Can the tax man call you a farmer if you've never seen a tractor?

The Legislature will be presented next session with the ticklish issue of how to clamp down on wealthy owners of rural acreage who abuse the tax system -- without undermining the many who really are trying to farm.

The legislative auditor's office is completing a study aimed in part at determining whether rural landowners who do little or no farming are taking advantage of a system designed to help farmers.

"There are people buying 10 or 12 acres and erecting mansions on them, letting a few of those acres be used by a local farmer and leaving assessors with the question of whether this can be classed as 'ag,'" said Jody Hauer, project manager for the study.

Through a complex system of interlocking programs, she added, "the tax value can be cut in half" -- whether it should be or not.

The cost to other taxpayers is difficult to nail down. Thousands of small-acreage "microfarms" exist, and estimates of the tax breaks per property range from a few hundred dollars to thousands.

By law, the legislative auditor's office can't comment on what it's finding until the report comes out. But a 2006 study by the state Department of Revenue may hint at some of what's to emerge.

That study hints that the rules around farming tax breaks are outdated and overly lenient. The thresholds for land holdings and farming income, it found, are so miniscule that "many small suburban hobby farms are benefiting."

However, many owners of small properties on the fringes of the metro area resent the term "hobby farm," which implies that it's not a serious pursuit. They describe the 10-acre minimum often used to distinguish real from leisurely ag as meaningless in an era when a rising number of farmers' markets and other outlets are creating real opportunities for income-producing farming on a smaller scale.

Krishona Martinson, a University of Minnesota Extension educator who breeds, trains and shows quarter horses on a small acreage between Elk River and Rogers, in the northern metro area, said she senses the rise in small-acreage holdings from the vantage point of horse ownership alone.

Chairwoman of the university's Horse Team and Program, uniting various equine specialists, she said a newsletter mailing list of 3,000 horse owners is growing by 1,000 every year. Some, such as Martinson, likely are agricultural, while others are strictly recreational -- a classic case of the difficulty of deciding how to tax them.

Those complexities, in turn, mingle with a vast array of government programs aimed at helping farmers. And some who shouldn't get any breaks may be getting them from multiple programs.

"We've talked with more than one person who is irate because a neighbor ... gets paid to keep land out of production" under programs aimed at reducing the environmental effects of farming, Hauer said, "and also qualifies for the Green Acres program, which gives the neighbor an additional tax break."

The irony: While the first program involves not farming, the other is meant to keep farming going. Green Acres aims to help farmers whose land value is rising simply because, say, the metro area is drawing closer and closer and developers are sniffing at it. It helps them stay in business by reducing their tax rates to what they would pay based strictly on the land's farming value.

In addition to examining how that program is working, the legislative auditor, in a report due out in January, will take a look at two programs aimed at protecting farmland in areas where it has been seen as threatened.

The biggest of the two, the Metropolitan Agricultural Preserves Program, cut agricultural property taxes for metro-area farmers by about $2.9 million in 2006.

The programs are intermingled in various ways with an issue that has recently drawn some attention -- attempts by metro-area counties to crack down on abuse of the tax system by owners of 10 acres or less who aren't technically entitled to be classed as farms.

The net result, Hauer predicts:

"An issue that has long been, among certain legislators, very important, but has not been very visible to most Minnesotans, seems bound to rise a bit more into the limelight. I'm fairly confident the Legislature will review this again."

David Peterson • 612-673-4440