Getting North Shore Kauai Property Eligible for Ag Dedication Tax Breaks

As implied by its nickname “The Garden Island,” Kauai‘s lush, green landscape is a result of fertile volcanic soil, sunshine, and rain. It’s no wonder that so many properties here are zoned Agriculture (aka ‘Ag’). These parcels are usually a minimum of several acres, and house sites are limited to encourage agricultural practices to be the primary use of the land.

Hanalei Ranch, 218 acre ranch lands with incredible views of Hanalei Bay, has agriculture dedication for pasture use with American buffalo

A secondary intent, as discussed in Chp. 5 of The Kauai General Plan, issued by the County Planning Dept., is “to provide an opportunity for Kaua’i citizens to reside in an agricultural community.” 

According to the county, it is estimated that as much as 90% of ag properties fall into this latter category; but for property owners who are interested in growing food, engaging in livestock activities, or even leasing some of their land for farming purposes, the tax break from “Ag Dedication” can be a substantial savings.  

This 10+ acre ag dedicated property sits on a secluded, private bluff above Rock Quarry Bay with a 5,000+ sq. ft. main house, a second home, guest house, and accessory buildings

For example, a listing for sale in Kalihiwai Ridge, a vacant 5.5 acre land parcel with Mahogany hardwoods, has ANNUAL taxes of only $30, while a neighboring, similar sized lot pays over $3,000 a year. See a complete list of Kauai North Shore properties for sale that are currently Ag dedicated, or see list at end of this article.

Lease the Land

The tax savings is wonderful, yet even more wonderful is seeing the land’s highest and best potential realized, as was its original, primary intention. For some landowners, farming themselves is not an option. Yet, choosing to allocate portions of their land to lease for ag purposes can benefit both the owner for the tax credits, and local farmers who want to engage in agriculture activities, but who might not have the resources to purchase land.  

“Agriculture activity” includes a variety of categories, from planting seasonal fruit trees and hiring pickers, to ‘aqua’ pond farms, ornamental plants, livestock, wind power, and more. The potential is vast. 

If you are a landowner considering this option, don’t be shy at your next local farmer’s market…talk story to the growers, and you might find some great leads for people interested in using your land to increase Kauai’s food supply. Kauai has the resources, so there’s no justifiable reason we import so much of our food. Keep it local!

How to Get Qualified For AG Dedication

Below is a summary of my conversation with Damien Ventura…his comments are in italics. Ag dedication applications are handled by the Kauai Real Property Assessment Division, 4444 Rice St, Ste. 454, Lihue, HI 96766. Phone (808) 241-4224.

• Here’s a link to the Application Form
• The application deadline is July 1 of each year
• Re-assessment for approved applicants is October 1
• A county inspector will visit and photograph the property, then notify applicants of a decision by September 15
• This dedication pertains to properties within the districts of agriculture, urban, rural, and conservation…There may be some restrictions on agricultural uses such as pig and poultry farms in the agriculture and open districts. We do verify with the Department of Planning prior to approving a petition to dedicate.
• The farm plan must show an effort to produce a some profit, but there is currently no set dollar amount of profit required. Be  prepared to provide a Schedule F (Profit and Loss) for farming, and GE tax returns…Section 5A-9.1 as to “agricultural dedication,” defines commercial agricultural use as the “use of the land on a continuous and regular basis that demonstrates that the owner intends to obtain a monetary profit.”
• The agreements (recorded with Bureau of Conveyances) are binding on current and future owners… The County also requires a written confirmation by the new owner to ensure compliance. Typically, escrow will contact our office to see if Real Property Assessment foresee any rollback taxes occurring, due to the transfer.
• Leasing the land to outside farmers is allowed… Our policy is that the owner is responsible unless the lease agreement puts the tax liability on the lessee. The owner would be responsible for crafting that language into the recorded lease. We provide a section on the petition form, explicitly for recorded lessees to complete and sign.
• Any breach of the agreement will cancel the dedication rights & tax privileges, plus back taxes and penalties due… In a breach of dedication, the real property dedicated assessment shall be amended retroactive to the effective date of the dedication. Any difference between the taxes that were paid and the taxes that would have been due if the property had been assessed at its fair market value shall be due and payable with escalating penalties (ie 10% in most recent year rolled back up to 90% if rolled back 9 years) per annum from the respective dates that these payments would have been due.)
• There are 10 year or 20 year plans available… the intent was for tax benefits to commercial farmers, rather than “subsistence” farming, when comparing to County Planning Department’s definition of “farming” in their “Farm Dwelling Agreement.”
• Ag dedication can apply to both raw or developed land. If raw land is ag dedicated, the dedication will be adjusted when building commences. The County will assess the homesite portion at “market value” – land underlying the dwelling, driveway, landscaping/yard when the structure is 20% complete. The remaining portion of the land will retain the dedication.
• Current assessment for a crop plan is $2,000/acre for a 10-year plan and $1,000/acre for a 20-year plan
• The ceiling amount for pasture (livestock plan) is $425.00/acre for a 10-year dedication and $210.00/acre for 20-year dedications.  In certain circumstances we may adjust the soil rates for truly lower quality soils especially on large acreage cattle ranches.
• For fiscal year commencing July 1, 2012 to June 30, 2013 the agricultural tax rate is $6.90 per $1,000 of assessed value for land and $4.25/$1,000 of assessed value for buildings.

The new tax rates for fiscal year commencing July 1, 2013 to June 30, 2014 will be a single rate.

North Shore Kauai MLS Data – Ag Dedicated Properties

Kalihiwai bluff lot with macadamia orchards (MLS# 225365), over 4 acres of Ag dedicated land with annual taxes of just $58

Below is a complete list of properties currently listed for sale from Aliomanu to Haena that have Ag dedication.