PA 116: A farmland preservation program in Michigan that new farmers may not be familiar with
Learn more about this program that may be beneficial for your farm
June 25, 2018 - Author: Grace Michienzi
PA 116, the Michigan Farmland and Open Space Preservation Act, is a law that works to preserve farmland by offering incentives to farmers who are willing to participate. According to the Michigan Department of Agriculture and Rural Development, the law, which was passed in 1974, allows a farm landowner to enter into an agreement with the state that ensures that the land remain in agricultural use for a minimum of 10 years and up to 90 years. In return, the farm owner may be entitled to income tax benefits and exemption from special assessments on the land. Today, 3.3 million acres of land in Michigan is protected under this program.
Farms that are eligible for the PA 116 program are:
- Farms that are 40 acres or more in size with at least 51 percent of land being active agriculture or;
- Farms that are less than 40 acres but more than 5 acres in size with at least 51 percent of land being active agriculture and a gross income from agriculture of more than $200 per tillable acre or;
- Farms that have been designated as specialty farms by the Michigan Department of Agriculture and are at least 15 acres in size and have a gross annual income of more than $2,000.
To learn more about program eligibility, visit the MDARD Farmland and Open Space Preservation Act website or review the MDARD Farmland Agreements Enrollment, Eligibility & Benefits brochure online.
There are two main benefits to farmers who enroll in this program. The first is the possibility of receiving refundable income tax credits on Michigan Income Taxes. The credit that a farm owner receives is dependent on both their real estate and income taxes of a given year. MDARD uses the example of a farmer who has household income of $20,000 a year (as defined by the MI CR5) with real estate taxes on the farm being $2,000. 3.5 percent of income taxes are then subtracted from the farmer’s payment of real estate taxes to determine the tax credit, which is $2,000 minus $700, so the tax credit that the farm owner may be eligible to receive is $1,300. This tax incentive encourages farmers to preserve their land for agricultural use and provides compensation for this preservation of land.
Additionally, lands that are enrolled in the PA 116 program are “not subject to special assessments for sanitary sewer, water, lights or non-farm drain projects,” according to MDARD. This can help farmers save money by not requiring them to pay for assessments that would normally be required. The only exception to this is if assessments were imposed before the agreement was enacted.
To enroll in the farm preservation program, follow the steps below, which are listed on the MDARD website:
- Check to make sure that your farm is eligible for the program. Refer to the requirements listed above.
- Fill out and submit this application to your local governing body. This could be a city or village, the township if it has adopted its own zoning ordinance, or the county if the township has not adopted its own zoning ordinance. To be eligible for tax credits, the application must be submitted and approved by the local governing body by November 1.
While this program can be very helpful to farmers, and especially to those that are just starting out, program participants should be aware that there are consequences if they should choose to end their agreement. The agreement is initially set for 10 to 90 years and can be renewed for a minimum of seven or more years up to a total of 90 years. However, if the farmer or landowner decides to let the agreement expire, he or she must pay back the tax credits received in the previous seven years. The authors of this article believe this is a common misconception for farmers, as some may misinterpret that they do not have to repay the tax credits if they do not terminate the agreement. The rules are the same whether the agreement is ended early or if the agreement expires.
Some farmers plan ahead and do not accept the tax credits for seven years prior to when their agreement is set to expire if they wish to allow the agreement expire without a repayment. It is possible to terminate all or a portion of the Farmland Agreement prior to the expiration of the agreement if the landowner meets one or more of the requirements for early release. Typically a land owner must repay the tax credits received during the last seven years of the agreement plus a 6% interest penalty. The amount to be repaid may vary depending on whether all or part of the agreement is being terminated or if the basis for requesting release from the program is death of disability. Refer to the MDARD Farmland Agreements, Transferring, Splitting & Releasing brochure for more information about repayment and termination of agreements.
To learn more about PA 116 and Michigan Farmland Preservation, visit the MSU Extension webpage.