no conversion charge if the assessor determines the proper new classification is Undeveloped Land
- There is a conversion charge if the assessor determines the classification is Residential or Commercial
If the property was classified Agricultural on January 1 and entered in the Managed Forest Law program during that year (becoming exempt on the assessment roll), is a conversion charge due?
The assessor must determine what the proper classification for the acreage would be if the land were still on the roll. If it would be Undeveloped Land, Productive Forest, or Other, no conversion charge is due, even though the use changed from the Agricultural classification. There may also be instances where some of the acreage remains in agricultural use, and no conversion charge is due.
What if I disagree with the property use's change in classification?
You can appeal the assessor's classification regarding agricultural use and changes in use affecting the conversion charge by appealing to that year's BOR.
When is the conversion charge due?
It is due no later than 30 days after the county assessor issues the conversion charge.
If a change in use takes place, and a conversion charge is due, but no conversion charge is issued, can a county treasurer issue the conversion charge in the following years?
Yes. If the property was classified as Agricultural, and the use and classification changed to a use where a conversion charge is due, under state law, there is no time limit in issuing a conversion charge to the owner at the time of the change.
Who owes the conversion charge?
The person who owned the property when the conversion (change in use) took place must pay the conversion charge.
How are buyers being made aware of the potential conversion charge?
Under state law (sec.
74.485(7), Wis. Stats.), the owner of land assessed as agricultural must notify the buyer of the following:
The land was assessed under sec.
70.32(2r), Wis. Stats.
Whether a conversion charge was assessed
Whether a conversion charge deferral was granted
Note: The current tax bill states, "Any parcel benefiting from use-value assessment may be subject to a conversion charge under sec.
74.485, Wis. Stats., if the use of the parcel changes."
State law requires the assessor to provide the property owner with a notice that a conversion charge may be due when land changes classification from agricultural to residential, commercial, or manufacturing.
The notice must be in writing and mailed at least 15 days (30 days in revaluation years) prior to the BOR meeting (or meeting of the Board of Assessors, if one exists). If the owner's address is unknown, the assessor must provide the notification to the property's occupant.
When a property is sold and the property owner (who may be subject to a conversion charge) and the current owner are different, the assessor must provide the Notice of Assessment and
Agricultural Land Conversion Charge Notice to both the previous owner and the current owner.
What if the conversion charge is not paid?
If payment is not made within 30 days of issuance by the county treasurer, interest accumulates at 1 percent per month from the issuance date. The county can collect the unpaid conversion charge as a special charge against the land.
Note: this is why notice to any purchaser of the property is important).
Can the county subtract the administrative costs of collection from the conversion charge amount returned to the taxation districts?
No. Under state law (sec.
74.48(5), Wis. Stats.), "A county that collects a conversion charge...shall distribute 50 percent of the amount...to the taxation district." There are no provisions for subtracting collection costs first.
Does the county share the 1 percent per month added interest payment 50/50 with the municipality, or does the county keep that income?
Any interest the county collects must be shared with the municipality.
Once a conversion charge becomes a special charge on the tax bill, can a county add its 0.5 percent tax to the bill, like with other special charges?
Yes. Under state law, the bill is collected as a special charge. That means all provisions for collecting special charges apply, including fees and interest.
Do the overlying taxation jurisdictions share in the conversion charge?
No. Under state law, the county and taxation district (town, village, city) splits the conversion 50/50. The taxation district's portion is split between municipalities in the event of an annexation (this should be coordinated by the gaining municipality).
Are exempt entities (ex: churches and benevolent associations) subject to the conversion charge?
Yes. There is no provision under state law (sec.
74.485, Wis. Stats.), excusing an exempt entity from paying a use-value conversion charge if one is due.
Are governmental entities subject to the use-value conversion charge under state law (sec.
74.485, Wis. Stats.)?
Yes. Governmental entities are generally subject to this use-value charge.
Taxable agricultural land that becomes exempt may qualify for a conversion charge when there is an actual change in the land's use, and it is no longer used for agriculture. How the land is used determines if it is subject to a conversion charge.
If the land was not exempt and would be classified as:
Conversion charge – Residential, Commercial, or Manufacturing, there is a conversion charge
- No charge – Agricultural, Agricultural Forest, Undeveloped Land, Productive Forest, or Other, there is no conversion charge
In a court case
(Town of Janesville v. Rock County, 153 Wis. 2d 538, 544, 451 N.W.2d 436(Ct. App. 1989)), the court used a two-part test to determine if the statute applies to a governmental body. The test included the following questions:
- Can the objective of the statute be reached without including government?
- Does inclusion in the provision of the law vitally interfere with the process of government?
The objective of
sec. 74.485, Wis. Stats., cannot be reached without including governmental entities in Wisconsin. The purpose of the use-value law is to preserve agricultural land. Agricultural land is no less destroyed if taken by a government than if taken by a private developer. Preservation is best achieved by universal application.
Generally, inclusion in this law does not vitally interfere with the process of government. Government may still develop land; it simply must pay the same conversion charge that any developer would for such conversion. There are certain rare situations where imposing a conversion charge may vitally interfere with the processes of government.
Example: If the Wisconsin Department of Transportation (DOT) acquires land for highway use – public safety, route, geography, and cost can require the use of farmland as opposed to other land for highway use. Imposing a conversion charge on such purchases could result in DOT elevating cost factors to avoid a conversion charge over route and safety factors such as choosing the highest, flattest, safest route for highway.
Note: This result does not necessarily apply to DOT land acquisition for other purposes (ex: office space).
Can a conversion charge be issued more than once on the same parcel of land?
Yes. Under state law, this can happen when a conversion charge applies to a parcel, and does not set a limit on the number of conversion charges that can be issued over time. Each time the parcel is classified as Agricultural, and the agricultural activity ends, a conversion charge is issued if the classification changes to anything other than Undeveloped Land, Agricultural Forest, or Productive Forest.
If you have additional questions on the use-value conversion charge, contact the
Equalization Bureau District Office in your area.
FOR QUESTIONS OR COMMENTS CONTACT:
WISCONSIN DEPARTMENT OF REVENUE
Division of State and Local Finance
PO Box 8971
Madison, WI 53708-8971
Fax: (608) 264-6897