§ 9.6 - Taxation of Crops

• Jurisdiction: Washington

§9.6 TAXATION OF CROPS

Federal, state, and local taxation of crops is discussed below.

(1) Washington property tax

Washington real property is assessed at 100 percent of its true and fair value; however, certain property used for agricultural purposes may be taxed at a reduced rate under the "open space" taxation rules. RCW 84.34.030; RCW 84.40.030. Nevertheless, growing crops are excluded from the value of agricultural lands. RCW 84.40.030(3).Marijuana is not a considered a growing crop for purposes of RCW 84.40.030(3). Previously, the statutes provided that nursery stock would be assessed as personal property. The courts nevertheless have held that it is within the discretion of the legislature to exempt growing crops and define and tax nursery stock as merchandise. Miethke v. Pierce County, 173 Wash. 381, 23 P.2d 405 (1933). Subsequently, the legislature classified nursery stock owned by the original producer or held by licensed nurseries for 180 days or more to be the same as a growing crop, regardless of whether it was characterized as real or personal property. RCW 84.40.220.

(2) Federal income tax on farm sales

For federal income tax purposes, an unharvested crop growing on land used in the trade or business of the taxpayer is taxed at special, lower, long-term capital gain rates if two conditions are met. First, the land must be held for at least one year. Second, the unharvested crop and the land must be sold or exchanged (or compulsorily or involuntarily converted) at the same time to the same person. 26 U.S.C. §1231(b)(4). For tax years beginning after 1984, the capital gain recognized under 26 U.S.C. §1231 is treated as ordinary income to the extent...