«PRESENT-USE VALUE PROGRAM GUIDE NORTH CAROLINA DEPARTMENT OF REVENUE LOCAL GOVERNMENT DIVISION PROPERTY TAX SECTION David B. Baker, Director JANUARY ...»
DEPARTMENT OF REVENUE
LOCAL GOVERNMENT DIVISION
PROPERTY TAX SECTION
David B. Baker, Director
JANUARY 1, 2016
Table of Contents
Table of Contents i-viii
Appendix viii Foreword ix-x Chapter 1 Introduction to Present-Use Value 1 I. Three Classifications 2 II. Four Tests 2 III. Exceptions and Miscellaneous Provisions 3 IV. Application for Present-Use Value 4 V. Billing of Deferred Taxes (Rollback) 4 VI. Determining Present-Use Value 5 VII. Compliance Reviews 5 Chapter 2 Ownership Requirements 6 I. Qualifying Forms of Ownership 6 A. Individuals 7 B. Business Entities 7
1. Business Entity Requirements 8
2. Principal Business 10
3. Actively Engaged 11
4. Exception for Certain Family Business Entities 11 C. Trusts and Testamentary Trusts 11
1. Trusts 11
2. Testamentary Trusts 12 D. Tenancy in Common 12
1. Similar but Not Identical Tenancies in Common 13
2. Provision for Splitting Interests of Tenants in Common 13 i II. Requirements for Qualifying Owners 14 A. Standard Ownership Requirements 14
1. Individuals 14
2. Business Entities 15 a. Initial Qualification 15 b. Continuation of Eligibility for Business Entity Conversions and Mergers 15
3. Trusts 16
4. Tenants in Common 16 a. Initial Qualification 16 b. Continuation of Eligibility for Transfers Involving Tenancies in Common
Appendix Form AV-4 Present-Use Value Statutes Form AV-5 Application for Present-Use Value Assessment Form AV-3 Voluntary Payment of Deferred Taxes Without Requesting Disqualification Form AV-6 Request for Voluntary Disqualification from Present-Use Value Form AV-7 Request for Estimate of Deferred Taxes Form AV-56 Application for Wildlife Conservation Program vi Foreword The January 1, 2016 Edition of the Present-Use Value Program Guide is, current with the status of PUV legislation through the 2015 Session of the North Carolina General Assembly. The major changes in this edition include revisions to Chapter: 2: Ownership Requirements due to legislative changes made in 2015 concerning the principal business of a business entity. Additional language has been added to the manual to clarify horses as an agriculture product for presentuse value in Chapter 1: Introduction to Present-Use Value and Chapter 4: Income Requirements. As a result of 2015 legislation, the Present-Use Value Program Guide is required to be used by all 100 North Carolina counties in administering and determining qualification for the Present-Use Value Program. Finally, further examples have been added to selected chapters, in an effort to address recent developments in agricultural practices. Other conforming, technical, and clarifying changes have been made throughout the Guide.
Effective January 1, 1974, the General Assembly enacted a voluntary program that allows certain agricultural land, horticultural land, and forestland to be assessed at its present-use value.
This Guide seeks to provide a thorough, but not exhaustive, explanation of the present-use value program as it exists at the time of publication. Generally, the history of the program will not be discussed because the law has undergone many revisions since the inception of the program.
Due to the numerous legislative revisions, some areas of the statutes are not as precise or as clearly worded as desired, and, in those areas, the North Carolina Department of Revenue (NCDOR) may express its recommendation as to the best interpretation and application of the statutes, based on its experience and knowledge of the program. In situations where it is unclear what the correct recommendation should be, it may only be noted that the issue is open for some interpretation.
In an effort to enhance the overall readability of this Guide, references to the North Carolina General Statutes governing the present-use value program have largely been omitted from the main text of this publication. The primary statutes discussed in each chapter are referenced at the beginning of each chapter, and Form AV-4: Present-Use Value Statutes is included at the end of the main body for your reference. Not all statutes that are referenced in this Guide are included in Form AV-4: Present-Use Value Statutes. Occasionally, reference will be made vii to a statute that does not directly address the present-use value program but still has some bearing on the subject. In those instances, it will be necessary to consult the North Carolina General Statutes (located online at www.ncleg.net).
A copy of Form AV-5: Application for Agriculture, Horticulture, and Forestry Present-Use Value Assessment follows Form AV-4: Present-Use Value Statutes.
The Use-Value Advisory Board also prepares an annual present-use value manual which NCDOR publishes as the Use-Value Manual for Agricultural, Horticultural, and Forestland.
All of the above-mentioned documents, including this Guide, can be downloaded from the NCDOR website at: www.dornc.com/taxes/property/index.html.
The major points of the present-use value program are presented in separate chapters. Most chapters are followed by a number of real-life examples. It is hoped that these practical examples will help to clarify the somewhat difficult language of the statutes. Some of the examples may even cover situations that are not specifically included in the explanatory text in the preceding chapter. Please consider the examples as an integral part of the overall explanation of the presentuse value program.
Note on Examples: For brevity and clarity, the examples may deal with one or more requirements of the program at a time. When the other requirements are not mentioned, it should be assumed that all other requirements have been met or otherwise have no bearing on the specific example.
We hope this information will be helpful in the general understanding of the present-use value program. Please feel free to contact our office with any comments or suggestions.
Generally, all property in North Carolina is valued at its market value, which is the estimated price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the various potential uses of the property.
Present-use value (PUV) is the value of land in its current use as agricultural land, horticultural land, or forestland, based solely on its ability to produce income and assuming an average level of management.
Property that qualifies for present-use value classification is assessed at its present-use value rather than its market value. Present-use value is usually much less than market value and qualifying tracts are assessed at this lower value. The tax office also establishes a market value for the land, and the difference between the market value and the present-use value is maintained in the tax assessment records as deferred taxes. When land becomes disqualified from the present-use value program, the deferred taxes for the current year and the three previous years with accrued interest will usually become due and payable.
Beginning with the 2010 tax year, a new program for the taxation of wildlife conservation land went into effect. There are provisions that allow for switching between the present-use value program and the wildlife conservation program.
When the wildlife conservation program is discussed in Chapter 16: Wildlife Conservation Program and in other locations in this guide, it must be emphasized that the present-use value program for agricultural, horticultural, and forest land is a separate program from the wildlife conservation program. When the term “present-use value program” is used in this guide, it is specifically referring to the present-use value program for agricultural land, horticultural land, and forestland, and not to the wildlife conservation program.
Following is a brief overview of the major points of the present-use value program. Subsequent chapters will discuss each of these areas in greater detail.
I. Three Classifications There are three separate categories of land that may qualify for present-use value classification: agricultural land, horticultural land, and forestland.
• Agricultural Land Agricultural land is land that is actively engaged in the commercial production or growing of crops, plants, or animals. Examples of agricultural products include soybeans, grains, tobacco, cotton, peanuts, corn, horses and cattle. This classification also includes aquaculture.
• Horticultural Land Horticultural land is land that is actively engaged in the commercial production or growing of fruits, vegetables, nursery products, or floral products. Examples of horticultural products include apples, peaches, strawberries, pecans, sod, shrubs, greenhouse plants, and evergreens intended for use as Christmas trees.
• Forestland Forestland is land that is actively engaged in the commercial growing of trees.
II. Four Tests There are four tests that agricultural and horticultural land must meet in order to qualify for present-use valuation. Forestland only has to meet three tests since the income test is not applied to forestland.
1. Ownership—All three classifications must meet the ownership requirements. Not all types of ownership qualify. The General Assembly has determined the types of ownership that may qualify, and are generally limited to ownership by individuals, certain trusts, and certain farming-related business entities.
2. Size—All three classifications must meet the size requirements.
Generally speaking, each qualifying farm unit must have at least one
Ch. 1 Introductiontract that meets the minimum size requirement for the classification being requested by the owner. Agricultural land requires at least one 10-acre tract in actual production. Horticultural land requires at least one 5-acre tract in actual production. Forestland requires at least one 20-acre tract in actual production. Smaller tracts may also be included with the qualifying tract under certain conditions.
Income—Only agricultural and horticultural classifications must meet the income requirement. Each agricultural and horticultural farm unit must have at least one tract that meets the minimum size requirements and that produced at least $1,000 average gross income over the three preceding years from the minimum acreage amount. The income generally must be from the sale of agricultural and horticultural products produced from the land. Forestland generally produces income only when timber is harvested, and many years may pass between required harvests. Therefore, it is not feasible to have a yearly income requirement for forestland.
3. Sound Management—All three classifications must meet the sound management requirements. Forestland must comply with a written sound management plan for the commercial production of timber.
Agricultural and horticultural classifications can meet the sound management requirement by fulfilling one of several possible options.
III. Exceptions and Miscellaneous Provisions The General Assembly has provided for several exceptions or additional provisions to the above requirements. Special provisions or exceptions may apply
• Evergreens intended for use as Christmas trees.
• Certain land enrolled in the Conservation Reserve Program.
• Certain conservation easements donated on qualifying PUV land.
• Exceptions for turkey disease.
• Annexation of present-use value land.
• Wildlife conservation land. (This is a separate program. See Chapter 16.
IV. Application for Present-Use Value Initial Applications—If a property is not currently in the present-use value program, an initial application must be timely filed during the regular listing period. The regular listing period is typically January 1 through January 31 of each year. The local board may approve certain untimely applications if good cause is shown for failure to file a timely application.
An initial application may also be filed within 30 days of a notice of change in value.
Applications for Continued Qualification After Transfer—If a property is currently in present-use value and meets the requirements for continued qualification of transferred property without removal from present-use value, the new owner must file a new application within 60 days of the date of transfer. The local board may approve certain untimely applications if good cause is shown for failure to file a timely application.
V. Billing of Deferred Taxes Due to Removalfrom Present-Use Value (Rollback)
When a property is removed from the present-use value program, either voluntarily or involuntarily, the deferred taxes for the year of disqualification (usually the current year) and the three previous years with accrued interest become immediately due and payable. Interest accrues on each year’s taxes as if they had been payable on the dates on which they had originally became due, and both the principal and interest are due and payable when the property is removed from the program.
There are a few limited exceptions where the deferred taxes are not due when a property is disqualified.
The term rollback is not used in the present-use value statutes, but it has become the commonly used term to describe the billing of deferred taxes due to removal from the present-use value program.
VI. Determining Present-Use Value Agricultural and horticultural present-use values are based on cash rents for agricultural and horticultural land respectively. A capitalization rate ranging from 6% to 7% is applied to the cash rents to determine the present-use value. The specific rate is established by the Use-Value Advisory Board (UVAB) and is currently set at 6.5%. The UVAB also annually establishes recommended presentuse value land rates for all three classifications.