The capitalization rate is used to convert the landlord share of agricultural net income value. The following three components make up the capitalization rate:
1. The five-year average of the Federal Land Bank interest rate on new loans in Kansas as of July 1st of each year.
2. An "add on" of not less than .75% nor more than 2.75% determined by the Director of Property Valuation.
3. As of property tax year 2003, the capitalization rate shall not be less than 11% nor more than 12% as mandated by the 2002 Kansas Legislature.
4. The county average agricultural property tax rate. This accounts for property taxes on agricultural land as an expense. The sum of these three components is the capitalization rate percentage that is divided into the landlord net income (LNI) to arrive at the agricultural value. The higher the capitalization rate, the lower the agricultural value. For example a higher county average agricultural property tax rate (expense) means the final agricultural value will be lower (all other things being equal).