Grants partial deduction of interest income from corporate and personal income taxes involving land used for fruit production

Section 2: Adds a new County Law section 220-b to ensure that lands that receive an income tax deduction when sold to another farmer remain in farming by requiring that such lands abide by a conservation easement.

Section 3: Amends Tax Law section 208(9) to grant a 50 percent franchise tax deduction of the amount of interest from a mortgage payment received by a landowner or farmer that sells his existing orchard, vineyard, other fruit production lands or lands that had been in production within the past five years to another grower that executes a conservation easement to ensure that such land will stay in agricultural production. This provision further provides an enhanced income tax deduction of 75 percent if such purchasing farmer is a young farmer who is under the age of 35. To limit the fiscal impact of this bill, agricultural parcels can be only 50 acres or smaller. If the agricultural parcel is larger than 50 acres, the tax deduction shall apply only to the interest on the first 50 acres of the larger parcel.

Section 4: Amends Tax Law section 612 (c) to grant the same tax deduction against personal income taxation if the conditions stated above are satisfied.

Existing law

This type of open space program does not exist in New York Law.

Justification

In the past, in addition to inter-family transfers of land to succeeding farming generations, commercial bank loans were one of the primary financing mechanisms used to purchase farm land. Commercial banks and other lending institutions have generally left the business of lending money to continue or expand farm operations. This bill encourages older farmers that have in effect become the "bank" by giving them an incentive to sell their farms to younger generations of farmers by holding the mortgage or land contract. This bill subsidizes the sale of farm land by giving the seller an income and franchise tax deduction for a portion of the interest received by the farmer lending the money to a younger farmer to purchase said farm.

An enhanced tax deduction of 75 percent will be given to farmers under the age of 35. New York farming needs to encourage younger farmers to enter into this business. Farmers under the age of 35 tend not to have the capital necessary to purchase a farm. This is because such farmers are younger and have not had the time to build up financial assets. In addition, such persons tend to have young families that need to be supported, hence there is little money left to set aside to purchase or expand a farm stead.

This bill creates a new financing mechanism to keep land in agriculture. Once the income tax deduction has been granted, the land will remain in agriculture because conservation easements will need to be executed. In return, local economies will be able to sustain their agricultural economies because such farm lands will remain in farming. Such lands that enter such program will be protected by conservation easements.

Legislative history

S.6694-A of 2005/2006, and S.572 of 2007. Governor Spitzer Vetoed a similar bill last year (S.572). This bill has incorporated the comments contained in Governor Spitzer's veto message so that the bill, after passing both houses, can be signed into law. The differences in this bill from S.572 are as follows:

1. Provisions were added to ensure that a farmer could not subdivide a large parcel of land (i.e. 200 acres) and convey it in 4 parcels of under 50 acres to the same new owner to qualify for the tax deduction for the entire farm. Also, it should be pointed out that much farm acreage is on parcels of 50 acres or less, so the potential abuses suggested in the veto message may not be significant. Also, the farmer purchasing this property can obtain this benefit only for one parcel of 50 acres or less. The purpose of this bill is to assist new and younger farmers to purchase land to begin their careers in farming or to farm land they own instead of rented lands.

2. The language in the personal income tax and corporate income tax section was altered to conform to the terminology used in each income tax law section. So in the personal income tax section, the triggering event is the receipt of interest income, while in the corporate income tax section it is the accrual of interest income.

3. The provisions related to receiving the interest income tax deduction were altered to eliminate the possibility that the ceding farmer can receive an interest income tax deduction when he or she has not received the interest income.

4. The bill was not amended to expand the qualifying parcels to include non-fruit lands. The reason why it was not expanded was so that the fiscal hit to the state would be minimized. However, should this bill be signed into law and prove to be successful, it could then be expanded to include other agricultural lands. The sponsor would also like to reemphasize that fruit lands were targeted first because they produce high value crops that have higher economic multiplier effects in the agricultural economy. Further, such fruit lands in this State tend to be located in areas that are experiencing significant suburban development pressures and farm acreage is rapidly declining. Such areas include the east end of Long Island, the Hudson Valley, Saratoga/Washington County areas & the Champlain Valley, portions of the Finger Lakes and areas surrounding Buffalo. S.6973 of 2007/2008

Fiscal implications

To be determined.

Local fiscal implications

None. EFFECTIVE DATE : Immediate.