Assessing the Impact of Local-State Revenue Shares and Property Tax Structure on Effective Farmland Tax Rates

This study explores how state fiscal structures relate to effective agricultural property tax rates (ETR). Key fiscal factors examined include whether a state imposes a broad personal income tax, the proportion of revenue from sales taxes (indicating revenue mix), and the ratio of state spending to revenue (as a measure of fiscal pressure on local property taxes). The analysis covers a panel of 15 states from 2009 to 2022, combining agricultural tax data with state and local finance information and economic controls. It distinguishes between cross-state differences and within-state changes by using both a year fixed-effects model and a two-way fixed-effects model. The findings reveal a split. The most robust result concerns the share of non-agricultural tax sources: it is negatively related to ETR — a broader tax base outside agriculture reduces land tax pressure — and this relationship is highly significant in both models (p < 0.001 in the cross-state model and p = 0.008 in the two-way fixed-effects model). The presence of income taxes and reliance on sales taxes show positive signs in the crossstate analysis but are not statistically significant in the baseline model; however, reliance on sales taxes becomes significant when controls for use-value assessment programs are included. The spending-to-revenue ratio shows no significant effect in any model. Notably, the share of non-agricultural tax bases is a stronger, more consistent predictor of farmland tax rates than policies such as use-value assessment (UVA), which are traditionally seen as key tools for lowering agricultural property taxes — UVA program variables are identified only in the cross-state model. In contrast, the share of the non-agricultural tax base is identified in both. The broader implication is that a state’s overall revenue composition influences farmland tax burdens alongside, and to a similar degree as, policies aimed directly at agricultural landowners. The two channels appear to be complementary rather than substitutes. The key policy insight is that farmland tax burdens are linked to the underlying structure of the state’s revenue system — such as reliance on certain taxes, sharing of the property tax base across property types, and division of taxing authority — at least as much as they are linked to short-term fiscal pressures or UVA program design.