Why States Can't Just Raise Taxes on Out-of-State Landowners
It's one of those ideas that sounds so reasonable the first time you hear it. Foreign investors and out-of-state hedge funds are buying up Iowa farmland at a record pace. Local farmers can't compete. Young people can't afford to stay. So why not just charge those absentee landowners more in property taxes? Make it less appealing to hold ground you aren’t connected to and will likely never step foot on.
The frustration is real. The solution, though, runs headfirst into the U.S. Constitution, and it doesn't survive the collision.
Nicolas Lirio brought this up on a recent episode of the Prairie Farm Podcast, and he was upfront about it: "I was quickly humbled when I was looking into it. I knew you couldn't discriminate on taxes, but I'd never equated it with... I was just thinking like gender, race, religion kind of a thing."
That's exactly the trap this idea falls into. Discrimination in taxation isn't just about protected classes. The Constitution draws a hard line around where you live, too.
Three Constitutional Walls
When a state tries to charge higher property taxes based on a landowner's state of residence, it doesn't just bump into one constitutional problem. It bumps into three.
The Privileges and Immunities Clause (Article IV, Section 2) is the oldest and most direct of the three. It generally prohibits states from imposing higher taxes on non-residents than on residents. An Iowa property tax credit available only to resident landowners was already struck down under this clause — in a case called Borden v. Selden — as a textbook violation. If you can't give residents a credit that non-residents don't get, you definitely can't charge non-residents a higher rate.
The Equal Protection Clause (14th Amendment) adds another layer. The Supreme Court has used equal protection principles to knock down tax schemes that discriminate against non-residents, including a case where the Court struck down Maine's tax treatment of charitable institutions that primarily served people from out of state. The Court called it "unconstitutional economic protectionism." In another landmark case, Metropolitan Life Insurance Co. v. Ward (1985), the Court found that taxation favoring in-state entities over out-of-state ones "constitutes the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent."
The Commerce Clause (Article I, Section 8) rounds out the trifecta. The Founders designed the United States as what legal scholars sometimes call a vast internal free trade network. States cannot erect economic barriers against one another. Taxing someone at a higher rate specifically because they live in a different state is, at its core, exactly that kind of barrier.
As the ITR Foundation put it bluntly: "Together, these constitutional protections make clear that states cannot disadvantage non-residents simply because they live elsewhere. Any attempt to levy higher property tax rates on out-of-state landowners would almost certainly be struck down in court."
So What Did Montana Do?
This is where it gets interesting — and where Nicolas had to tip his hat a little. Montana, which has been getting absolutely overrun by out-of-state vacation home buyers and wealthy absentee investors, found a creative workaround.
They didn't ask where you live. They asked how much you use the property.
Starting in 2026, Montana's new system taxes primary residences (where owners live at least seven months of the year) at a much lower graduated rate, while non-primary residences (vacation homes, Airbnb properties, and second homes) get taxed at a flat 1.9% of market value. The new law explicitly doesn't target out-of-state owners. It targets absentee use. A Montana resident with a cabin they only visit three times a year gets hit with the higher rate, same as a California investor who bought a Bozeman ski chalet.
That's the legal key. As Montana Free Press reported, the reason the law is written this way is because tying the higher rate specifically to out-of-state residency "would likely be struck down by the courts as unconstitutional discrimination."
It's clever. And as Nicolas noted on the podcast, "That's brilliant, because if you're in the house a lot of the year, you're connected to your neighbors."
Why Farmland Makes It Harder
Here's where the Montana model starts to strain when you try to apply it to Iowa farmland — and it's a real problem.
Vacation homes are one thing. You can reasonably ask: is this person actually living here? Are they participating in the community? Using local services? Do they have skin in the game?
But farmland is different. What are you going to require — that a landowner live on the farm full-time to qualify for the standard rate? A lot of family farm owners live in town and rent the ground to a neighbor. Multi-generational farmland sometimes passes to heirs who don't farm but still care deeply about where it goes. The line between "connected absentee owner" and "disconnected investor" is a lot blurrier on an Iowa cornfield than it is on a Bozeman ski chalet.
Nicolas put it plainly: "Problem with land is, you going to tell people they have to live on the farm? And now what if they live in town, but their farm's right outside?"
It's a fair point, and nobody's figured out a clean answer.
What's Actually Legal
It's worth being clear about what states can do. They can tax out-of-country (foreign national) landowners at dramatically different rates — and several states have moved in that direction in recent years, particularly targeting Chinese corporate ownership of agricultural land near military installations. Federal law has gotten involved there too.
States can also structure conservation programs, CRP enrollment incentives, and USDA cost-sharing programs in ways that favor active, resident landowners — not by punishing non-residents directly, but by rewarding engagement and stewardship.
And states can follow Montana's lead: design tax structures around use rather than residency, and let the chips fall where they may. That's the most legally defensible path to something that looks like what people are actually asking for.
The frustration driving all of this is legitimate. When investment firms or foreign entities treat Iowa farmland as an asset class rather than a community resource, something real is being lost. But the answer isn't going to come from a law that the first attorney to read it can have thrown out in federal court.
The hard work is designing something that actually holds.
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