Land-Use Value Taxation: Option 2 “White Paper”

 

At its work session on May 14, 2008, the Board of Supervisors discussed the land-use value taxation program.  At the conclusion of the discussion, the Board asked that staff review “Option 2,” as described in a prior Executive Summary dated September 5, 2001 (http://www.albemarle.org/upload/images/Forms_Center/Departments/Board_of_Supervisors/Forms/Agenda/20030514/LandUseAttachA.htm), and report back to the Board with additional information.  As described in the prior Executive Summary, Option 2 would allow “Use Value Taxation for Open Space Classification Only.”  This memo is to provide further background information on land use value taxation generally and Option 2 specifically.

 

Land-Use Value Taxation Requirements Overall

 

The requirements for land-use value taxation are summarized on the attached Land Use Taxation Reference Chart (Attachment A).

 

Title 58.1, Chapter 32, Article 4 of the Code of Virginia enables localities to make special assessments for land preservation.  Specially, Virginia Code § 58.1-3230 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+58.1-3230) establishes and defines four special classifications for real estate devoted to:

  1. agricultural use – which must meet uniform standards prescribed by the Commissioner of Agriculture and Consumer Services
  2. horticultural use – which must also meet uniform standards prescribed by the Commissioner of Agriculture and Consumer Services
  3. forest use – which must meet standards prescribed by the State Forester
  4. open-space use – which must meet uniform standards prescribed by the Director of the Department of Conservation and Recreation

 

Under Virginia Code § 58.1-3231 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+58.1-3231), localities may adopt an ordinance to provide for the use value assessment and taxation of any or all of these four classes of real estate.  By local ordinance adopted August 23, 1973, Albemarle County elected to allow use value taxation for all four classes. (Albemarle County Code § 15-800)  Regardless of whether or not such a local ordinance had been adopted, land used in agricultural and forestal production within an agricultural and/or forestal district shall be eligible for the use value assessment.  Therefore, regardless of what other changes may be made to land use taxation, at a minimum, land within AFDs will remain eligible for the use value assessment, provided it continues to be used in agricultural or forestal production.

 

Virginia Code § 58.1-3233 (http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+58.1-3233) imposes additional requirements (most notably minimum acreage requirements) on property to be eligible for use value taxation:

 

Virginia Code § 58.1-3233(3) imposes additional requirements applicable only to open-space properties.  To be eligible, those properties must be either:

  1. within an agricultural and/or forestal district (discussed below), or
  2. subject to a recorded perpetual easement held by a public body (such as an easement under the Open-Space Land Act, Virginia Code § 10.1-1700 et seq.), or
  3. subject to a recorded commitment with the local governing body not to change the use to a nonqualifying use for period of four to ten years.  Such an agreement must conform substantially to the form of agreement found in 4 Virginia Administrative Code 5-20-30 (Attachment B, and available online at http://leg1.state.va.us/cgi-bin/legp504.exe?000+reg+4VAC5-20-30).

 

Land-Use Value Taxation - Option 2

 

If the Board chooses to adopt Option 2, property owners could continue to qualify for use value taxation through any of these three means.

 

Under the current use value program, the imposition of roll-back taxes provides incentive for owners to maintain their current use and remain in the program.  Specifically, Virginia Code § 58.1-3237 imposes roll-back taxes equal to the full value of the current and previous five years of real property taxes plus simple interest if (1) the use changes to a non-qualifying use or (2) the zoning is changed to a more intensive use at the request of the owner or agent.  Only these two events can trigger the imposition of roll-back taxes.  Those properties that may no longer be eligible for the use value program under Option 2 will not incur roll-back taxes unless the use or zoning changes.

 

Agricultural/Forestal Districts

 

            Title 15.2, Chapters 43 and 44 of the Code of Virginia enable localities to create Agricultural/Forestal Districts.  Albemarle County has exercised this authority in Chapter 3 of the Albemarle County Code.  These districts require a core of at least 25 acres (for a district of local significance) or 200 acres (for a district of statewide significance).  The County currently has 23 districts of statewide significance and one district of local significance.  Property owners formally apply to the Board to either create a new district or join an existing district.  Applications are reviewed by a special AFD committee and the Planning Commission before being acted upon by the Board of Supervisors.  In reviewing applicant properties, the County may follow the Virginia Land Evaluation and Site Assessment (LESA) System, or may adopt a local system, and/or may consider “[a]ny other matter which may be relevant.”  See Virginia Code § 15.2-4306.  In other words, the County has wide discretion in adopting criteria for its own AFDs.  Once a district is established, properties in the district are restricted from more intensive use for a period of four to ten years by ordinance.  Districts are formally reviewed periodically by the Board at a time outlined in the ordinance.  Owners may remove their properties from a district only under very limited circumstances.  Specifically, land may be withdrawn from an AFD at the time of the renewal of the district, upon the death of a property owner, or upon a finding of “good and reasonable cause” after a public hearing.  Albemarle County Code § 3-205(C) outlines four specific criteria to be considered by the AFD Advisory Committee, the Planning Commission, and finally the Board of Supervisors in their respective reviews.  All four criteria must be met in order for the land to be withdrawn.

 

The effect of inclusion in a District is to qualify otherwise eligible properties for use value taxation.  See Virginia Code § 15.2-4312(A) and § 15.2-4406(3).  It is important to note that an AFD property must otherwise meet the use value requirements (including acreage) to receive a use value assessment.

 

            If Option 2 were implemented, land in AFDs used in agricultural production would remain in land use under agricultural land use values.  Likewise, land in AFDs used in forestal production would remain in land use under forestry land use values, and land qualifying as open space would remain in land use under open space values, which are identical to agricultural, horticultural, or forest use values, as the case dictates.

 

SLEAC Values

 

            When a property is determined eligible for use value taxation, it is assessed at a lower value determined by the State Land Evaluation and Advisory Council (SLEAC) guidelines.  In Albemarle County, these values vary significantly between uses and from year to year. (See Attachment C)  Most notably, the type of forestal land most common in Albemarle County is valued between $200-$455 per acre, while the most common agricultural land in the County is valued between $90-$120 per acre.  Open space properties receive the same SLEAC values as land in agricultural, horticultural, or forest use, as the case dictates, regardless of whether any production occurs on the open space properties.  A County of Albemarle Use Value Taxation Summary shows the acreages and values of property in land use in 2007 (Attachment C).

 

            In localities without a use value program, properties under an open-space or conservation easement do not necessarily receive the lower SLEAC valuations.  Instead, such properties would be valued at fair market value, taking into account the easement restrictions on the property.  While such an assessment would presumably result in a lower value than without an easement, fair market value (even with an easement) may be significantly higher than the SLEAC values.  This difference in values again highlights the significance of a use value program, even for properties with protective easements. See Virginia Code § 10.1-1011 at http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+10.1-1011.

 

            However, as long as Albemarle continues to have a use value program (as it would under Option 2), properties under an open space easement would continue to be “assessed” under the lower SLEAC values for which the land qualified, whether that be agricultural, forestry, or open space value.  Likewise, as long as the County has AFDs, land within AFDs would remain eligible for the use value assessment, provided it continued to be used in agricultural or forestal production, and otherwise met the criteria for use value taxation.  In short, under Option 2, land in any of the three alternatives listed in Virginia Code § 58.1-3233(3) (AFD, perpetual easement, recorded commitment) would remain eligible for the lower SLEAC valuations.

 

Available Alternatives for Qualification

 

If the County implements Option #2, and retains land-use taxation only for open-space use, many current agricultural, horticultural, and forestal owners not in AFDs may seek to form or enter AFDs and qualify that way.  Owners choosing not to enter an AFD could instead enter a recorded perpetual easement held by a public body.  Owners not opting for either an AFD or a perpetual easement could instead request to enter a recorded commitment not to change the use for period of four to ten years.

 

Both AFDs and recorded commitments (a) have 4-10 year durations and (b) restrict early withdrawal.  However, as between the two, recorded commitments are more restrictive in their specific requirements.  While AFDs generally prohibit development to more intensive use, the required form of recorded commitments contains several pages of specific use restrictions.  For example, under Albemarle County Code § 3-202, AFD property owners are specifically allowed to subdivide their properties into 21-acre lots or family subdivisions, and to otherwise “develop” their property if the use is allowed by-right under rural areas (RA) zoning.  By contrast, the required form of recorded commitments prohibits any subdivision (Paragraph 2.K) or the construction of any new structure not related to open-space use (Paragraph 2.C).  (See Attachment B for the required form of recorded commitments.)  In these respects, recorded commitments are more restrictive than AFDs and more restrictive even than the County’s open-space (ACE) easements.

 

Because owners may remain in land use through either AFDs, perpetual easements, or recorded commitments, the number of properties that would be removed from land use is difficult to predict.  However, properties in designated development areas would no longer qualify for land use taxation under Option 2.

 

Implementation

 

At least two steps must be taken to implement Option 2:

1.      The County Code would have to be amended to eliminate the agricultural, horticultural, and forestal categories, leaving only open space as a qualifying category outside of agricultural and/or forestal districts.

2.      A timeline should be established for properties to qualify under the open space options, either in an AFD, or under a perpetual easement, or recorded commitment, to avoid properties being removed from land use taxation before having an opportunity to qualify under Option 2.

 

 

 

ATTACHMENTS

A-a – Land Use Taxation Reference Chart

A-b – Virginia Administrative Code 5-20-30 (Agreement Form)

A-c – SLEAC Values Summary

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