Measuring Use Value Assessment Tax Expenditures

Use-value assessment is the practice of valuing land for property tax purposes in its current use, rather than its full market value. This practice is widespread in the U.S. and is intended as a means by which to reduce the property tax burden on farmers and slow the conversion of farmland into developed uses. The purpose of this paper is to examine the practice of use-value assessment and determine the foregone property tax revenue, or the so-called tax expenditure, of this policy. The economic theory of land prices is presented and used to frame a context within which use-value assessment tax expenditures can be examined. Empirical models of the difference between market value and use value are then estimated using two data sets from Omaha and Lincoln.