Making hay: How Kansas developers call vacant land farms to win big property tax breaks

Reality Check is a Star series holding those with power to account and shining a light on their decisions. Have a suggestion for a future story? Email our journalists at RealityCheck@kcstar.com.

There are no barns, silos or livestock.

Instead, planted in seven Kansas City, Kansas, fields within the Plaza at the Speedway outdoor shopping mall, near abandoned shopping carts and discarded trash, are real estate signs advertising land ready to build on.

But in the meantime, the landowners say those open spaces, wedged between access roads and big-box retailers, serve a real purpose: They’re all farms.

And that entitles them to a major property tax break Kansas lawmakers crafted in the 1980s for land devoted to agricultural use.

The land is now the subject of a legal dispute forwarded by the Unified Government of Wyandotte County and KCK. It is one example of a practice that, critics say, shifts the tax burden onto other property owners.

“It’s a good statute as it was intended: to allow farmers to keep producing crops,” County Appraiser Matt Willard said. “When it gets into these other situations, it’s a tax dodge.”

Employed by residential and commercial real estate developers across Kansas, the method of obtaining agricultural use for property tax savings is nothing new. Over the past 30 years, state courts have maintained that a developer may secure an agricultural use designation by essentially demonstrating that farming activity is taking place and is its primary purpose.

Among the things that don’t matter, under the law: the future intentions of a landowner.

Proponents of the practice argue it is a fair and legal method to pay less in taxes. And it allows a landowner to afford keeping the property until a project breaks ground.

“What we’re doing is the right way, according to the statute,” said Douglas Knop, a property tax appeals representative who handled the case for Plaza at the Speedway’s developers.

“We’re not doing it the wrong way or anything else. We’re doing what the statute says we can do.”

The land in question, north of the Kansas Speedway in development-rich western Wyandotte County, is owned by Plaza Speedway Development, Inc., whose president is David M. Block of Block & Company Realtors.

Last year, using a calculation for vacant commercial land, the property tax bill for the properties collectively was $159,114.32.

For one two-acre stretch near the Kohl’s and Sam’s Club, the bill was $25,031.38. As an agricultural use property, the appraiser’s office estimates the yearly tax bill could drop to $17 on that parcel alone.

Starting in 2006, Plaza at the Speedway received substantial public assistance through financing based on its sales and property taxes. In December, the Unified Government phased out a tax-increment-financing district, or TIF, after $44.5 million in bonds was paid off three years ahead of schedule.

Farming hay in Plaza at the Speedway is a relatively new venture.

In 2020, the developer inked a contract with Knop for seven pieces of land that’ve yet to be built up. At the time, the parcels were collectively assessed at a fair market value of roughly $7.8 million.

Knop advertises his services as a tax appeal consultant who delivers the full package. For a price, based on savings earned, he will evaluate the land, overseed, and arrange for a hay crop to be raked and baled. He says those hay bales are sold to local farmers.

And that’s precisely what Knop did, according to the Kansas Board of Tax Appeals. Evidence presented to the tax board, including a contract and photographs of a tractor next to a hay bale, sufficiently demonstrated agricultural activity on five occasions over a two-year period.

The board found that the hay operation fit the state’s definition of agricultural use. Wyandotte County was ordered to adjust its numbers to reflect agricultural use and repay any overages charged for the tax year in dispute.

“The fact that the subject properties are located in a developing area is irrelevant because the use of the subject properties is agricultural and the land is devoted to that agricultural production,” the board wrote in a full opinion issued in November.

The county has since taken the case to the Kansas Court of Appeals for further review, arguing that the arrangement at Plaza at the Speedway is effectively a maintenance agreement to seed and mow land — not a real farm.

Willard, the county appraiser, says there is certainly a legitimate way to establish and keep land for agricultural purposes.

“But that involves a lot more than throwing some hayseed on and baling up some trash and dandelions every year,” Willard said. “That’s prepping the ground, that is soil test, that’s fertilizers, that’s all the rest of it. Like you would see in an agricultural operation. You drive to Lawrence, you’re gonna see some hay farms along the way.”

“Livestock doesn’t eat trash. And that’s what’s getting baled up in that situation. Literal refuse from the surrounding properties,” Willard added.

“I’m not a farmer. But if I was, and you tried to sell that to me, I’d laugh at you. It’s of no use.”

‘It is what it is’

In the late 1980s, as the nation was reeling from an economic crisis that was putting family farms out of business at breakneck pace, lawmakers passed sweeping changes to state law governing property taxes. Rather than evaluating land based on what it would sell for on the real estate market, Kansas farmland is now uniquely assessed by its income or potential to produce.

Over the decades since property tax law was redesigned in Topeka, at the center of disputes around the classification is a phrase in the state constitution and its intended meaning: “land devoted to agricultural use.”

One of the earlier — and influential — court cases concerned Johnson County officials and the owners of a two-acre tract of vacant land near 119th Street and Quivira Road. Landowners hired a local farmer to grow non-native grass and produce hay there and sought to retain classification of the land as agricultural for savings on their property tax bill.

The county argued the operation, which was not profitable, did not align with the spirit of the law and the land was simply being labeled as agricultural to take advantage of a tax loophole.

In 1993, the Kansas Court of Appeals sided with the taxpayers, finding the law allows for and spells out a wide range of acceptable activity — all aimed at the production of plants, animals or horticultural products. The court said it was irrelevant if the land did not turn a profit or if its owners temporarily used the land for farming only to save money on taxes.

Those interpretations have held fast over the decades as county appraisers have challenged the designations at the tax appeals board and brought some matters to court.

Linda Terrill, a Kansas property tax attorney, told The Star the law still broadly allows for many uses — and commercial property owners, who pay substantially more in taxes than residential owners, often employ the practice to save money. Some seek reclassifications or hire farmers to maintain the agricultural land use designation as they package parcels for a future development.

“The counties want your money,” Terrill said. “I know a lot of commercial developers who do this, because why pay more than you can lawfully?

It just doesn’t make a lot of sense. And I think, given the choice, all of us would say, ‘Well, I want to pay the right amount, but I don’t want to pay more than I have to.’”

The agricultural use designation is highly scrutinized by county appraisers, Terrill said. She referenced one case in which her client had to fight to retain agricultural land for having competitive livestock, leading the county to conclude the venture was a hobby instead of a bona fide ranch and thus not protected by the law.

Over the years, Terrill said lawmakers have asked her whether the law can be fixed. She’s advised them no one would get reelected because she believes that would end in everyone going back to paying fair market value at the same rate.

“I know people don’t like it, but there is no solution … It is what it is,” she said. “You can’t fix it. I mean, not without a huge amount of pain, and nobody’s gonna do it.”

In 2005, a state audit of the property tax system examined the agricultural use classifications sought by commercial property owners in a critical context. The auditors noted a carve-out in the state constitution exists to create a rollback legislatively whereby tax dollars could be recaptured if farmland is later developed for commercial use.

Some states have such grab back provisions — though Kansas lawmakers have yet to substantially move a proposal to enact those forward.

Terrill doubts such a change would happen because “it’s a difficult program to sell to a farmer.” She said it may lead to farmers paying additional taxes on land that wasn’t intentionally being held for development but was sold for that purpose.

“It’s like the third rail in the legislature,” Terrill said. “You just don’t touch it.”

The issue has been on the radar of the Kansas Farm Bureau, which has lobbied the state on behalf of its members to keep agricultural use designations intact.

Valuing farmland by its productivity instead of market value is paramount to ensure those producing crops across the state remain profitable, said Claudia Hissong, the Farm Bureau’s state affairs manager. Maintaining agricultural use within state statute is a top priority each legislative session.

Hissong said there have been conversations concerning abuse of the law. But there has been no direction from membership on a policy change to address those situations.

“For our members, we know they’re not abusing it,” she said. “But if others are, there could come a point where we have to make tweaks to make sure bills get paid, and there’s enough property taxes being collected.”

‘What a farm is’

Until as recently as 10 years ago, Johnson County remained at the center of many agricultural use fights with real estate developers over the law.

As the suburbs have largely been developed, there are frankly fewer cases to spar over, said Johnson County Appraiser Beau Boisvert.

Before Boisvert became the appraiser in 2019, he said the county had a track record of losing cases at the Kansas Board of Tax Appeals. If a property owner with a large parcel provides some proof of agricultural activity— cutting natural grass, rolling it up, and selling it, for example — those claims often go unchallenged.

“We don’t really fight with that too much. It’s just not worth the energy because we typically end up losing at (the Kansas Board of Tax Appeals) anyway,” Boisvert said.

In more recent years, Boisvert says the county has taken greater care to document cases that are questionable. His office is still doing its due diligence to ensure the system is not being abused — but he concedes it is difficult to ensure everyone plays by the rules and some may be missed.

A common tell if a property owner claims to have a farm but doesn’t, Boisvert says: A hay bale will sit on the property “until it rots.”

“Unfortunately you never get rid of everybody who wants to cheat the system. But it’s hard to write a law that’s perfect, right?” Boisvert said, adding: “We’ve taken more of a cautious approach to remove (agricultural use properties). But our record at court has been better.”

In Wyandotte County, the dispute over the Plaza at the Speedway is hardly the only piece of land awarded the tax benefit without looking the part.

In a residential subdivision about a mile away, for example, 17 undeveloped lots continue to be classified as small farms, paying around $10 per year in property taxes. Developers who build a single lot at a time often retain agricultural use designations on surrounding land until the work starts.

The suburban-style homes around them, though, pay at a residential rate — and have no workaround. State law and the courts have made clear that residential properties are excluded from obtaining agricultural use.

As the Kansas Court of Appeals weighs the case of the farms in the outdoor shopping mall, Wyandotte County Appraiser Willard hopes there will be some further clarity in state law.

“I really feel like it’s a statute problem,” Willard said. “I think the solution is, there needs to be some clarifying language added … that gives guidance to county appraisers, the Board of Tax Appeals and taxpayers.”

That’s what we want from the Court of Appeals. Is to say, is that OK? Is that what we want to be doing? Or do we need to add some clarifying language to say what a farm is?”

“That’s the hope of this. And we’ll see.”