Family farmers would pay less in estate tax under proposal

Bill by Republican newcomer attracts support of O'Malley

March 03, 2011|By Julie Bykowicz, The Baltimore Sun

A newly minted Republican lawmaker from Frederick County has found a heavy-hitting Democrat to lend support to her proposal to give tax breaks to family farmers: the governor.

Del. Kathryn Afzali wants to exempt the heirs who would keep a farm running from estate taxes on the first $5 million of land value. Property valued above that amount would be subject to a 5 percent rate — a steep reduction from the 16 percent now on the books.

"Maryland's farmland is shrinking," Afzali told members of the House Ways and Means Committee on Thursday. Older farmers, she said, "are faced with the dilemma of how to pass agricultural property onto the next generation."

The tax break would save money for family farmers, Afzali said, and remove some of the temptation for heirs to sell to developers offering large sums. In that way, she said, it acts as a land-preservation bill.

Afzali said she cornered Gov. Martin O'Malley at a Maryland Agricultural Council dinner early last month in Glen Burnie. She pulled a copy of the bill from her purse and explained it to him, pitching it as "the greenest bill in the state legislature this year."

The governor had been scheduled to testify in support of the legislation Thursday before a conflict arose. Agricultural Secretary Earl F. "Buddy" Hance reiterated the administration's support.

O'Malley "feels very strongly how important this issue is for agriculture," Hance told committee members. "It's not just a tax bill; it's a water-quality bill."

That environmental dynamic helped attract a bevy of supporters, ranging from conservative Del. Michael D. Smigiel on the Eastern Shore to liberal Del. Mary Washington of Baltimore. At the hearing, Afzali was joined by a representative from the Chesapeake Bay Foundation. In all, more than 40 delegates are listed as co-sponsors.

A Senate hearing on the bill, sponsored in that chamber by Democratic Del. Ron Young of Frederick County, is scheduled for next week.

Maryland had about 12,800 farms in 2007, according to a legislative analysis. Hance said about 80 percent, or more than 10,000, would benefit from the exemption. Under current law, which exempts tax on the first $1 million in value, an heir to a $5 million farm would pay about $640,000 in estate tax.

The legislative analysis predicts that about 75 farms per year would take advantage of the exemption, costing the state about $2.3 million in revenue annually.

Afzali's bill would align Maryland' estate tax rules with those of the federal government. Maryland and New Jersey are the only two states in the country that levy both an inheritance tax and an estate tax, according to a legislative analysis, making it particularly costly for heirs.

Sixteen states and the District of Columbia charge estate taxes, according to an analysis by SmartMoney magazine, with exemptions ranging from $338,333 to $5 million, and rates ranging from 7 percent to 19 percent.

Six states levy only an inheritance tax, which is assessed only on the amount above the exemption. Rates range from 9.5 percent to 20 percent, according to SmartMoney.

Afzali's bill and an accompanying amendment provide that the exemption could be used only by an heir who continues to farm the land for at least 10 years after inheriting it.

Lindsay Dodd, a student at Washington College, told legislators that her family's 700-acre farm in Queenstown dates to her great-great-great-grandfather.

Estate tax relief, she said, "would help keep this farm in my family and give me the privilege and honor to keep my family's legacy going."

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