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North Carolina Forestry Present Use Property Tax Program

North Carolina’s present use property tax program (G.S. 105-277.2 through G.S. 105-277.7) was enacted effective January 1, 1974. Numerous legislative changes, court decisions and property tax commission rulings have altered the program over the years. The following discussion will bring readers up to date on the current status of the law and recommendations on the administration of the law per guidance from the NC Department of Revenue. This publication is a brief overview of a complicated law and the interpretations are believed to be correct as of the time of printing. This is a general discussion and not meant to address every specific or detailed question surrounding this law. For answers to specific, detailed questions, contact your county property tax office.

WHAT IS FORESTRY PRESENT USE VALUE?

Present use value is the value of land in its current use as forestland, based solely on its ability to produce income, assuming an average level of management. Currently, a rate of 9% shall be used to capitalize the expected net income (per acre per year) of forestland.

The county will calculate property tax due by applying the current tax rate to the use-value rather the market value, which is based on the highest and best use of the property.

ACREAGE AND INCOME REQUIREMENT

At least 20 acres of contiguous forestland in actual production constitutes the parent tract. Once a 20-acre tract qualifies, smaller tracts may be brought under use value as long as the tracts are under the same ownership and actual use, under sound forest management, are in the same county or within 50 miles of the parent tract if the smaller tract is not in the same county and have satisfied the ownership requirements below. Agricultural and horticultural properties must produce an average of $1000 per year gross income or, in the case of Christmas trees (which qualify under horticultural), meets the Department of Revenue’s requirements in lieu of income. Forestland is not required to produce annual income.

WHO QUALIFIES?

  • A natural person
  • A business entity - either a closely held corporation, a general partnership, or a limited liability company, having as its principal business the commercial production of forest products and whose members are either a natural person or a relative of the member actively engaged in the business
  • A trust - created by a natural person who transferred the land to the trust and each of the beneficiaries are currently entitled to receive income or principal and meets one of the following criteria:% the creator of the trust or a relative of the creator% a second trust whose beneficiaries are currently entitled to receive income or principal and are all either the creator of the first trust or a relative of the creator
  • A testamentary trust - created by a natural person who transferred land to the trust that qualified in the person’s name and at the time of the creator’s death, the creator had no relatives and the trust income less reasonable administrative expenses is used exclusively for educational, scientific, literary, cultural, charitable or religious purposes

Tenants in common also qualify, if each tenant is a natural person or a qualifying business entity as described above. Shareholders of a qualified corporation, partners of a general or limited partnership and members of a limited liability company qualify.

OWNERSHIP REQUIREMENTS

To qualify, property must meet one of the following requirements:

  1. It is the owner’s place of residence;
  2. It has been owned by the current owner or a relative of the current owner for the four years preceding January 1 of the year for which the benefit of use-value is claimed. If owned by a business entity or trust, it must have been owned by the business entity or trust or by one or more of the members or creators for the four year period preceding January 1 of the year for which the benefit of use-value is claimed;
  3. At the time of transfer to the current owner from a business or trust, and assuming that the current owner was a member of the business or beneficiary of the trust, then land that qualified under the business or trust can immediately qualify.

The four (4)-year ownership tenure requirement will be waived if:

  1. The land was appraised at its present use value or was eligible for appraisal at present use value at the time title of the land passed to the current owner, and;
  2. At the time that the title to the land passed to the current owner, the new owner acquires the land for the purposes of and continues the use of the land in qualifying forestry use, and;
  3. The new owner has filed an application (within 60 days of the date of transfer) with the county tax office that the new owner accepts liability for the deferred taxes and intends to keep the property in the present use of the land, in this case, forestry.

Land enrolled in the federal Conservation Reserve Program (CRP) and planted to trees qualifies for forestry-use value, assuming all other ownership requirements are met. Forest land that is currently qualified for use value and becomes part of a perpetual and enforceable conservation easement (that qualifies for the state’s conservation tax credit) shall continue to qualify for forestry use value without regard for sound management or actual production requirements.

SOUND FOREST MANAGEMENT

The assessor may require the landowner to submit any information, including a sound, written forest management plan, to verify that the property qualifies and continues to qualify for present-use valuation. Further, the county assessor will expect the owner to implement the practices (or attempt to implement the practices) as outlined in the written management plan. Suggested elements of a written forest management plan are:

  • A statement of management and landowner objectives
  • Location maps, photographs, and descriptions
  • Prescribed practices for forest management
  • Inventory - species, age, size, condition of each delineated stand with individual stands corresponding to a map of the forest land in actual production
  • Harvest and Regeneration - timetables of expected timber harvests and recommended methods to insure regeneration upon final harvest

Although a plan may not contain or have to contain all the elements listed immediately above, the plan needs to be in sufficient detail that the county assessor can determine that the forestland is engaged under a sound forest management program for the production of commercial timber products. Reasonable and prudent sound management practices to produce commercial timber crops are required in the plan and further, it is expected that the plan be implemented over the life of the plan. Plans may be modified as the forest changes, and if modified, the county assessors office should receive a copy of the amended plan.

APPLICATION PROCEDURE

Forest landowners must apply for forestry present use consideration. County tax assessors will provide a copy of the application forms. The application is considered “timely” if filed during the regular listing period of the year in which the benefit of the classification is first claimed or within 30 days of the date showing on a notice of a change in the assessment at market or present-use value. The regular listing period (unless extended by majority vote of the board of county commissioners) is January, ending with the close of business on January 31 of each calendar year. The application must be filed in the office of the assessor in the countywhere the property is located. A new application is not required unless the property is transferred in whole or the property becomes ineligible due to a change in use or size. When property is transferred in whole or in part, it is the seller’s responsibility to notify the assessor of the change. The buyer must re-qualify the property with a new application made within 60 days of the date of transfer.


PENALTIES FOR CHANGE IN USE OR TRANSFER TO UNQUALIFIED OWNER

Property may lose its eligibility if one of the following occurs:

  • Property is sold, transferred or otherwise conveyed to anyone and the use changes to a non-qualifying use, or;
  • Use of the property changes to a non-qualifying use, or;
  • Property is judged to not be under a sound management program.

If a property is disqualified, the “rollback” provision is triggered. Upon disqualification, the owner will be taxed for the current year at market value, and the deferred taxes (difference between what would have been collected at market value less what was actually collected under use value assessment) plus interest on the deferred amount for the previous three tax years will be owed. An additional 10% penalty may be charged if the landowner failed to notify the assessor of the changes that triggered disqualification.

COMPLIANCE REVIEWS

N.C.G.S. 105-296. (J) requires that county assessors annually review one eighth of the parcels in the county classified for taxation at present-use value to verify that those parcels qualify for the classification. Generally, the assessor is authorized to request any information from the owner to verify that the property still qualifies. The purpose of the review is not to look for a reason to deny property present-use value, but to objectively evaluate all available information and therefore insure fairness to all taxpayers. Properties not meeting the qualifications of ownership, size, and/or sound management will be disqualified and the rollback penalty will be applied.

APPEAL PROCESS

Statutory direction reads as follows: “Decisions of the assessor regarding the qualification or appraisal of property under this section may be appealed to the county board of equalization and review or, if that board is not in session, to the board of county commissioners. Decisions of the county board may be appealed to the Property Tax Commission”. (N.C.G.S. 105-277.4(b1)

WOODLAND AS PART OF AN AGRICULTURAL OR HORTICULTURAL UNIT

Agricultural or horticultural land includes woodland that is part of the farm or horticultural unit and the woodland included as part of the unit must be appraised under the use-value schedules as woodland. If the agricultural or horticultural unit contains less than 20 acres of woodland, then the woodland portion is not required to be under a sound management program. Also, woodland is not required to be under a sound management program if it is determined that the highest and best use of the woodland is to diminish wind erosion, protect water quality or serve as buffer for the adjacent agricultural, horticultural livestock or poultry operation.

FORESTRY USE VALUE SCHEDULES

Use-Value schedules vary from county to county. This is frustrating to landowners, but county assessors have the authority to set use-value rates. In 1985, the North Carolina General Assembly created the Use-Value Advisory Board (UVAB). The major role of this board is to annually distribute a recommended use-value manual of schedules to all counties. Further, the schedules are based on 6 Major Land Resource Areas (MLRA’s), five net income ranges (based on income potential from reasonable, prudent, average timber management regimes for preferred and/or predominant tree species on identified soil series), and a statutory 9% capitalization rate. One purpose of this manual is to improve consistency at least between counties within the same MLRA. The majority of counties have historically used the recommended use-value manual schedules in some fashion. Often, they will consolidate the ranges or pick one average figure for forestland or otherwise adapt the figures to the local situation. County assessors are fully authorized to ignore the manual and develop their own schedules.

Tax savings enjoyed from forestry use-value vary widely across North Carolina. In urbanizing counties, the benefit can be great since there is a wide difference between market value (set on highest and best use) compared to the value of land to grow successive timber crops. In rural areas, the difference between market value and use-value is often slight. The county tax assessor’s office can provide county use-value schedules.

SUMMARY

Reduced property taxes are a benefit available to qualified owners of soundly managed commercial forestland. North Carolina’s use-value law has been in existence since 1974 and is still evolving. This brief article highlights the major provisions of the law and the steps a landowner must follow to become and remain qualified. This interpretation is based largely on administrative guidance provided by the NC Department of Revenue and is for educational purposes only. If you have questions, contact a tax attorney, your county assessor or the NC Department of Revenue.

PREPARED BY

RICK A. HAMILTON
EXTENSION FORESTRY SPECIALIST
October 11, 2003