(1) On January 1 of each year, the department shall ascertain the correct land classification for each parcel of land subject to taxation.

(2) Land classifications are:

(a) class four land that is valued at market;

(b) class three patented nonproductive mining claims;

(c) class three nonqualified agricultural land;

(d) class three agricultural land; and

(e) class ten forest land.

(3) The appropriate land classification will be determined for the purpose of tax assessment based on the land's use as of January 1 of the current year. The following examples are intended to demonstrate how the correct land classifications are established for the current year:

(a) Example 1 - A taxpayer with a contiguous ownership less than 160 acres in size files an application for agricultural land classification on May 1. The department's decision is based on the property's agricultural income for the preceding year and the property's ability to meet the agricultural eligibility rules pursuant to ARM 42.20.620;

(b) Example 2 - A taxpayer files an application for forest land classification on May 1. The department's decision is based on the property's use on January 1 of the current year and the property's ability to meet the forest land eligibility rules pursuant to ARM 42.20.705, 42.20.710, and 42.20.735;

(c) Example 3 - A taxpayer owns a 10-acre parcel on January 1 of the current year that is valued at market and placed in class four property. The taxpayer has purchased a contiguous 10-acre parcel on May 1 of the current year, which is also appraised at market and placed in class four property. Both parcels were in different ownerships on January 1 and the department considers the land to be class four property for the current year and appraised at market value. If the land is not residential, commercial, or industrial land, the parcels are considered a 20-acre contiguous ownership by the department and appraised as either class three or class ten land for the following year;

(d) Example 4 - A taxpayer purchases a parcel of land on May 1 of the current year. The parcel was classified as forest land on January 1 of the current year. The taxpayer files an AB-26 within 30 days of receipt of the assessment notice requesting that the department review the forest land productivity for the property. If the department determines that a change in productivity is appropriate, the change is effective for the current year because the basis for the property's productivity existed on January 1 of the current year; and

(e) Example 5 - A taxpayer purchases a property on December 31 of the previous year. The property was classified as agricultural land under the previous owner. The new taxpayer files a timely application for agricultural land classification with the local department office. The new taxpayer states that the property will continue to be managed as an agricultural operation for the current year. The property met the agricultural eligibility requirements on January 1 of the current year for the previous owner. The property is classified and assessed as agricultural land by the department for the current year, even though the current taxpayer has not owned the property long enough to market agricultural products or consume agricultural products produced by the property. The department may ask the new taxpayer to file another application for agricultural land classification the following year to demonstrate that the property continues to meet the agricultural land eligibility requirements pursuant to ARM 42.20.620.