[ Previous Page] [ Home Page ]
The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6586 June 13, 1989 FARMLAND AND OPEN SPACE PRESERVATION ACT: Effect of construction of crop processing plant and storage facility on property tax benefits Property owners who construct a crop processing plant and storage facility for the purpose of handling crops raised on land which is subject to a farmland development rights agreement under the Farmland and Open Space Preservation Act remain eligible for favorable tax treatment under the Act. Property owners who construct a crop processing plant and storage facility on land which is subject to a farmland development rights agreement under the Farmland and Open Space Preservation Act for the purpose of handling both crops grown on their land and crops grown by other landowners are not eligible for favorable tax treatment under the Act. Anthony A. Monton Prosecuting Attorney Oceana County Post Office Box 169 Hart, Michigan 49420-0169 You have requested my opinion on two questions concerning the right of property owners to construct a crop processing plant and storage facility on land which is subject to a farmland development rights agreement entered into under the Farmland and Open Space Preservation Act, MCL 554.701 et seq; MSA 26.1287(1) et seq (Act). One of the purposes of the Act is to encourage the preservation of farmland. "Farmland" is generally defined as certain land devoted primarily to an agricultural use. MCL 554.702(6); MSA 26.1287(2)(6). "Agricultural use" is defined as "substantially undeveloped land devoted to the production of plants and animals useful to man, including forages and sod crops; grains and feed crops; dairy and dairy products; livestock, including breeding and grazing; fruits; vegetables; Christmas trees; and other similar uses and activities." MCL 554.702(1); MSA 26.1287(2)(1). "Substantially undeveloped" is defined as "any parcel or area of land essentially unimproved except for a dwelling, building, structure, road, or other improvement that is incidental to agricultural and open space uses." MCL 554.702(18); MSA 26.1287(2)(18). The Legislature has sought to accomplish the goal of preserving farmland by providing tax benefits in the form of tax credits and exemptions from special assessments to persons who agree not to develop their lands in certain ways. MCL 554.709; MSA 26.1287(9), MCL 554.710; MSA 26.1287(10). In order to obtain this favorable tax treatment, an owner of farmland must enter into a farmland development rights agreement, which is defined as "a restrictive covenant, evidenced by an instrument whereby the owner and the state, for a term of years, agree to jointly hold the right to develop the land as may be expressly reserved in the instrument, and which contains a covenant running with the land, for a term of years, not to develop, except as this right is expressly reserved in the instrument." MCL 554.702(4); MSA 26.1287(2)(4). MCL 554.705(7); MSA 26.1287(5)(7), provides that the development rights agreement shall include the following provisions: "(a) A structure shall not be built on the land except for use consistent with farm operations or lines for utility transmission or distribution purposes or with the approval of the local governing body and the state land use agency. "(b) Land improvements shall not be made except for use consistent with farm operations or with the approval of the local governing body and the state land use agency. "(c) Any interest in the land shall not be sold except a scenic, access, or utility easement which does not substantially hinder farm operations. "(d) Public access shall not be permitted on the land unless agreed to by the owner. "(e) Any other condition and restriction on the land as agreed to by the parties that is deemed necessary to preserve the land or appropriate portions of it as farmland." Additionally, a development rights agreement shall not permit an action which will materially impair the character of the land involved. MCL 554.703(2); MSA 26.1287(3)(2). The development rights agreement between the state or local governing body and the landowner constitutes a dedication to the public of the development rights in the land for the period of time specified in the agreement, which must be at least 10 years. MCL 554.704; MSA 26.1287(4). Violation of the terms of the agreement may subject a person to loss of tax benefits, an action for injunctive relief, or a civil penalty for actual damages not to exceed twice the value of the land at the time the agreement was approved. MCL 554.715; MSA 26.1287(15). The farmland development rights agreement which is the subject of your questions contains the following language: "1. This Agreement is made and entered into pursuant to the provisions of the Michigan Farmland and Open Space Preservation Act of 1974; and all of the provisions of said Act are incorporated herein by reference and made a part thereof. "2. A structure shall not be built on the Subject Property except for use consistent with farm operations or with the approval of the local governing body and the state land use agency. "3. Land improvements shall not be made except for use consistent with farm operations or with the approval of the local governing body and the state land use agency. "4. Any interest in the subject property shall not be sold except a scenic, access or utility easement which does not substantially hinder farm operations. ".... "10. This Agreement shall constitute a covenant running with the land and shall be binding upon and inures to the benefit of the heirs, executors, administrators, successors, trustees and assigns to the parties." You have informed me that the owners of the farmland subject to this agreement want to construct a cherry processing plant and freezer storage facility which will cover approximately 5 acres of the land subject to the development rights agreement. These facilities initially would handle primarily the landowners' crops, but may eventually also handle crops from other landowners. Your first question is: Is the favorable tax treatment provided by the Act revoked if the property owners construct a crop processing plant and storage facility on their land for the purpose of handling crops which are raised on the property owners' land? In order to answer your first question, it is necessary to determine whether the farmland, after construction of the facilities, would remain "substantially undeveloped." In order to so remain, the facilities would need to be "incidental to agricultural uses." MCL 554.702(18); MSA 26.1287(2)(18). Although there is no Michigan case on point, the court in Fraenkel v Bank of America Nat'l Trust & Savings Ass'n, 40 Cal2d 845; 256 P2d 569, 570 (1953), discussed a contractor licensing statute which contained a provision that it did not apply to "any construction or operation incidental ... to farming [or] agriculture." The court stated and held: "[W]e are of the opinion that the construction must be located on a farm and must be incidental to the farmer's own farming operations in order to be 'incidental to farming,' within the meaning of the exemption. ".... "So here, if the grain elevator was built on defendant's farm and designed to function as an incidental part of his own farming operations rather than as a commercial enterprise, see Machinery Engineering Co. v. Nickel, supra, 101 Cal.App.2d 748, 751, 226 P.2d 78, there would be a factual basis for holding such structure to be within the terms of the exemption as a 'construction or operation incidental to farming'." (Emphasis added.) Id., 571-572. Your first question states that the crop processing plant and storage facility would be used to handle crops raised on the owners' farmland. These facilities, thus, would be incidental to farming or agricultural use and would leave the land in a substantially undeveloped state. It is my opinion, in response to your first question, that the property owners remain eligible for favorable tax treatment provided by the Farmland and Open Space Preservation Act if they construct a crop processing plant and storage facility for the purpose of handling crops which are raised on land which is subject to a farmland development rights agreement under the Act. Your second question asks: Is the favorable tax treatment provided by the Act revoked if the property owners construct crop processing plant and storage facility on their land for the purpose of handling both crops grown on their land and crops grown by other unrelated landowners, but a majority of the crops handled being grown by unrelated land owners? The decision in Fraenkel, supra, makes it clear that where the improvement is a commercial enterprise, it is not incidental to farming. A similar conclusion was reached by the court in Holmes v Morgan, 498 P2d 830 (Ore App, 1972), where the issue was whether certain labor was "performed as an incident to ordinary farming operations" and thus exempt from the state unemployment compensation law. In that case, an employer operated a chicken processing plant. He bought eggs, had a commercial hatchery hatch them, had a grower under contract raise the chicks, and then processed the chicks at his processing plant. Ownership of the chicks remained with the employer at all times. In discussing this operation, the court stated and held: "As we view the evidence, employer's business is processing and marketing chickens, not raising them. The farming operation is being carried on by independent contractors and is merely to insure that employer's processing plant has a continuous supply of suitable chickens. "It is our conclusion that employer is a processor rather than a farmer; that its processing operation cannot be said to be merely 'incident to ordinary farming operations.' ".... "[T]he chickens were raised not by employer on his own farm but by contract growers on their own farms for employer's benefit. The special contractual arrangement between employer and his growers simply does not meet the statutory test of 'ordinary farm operations [by employer].' By the same token employer's processing plant can scarcely be called an activity incident to growers' farming operations." Id. at 832. Your second question states that the facilities will handle crops raised on the owners' farmland and grown by other landowners, with the majority of crops coming from the latter. Under these circumstances, the operation of these facilities is a commercial operation which is not "incidental to agricultural uses." Fraenkel, supra, and Holmes, supra. Nor is such activity "consistent with farm operations," and it thus violates clauses 2 and 3 of the farmland development rights agreement. The intent of the Act is to allow only those improvements incidental to agricultural use of the land by its owner. Construction of improvements allowing storage and/or processing of agricultural produce of other persons is not contemplated by the Act, and violates the intent of this statute. It is my opinion, in response to your second question, that property owners are not eligible for favorable tax treatment provided for by the Farmland and Open Space Preservation Act if they construct a crop processing plant and storage facility on land which is subject to a farmland development rights agreement under the Act for the purpose of handling both crops grown on their land and crops grown by other landowners. Frank J. Kelley Attorney General
[ Previous Page] [ Home Page ]