Land Use Tax or Land Use Assessment

Introduction

These terms Land Use Tax and/or Land Use Assessment are used interchangeably. This law allows a locality to assess real estate based on the “use value” instead of “fair market value.” “Use Value” is the productive potential of the land. For example, a field that grows $200 worth of corn has a “use value” of $200.

Land use regulations are made by the State Lands Evaluation Advisory Council (SLEAC). SLEAC is made up of the State Forester, and the Directors of Taxation, Agriculture, and Conservation and Recreation. Each is allowed to have a voting alternate.

History of Land Use

In the 1950 & 60's as land prices and real estate taxes increased there was growing interest by farmers for tax relief.

In 1957, Maryland was the first state to pass a land use tax to give a lower tax rate to agriculture and forestland.

In 1971 Virginia passed legislation to allow localities to assess four categories of land at its “use value” rather than at its fair market value. The four categories are agriculture, horticulture, forest, and open space. Localities do not have to enact land use assessment or they may allow agriculture but not forestry land use.

In 1977, Virginia sanctioned Agricultural and Forestal Districts for every county. The districts are established voluntarily by the landowners and approved by the local governing body. This relates to land use because land within a district qualifies for land use assessment even if the locality has not enacted land use assessment as long as the land meets the standards for forestry land use assessment.

By 1982, 48 states had adopted some form of use-value taxation. The use value may be based on a complicated calculation to determine production potential, like Virginia or a flat rate such as a dollar per acre for forestland.

In 2004, 64 counties and 13 cities in Virginia have forestry land use assessment.

Purpose of Land Use

As stated in the code and regulations:

  • Assure an available source of forest products
  • Conserve natural resources in forms that will prevent erosion
  • Protect adequate and safe water-supplies
  • Preserve scenic natural beauty and open spaces
  • Promote proper land-use planning and orderly development
  • Reduce pressure to convert to more intensive land use.

Lofty expectations were established for the program.

Standards

to qualify for forestry land use Twenty (20) acres minimum devoted to forest use.

  • Productive land.
  • 40% stocking - i.e. 400 seedlings or 21 trees 15” dbh or larger per acre.
  • Commercially valuable trees.
  • The area is accessible for harvest.
  • Non-Productive land.
  • Inaccessible (islands or steep mountain land).
  • Adverse site conditions (shallow soil, rock outcrops).

Certification of land management and production.

  • Landowner shall certify that the real estate is being used in a planned program of timber management and soil conservation practices which are intended to:
    • Enhance the growth of commercially desirable species.
    • Reduce soil erosion by Best Management Practices.

Certification by the landowner can be shown by:

  • A signed commitment to maintain and protect forest land OR
  • Forest Management Plan prepared by a professional forester.

Local assessing officer may request an opinion from the State Forester determining whether a particular property meets the criteria for forest use. The State Forester will issue his opinion.

There is a provision for changing land use which requires the landowner to pay a roll back tax which is the difference between the tax paid in land use and the tax rate for fair market value plus interest for the previous 5 years.

Forestry Land Use Value Estimates

State Land Evaluation Advisory Council (SLEAC) shall determine and publish a range of suggested values. The Code of Virginia requires each participating jurisdiction's Assessment Office to consider the SLEAC estimates when assessing the value of eligible land. However, the local assessing office is not required to use the SLEAC estimates verbatim.

The Virginia Department of Forestry provides the estimated values to SLEAC.

Timber production requires many years of growth to attain a harvestable crop. Value estimation, as approved by the SLEAC, is a process of calculating the net present value of current and discounted future cost and revenue streams; and capitalization of the net present value in its annual equivalent value form. These values are updated annually for each participating jurisdiction.

The accompanying 2007 land use values table lists the estimated forest land use value in terms of fair, good and excellent soil capability classes as determined by soil scientists of the USDA Natural Resources Conservation Service (NRCS). For those jurisdictions listed with an asterisk (*), forest management for hardwood timber production is considered the most valuable use. For those jurisdictions without an asterisk, forest management for loblolly pine production is considered the most valuable use. For one jurisdiction, Carroll County, listed twice with one and two asterisks, forest management for either hardwood or white pine production may be considered the most valuable use depending on soil type, slope aspect and vertical position on the slope.

Contacts

Questions regarding any statutorily related issues on use-value assessment should be directed to the Property Tax Unit, Virginia Department of Taxation, 804.367.8022.

Questions regarding the methodology used to produce the use-value estimates summarized here should be directed to the Virginia Department of Forestry, 434.977.-6555.

You can read the forestry land use regulations.

Is land use assessment being used?

Only 64 counties and 13 cities have land use.

Not all counties have land use assessment; some county commissioner of revenues, in some rural counties believe the rate is low enough that land use assessment is of no advantage to the landowner.

A landowner survey sponsored by the VDOF in the early 1990's showed that less than half of the eligible landowners were enrolled in land use in the counties where it was available. The survey did not identify why landowners were not enrolled in land use.

Another survey in the 1980's by the Tayloe Murphy Institute and Virginia Cooperative Extension Service was a more extensive survey including all 11 cities and 49 counties in the program at the time. This survey also showed that state wide enrollment in forestry land use was about 50 percent. Chesterfield had 95 percent enrollment and rural counties like Pulaski had 0 percent. This survey concluded that in rural areas some landowners would not benefit from land use assessment.

Does Land Use Assessment work?

I have three neighbors in Albemarle County who I know would not be farming today without land use assessment. They could not afford to pay the taxes on their farms.

Martha Moore, Virginia Farm Bureau, is very knowledgeable about land use tax, challenged SLEAC on numerous occasions, and has written numerous articles and papers on the subject. She indicated in her articles “Without land use assessment the tax burden would increase so rapidly that the land would not be able to be used for agriculture or forest operations. There would be development at a rapid pace rather than at a planned pace.”

Is land use an unfair tax break?

The Piedmont Environmental Council has studied counties in the Northern Piedmont region of the state. They reported that, for every dollar in tax revenue received from farm land and open space, 11 to 21 cents were expended for services for that land. Whereas for every dollar received from residential land anywhere from $1.16 to $1.39 was expended for services.

A study by Knapp and Watkins found in counties with significant use of land use assessment, the tax burden is shifted from rural land to residential property.

Economists from Virginia Tech have written papers on Land Use. Knapp and Johnson (1983) and Paxton Marshall (1993) both concluded that use value taxation could not successfully protect and retain qualifying land suitable for agriculture or forest. Their arguments can be summarized by saying the price paid for land at fair market value was so high the comparatively small savings from land use tax and having to pay the roll back tax did not matter.

Paxton Marshall also pointed out counties “lose” income by using land use assessment. If these counties had not enacted land use tax and had set aside the amount they would have “lost”, then those counties could use those set aside funds to buy easements on numerous large tracts, thus protecting them permanently from development.

The other side of this argument is, with out land use assessment fewer tracts would be undeveloped and available to buy easement on.

In conclusion, land use assessment postpones development but is not a permanent solution to conserving farm and forestland.

Last modified: Thursday, 06-Nov-2014 10:24:54 EST