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WISCONSIN DEPARTMENT OF REVENUE and RICHARD CHANDLER, in his capacity as Secretary of the Department of Revenue,
Case No. 16CV48
Memorandum Decision on Motion for Summary Judgment
The Plaintiff asserts that the Department of Revenue (DOR) has exceeded its rulemaking authority while modifying and adopting the present form of an administrative rule, Tax 18.05(1). The rule was modified and adopted in 2014. This rule defines land that qualifies for agricultural use value assessment in conjunction with Wis. Stat. 70.32(2r), enacted in 1995. That statute provides for use value assessment for agricultural land and consequently lowers real estate taxes for land that qualifies. However, the statute did not define agricultural use and it was left to the DOR to define agricultural use through Tax 18.05(1).
The Plaintiff claims the rulemaking violations resulted in an arbitrary property tax classification which excludes lands enrolled in the federal Agricultural Conservation Easement Program (ACEP). This program was established by Congress through the Agriculture Act of 2014. It replaced the Wetland Reserve Program, but did not modify any of the existing WRP contracts. Enrolled lands were simply renamed Wetland Reserve Easements (WRE).
The USDA and federal law deemed all lands enrolled in Wetland Reserve Easements to be an agricultural use of the land. Federal statistics include Wetland Reserve Easements as cropland, which is part of the base acreage of the farm for all purposes. (Amended Complaint, paragraph 15, citing 7CFR Sec. 1410.4)
The DOR first defined agricultural use in 1997 in order to help implement the use-value statute enacted by the state legislature two years earlier. The definition did not include land enrolled in the federal Wetland Reserve Program.
The Amended Complaint cites other extensive history involving the rule between 1995 and 2013, when the present version of the rule had its origins. The Plaintiff points out that the Legislative Reference Bureau stated that the original intent of ag use value assessment was to slow urban sprawl and allow farmers to keep lands in agricultural production without burdensome taxation. The application of Tax 18.05(1) has been an ongoing and significant issue for the State of Wisconsin and its citizens.
The content of the rule was revisited by the DOR in 2013. In December of 2013, the DOR submitted a draft rule to the Wisconsin Legislative Council Rules Clearinghouse. It repealed the prior rule and for the first time would include all lands subject to permanent federal and state agricultural easements. WRE land would have been included under the proposed rule’s language.
A public hearing for the proposed rule was held in January of 2014. The rule was submitted to the governor for signature in April of 2014. From the date of the public hearing to the date the final draft that was sent to the governor for approval, the rule’s definition of agricultural use was altered to exclude permanent easements unless they had a compatible use permit.
The draft rule included land enrolled in the WRE in its definition of agricultural use. The final version of the rule that was signed by the governor and put into effect did not (emphasis added) include that land in its definition of agricultural use, unless it had a compatible use permit. The relevant portion of the draft rule, Tax 18.05 (1)(e), which would have included the WRE land, read as follows:
(e) Commencing with the January 1, 2015 assessment, land without improvements subject to a permanent federal or state easement or enrolled in a permanent federal or state program if that land was in agricultural use under par. (a), (b), or (c) when it was entered into the easement or program.
The final rule, adopted without further public hearing, a revised scope statement, or a new economic impact statement, eliminates that language:
(1) “Agricultural use” means any of the following: …
(d) Land without improvements subject to a federal or state easement or enrolled in a federal or state program if all of the following apply:
1. The land was in agricultural use under par. (a), (b), or (c) when it was entered into the qualifying easement or program, and
2. Qualifying easements and programs shall adhere to standards and practices provided under the January 31, 2014 No. 697 version of s. ATCP 50.04, 50.06, 50.71, 50.72, 50.83, 50.88, 50.91, 50.96, or 50.98. The Wisconsin Property Assessment Manual, authorized under s. 73.03 (2a), Stats., shall list the qualifying easements and programs according to the ATCP provisions, and
3. a. The terms of the temporary easement or program do not restrict the return of the land to agricultural use under par. (a), (b), or (c) after the easement or program is satisfactorily completed, or
b. The terms of an easement, contract, compatible use agreement, or conservation plan for that specific parcel authorized an agricultural use, as defined in par. (a),(b),or(c), for that parcel in the prior year.
The Plaintiff’s complaint set forth nine separate claims against the DOR, including various violations of constitutional provisions. This decision resolves only motions for summary judgment on claims one and nine, claims based on procedural or rules violations. There are no genuine issues of material fact that prevent the court
from deciding the motions for summary judgment on claims one and nine.
Claim I-The Rule was adopted without compliance with the Statutory Rule-making Procedure
The Plaintiff sets forth in the complaint that Tax 18.05 was adopted without compliance with the statutory rulemaking procedure, specifically the requirements for a revised statement of scope, a revised economic impact statement, and a subsequent public hearing. An administrative rule must be declared invalid if it violates constitutional provisions, exceeds the statutory authority of the rule-making agency, or if it was adopted by the agency without compliance with the statutory rule-making procedure. Liberty Homes, Inc. v. DILHR, 136 Wis.2d 368, 377, 401 N.W.2d 805, 809 (1987), Wis. Stat. §227.40(4)(a).
Economic impact statement
  Wis. Stat. §227.137 requires a rulemaking agency to prepare an economic analysis of its proposed rule that includes information on the economic effect of the proposed rule on specific businesses, business sectors, public utility ratepayers, local governmental units, and the state's economy as a whole. It mandates the agency or person preparing the analysis to solicit information and advice from businesses, associations representing businesses, local governmental units, and individuals that may be affected by the proposed rule. Wis. Stat. §227.137 (3). The DOR itself said originally that “The intent of this rule is to clarify this situation so that the land under these programs will qualify (emphasis added) for agricultural use value assessment in the same circumstances as other program land. (DOR Rule Rec. 792).
Wis. Stat. 227.137 (4) Requires the agency to prepare a revised economic impact analysis if a proposed rule is modified after the economic impact analysis is submitted under this subsection so that the economic impact of the proposed rule is significantly changed. When the economic impact analysis was first prepared, WRE were included in the proposed rule’s definition of agricultural use. When the draft rule was changed, Wetland Reserve Easements were excluded. The analysis specifically discussed the extent that a farmer’s property taxes could be reduced as a result of the rule. Whether or not the easements were included under the rule’s definition of agricultural use would significantly change the economic impact of the rule on landowners who had land already enrolled in federal programs, and for those who were eligible to enroll land in the program.
The Plaintiff notes in its brief, “As the Department’s own Economic Impact Analysis stated, the average assessed value for ag land in 2012 was $177 per acre, which is $459 per acre less than the $636 average assessed for undeveloped land. (DOR Rule Rec 224). The DOR estimated 87,000 acres may be affected by the rule, which could include land enrolled in state programs as well as the WRE land. Using the DOR’s words, “to the extent that a farmer’s land can shift from undeveloped to agricultural as a result of the rule, his or her property taxes may decrease..”
The change affected individual land owners who may not farm themselves, individual landowners who operate their own family farms (small businesses), corporate farms and local governmental units which would deal with a shifting tax base. In its final form, the rule essentially eliminated the 44,000 acres estimated to be enrolled in the WRE program from ag use value assessment. The final rule created a significant change in the impact of the rule. That change triggered the need for a new economic impact statement under Wis. Stat. 227. 137(4).
The DOR argues that the change merely shifts the tax burden for the taxes that ultimately will be collected. In other words it doesn’t change for the tax collector, the State of Wisconsin. But for the farmers and land owners who pay the taxes, there will be a significant, negative impact. The DOR itself said that the intent of the rule was to clarify this situation so that the land under these programs would qualify for agricultural use value assessment.
The final rule was not a mere “shift” for the taxpayers, it was a complete and arbitrary change in the law which dumped the tax burden on the farmers and landowners it was supposed to protect. The DOR had some latitude in modifying the rule and may be able to justify the substance of the rule it finally adopted. But where the change from the proposed rule is so significant, it cannot justify bypassing the rulemaking procedure that insures that our government follows an open and transparent rulemaking process.
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