This CAE working paper looks at the policy context for farmland tax policy, reviews the rationale behind incentive programs and documents the effectiveness of the various differential taxation approaches. The history of differential taxation in Illinois and a unique case study of DeKalb County, Illinois analyzing 1995 farmland sales data are also presented. The results help us better understand the gap between assessed use value and market value. Studies that have considered the effectiveness of the various differential taxation approaches suggest that any long term effect is minimal at best, and in cases where there is a beneficial effect in preventing farmland conversion, it is in conjunction with other, more direct, land use controls. In other words, use value assessment buys some time and reduces the tax pressure that may be the final straw pushing land out of farming. The data in DeKalb County show there is a large gap between the use value assessment of farmland and the price at which it is being bought. This is partly due to the built-in time lag in Illinois' conservative assessment process. However, it is also an indication that buyers are aware of the potential development value of the farmland they are buying, despite agriculture zoning which currently limits non-farm development. The authors conclude by recommending Illinois adopt a more complete farmland policy with a clear state level policy direction that includes limited purchase of development rights, consistent growth management programs to direct urban pressure away from prime farmland and incentives for local commitment which recognize the role of farmers in serving the community.