Agricultural Council of California11/4/2009
Until 2001, only minor changes have occurred in the law in the form of rate adjustments and the amount of money exempt from tax.
The estate tax has for years compromised a family’s ability to successfully transfer its agricultural businesses to the next generation of farmers or ranchers.
The estate tax was originally passed as part of the Emergency Revenue Act of 1916, and was part of the nation’s preparation for World War I.
Unfortunately, the estate tax has become a huge burden on small- to medium-sized family businesses, especially farms and ranches. Agricultural operations that require large investments in land and operate on marginal returns face a difficult challenge when a principal owner of an operation passes away. The situation is exaggerated in California due to skyrocketing land values.
Permanent repeal of the estate tax has been a priority of the Ag Council for several years. Since the Economic Growth and Tax Relief Reconciliation Act of 2001 passed into law June 7, 2001, the estate tax has been on a temporary phase-out schedule, which will end in full repeal in 2010. Unfortunately, a “sunset clause” that helped get the legislation passed initially means that the estate tax will return to its pre-2001 rates—55 percent and only a $1 million dollar exemption in 2011.
“Congressmen Mike Thompson (D-Calif.) and John Salazar (D-Colo.) introduced the Family Farm Preservation Act (H.R. 3524) on July 31, 2009, which will defer estate taxes from farm and ranch assets as long as the property remains as a family agricultural operation.
This reform is critical to ensuring that California’s family-owned agricultural businesses can remain intact for future generations. For most family farmers and ranchers, the value of an estate is made up mainly of land—and nowhere more so than in California. Therefore, agricultural estates routinely exceed current tax exemptions based primarily on the assessed value of the land.
According to the California Department of Conservation, farm and grazing lands decreased by 275 square miles (176,014 acres) between 2004 and 2006. This conversion to non-agricultural uses occurred at an accelerated rate compared