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Volume 11 - Opinions of Counsel SBRPS No. 26

Opinions of Counsel index

Farm structures and buildings exemption (generally) (commercial purpose) - Real Property Tax Law, § 483:

To receive an exemption pursuant to section 483 of the Real Property Tax Law, a farm structure or building must be located on a commercial farm, that is, a farm carried on for profit. Whether a farm is commercial is a question of the taxpayer’s intent. No single factor, however, is determinative.

We have received an inquiry concerning the farm structures and buildings exemption (Real Property Tax Law, §483), which generally provides a 10-year exemption from taxation. The structure in question is a barn located on the applicants’ residential lot that is used to stable their horses. On their most recent federal income tax return, the applicants reported a net loss of $2,191, from the business of “pony breeding” (see, Schedule C (Form 1040), line 31), but they did not report any “farm income.” {1}  The remainder of their 5.5-acre property is not used to grow feed for the horses. The assessor has concluded that the horse barn does not qualify for the exemption, and asks if we agree. We do.

In order to qualify for exemption pursuant to section 483, the purported “farm structure or building” must be “essential to the operation of lands actively devoted to agricultural or horticultural use” (RPTL, §483(1)). RPTL, section 483(3), defines “lands actively devoted to agricultural or horticultural use” to “mean not less than five acres in area actually used in bona fide agricultural and horticultural production and operation carried on for profit.” {2}  Such “agricultural or horticultural use” may “include the activity of raising, breeding and boarding of livestock, including commercial horse boarding operations” (RPTL, §483(8), as amended by L.2001, c.411 (emphasis added); see also, 10 Op.Counsel SBRPS No. 82).

Whether or not a farm is commercial, that is, operated for profit, is a question of the taxpayer’s intent. A taxpayer’s declaration of intent to be profit-oriented is a factor to be considered but is not conclusive. Other facts from which the taxpayer’s intentions may be inferred include the existence of sales, actual profits or losses in prior years, the amount of the taxpayer’s investment, and the amount of labor the taxpayer puts into the farm. {3} No one factor, however, is determinative.

It appears from the facts stated above, including the relatively low level of reported expense related to breeding the horses, and the fact that the property is not used to grow feed for the horses, that the horse barn is not essential to a commercial “for profit” farm operation of not less than five acres. The assessor’s conclusion that the horse barn does not qualify for exemption pursuant to section 483 of the RPTL seems reasonable.

May 8, 2002


{1}  We note that the Internal Revenue Service advises that Schedule C (Form 1040) is to be used to “determine the net profit or loss from a nonfarm business” and Schedule F (Form 1040) is to be used to “determine your net farm profit or loss” (IRS Publication 225, Farmer’s Tax Guide for Use in Preparing 2001 Returns, p.8).

{2}  In our opinion, land under a residence may not be used in calculating whether a purported farm structure qualifies for exemption pursuant to RPTL, section 483, as essential to a “for profit” farm operation of “not less than five acres” (9 Op.Counsel SBEA No. 62).

{3}  The Internal Revenue Service has recommended nine factors for distinguishing “not-for-profit farming” from “farming activity for profit”: “1) You operate your farm in a businesslike manner, 2) The time and effort you spend on farming indicate you intend to make it profitable, 3) You depend on income from farming for your livelihood, 4) Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming, 5) You change your methods of operation in an attempt to improve profitability, 6) You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business, 7) You were successful in making a profit in similar activities in the past, 8) You make a profit from farming in some years and how much profit you make, and 9) You can expect to make a future profit from the appreciation of the assets used in the farming activity” (IRS Publication 225, Farmer’s Tax Guide for Use in Preparing 2001 Returns, p.31).

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