Present-use Value Program for Forestland
In North Carolina, the three main elements of the property tax system are real property, personal property, and motor vehicles. Real property consists of land and buildings. Personal property consists of tangible personal property or all personal property that is not intangible and is not permanently affixed to real property. Motor vehicles, if registered, are assessed according to its registration renewal date.
Generally speaking, all property is valued and taxed at its market value. Standing timber, pulpwood, seedlings, saplings, and other forest growth is classified as a special class of property under the authority of the North Carolina Constitution and, as such, is excluded from taxation (Sec. 105-275(15), G.S.). The purpose of this classification is to encourage proper forest management practices and to develop and maintain North Carolina's forest resources.
Effective January 1, 1974, the North Carolina General Assembly enacted the Present-Use Value Program which allows certain agricultural land, horticultural land, and forestland to be assessed at a value consistent with its present use rather than its higher market value. House Bill 1889 was ratified by the N.C. General Assembly on July 16, 2008 and signed into law on August 4, 2008. This legislation amended several portions of Chapter 105 of the N.C. General Statutes and designated "wildlife conservation land" as a special class of property that must be assessed at a reduced value. G.S. 105-277.15 specifies that land designated as "wildlife conservation land" must be assessed for taxation as if it were classified as agricultural land under G.S. 105-277.3.
The present use program is voluntary and was created to keep "the family farm in the hands of the farming family." For forestland, "Present-use value" is the value of land at its current use as forestland, based solely on its ability to produce income, using a rate of 9% to capitalize the expected net income of the property and assuming an average level of management.
Under the present-use value program, "forestland" is defined as land that is a part of a forest unit that is actively engaged in the commercial growing of trees under a sound management program. A forest unit may consist of more than one tract of forestland, but at least one of the tracts must be at least 20 acres in size, be in actual production and must not be included in a farm unit. The remaining tracts can be less than 20 acres in size, but each tract must be in actual production and under a sound management program. Forestland includes wasteland that is a part of the forest unit, but the wasteland included in the unit must be appraised under the use value schedules as wasteland. (Sec. 105-277.3, G.S.; Sec. 105-277.4, G.S)
To qualify for forestland classification, property owned by natural persons must meet one of the following requirements:
- The property must be the owner's place of residence.
- The property must have 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 this section is claimed.
- At the time of transfer to the current owner, it qualified for classification in the hands of a business entity or trust that transferred the land to the current owner who was a member of the business entity or a beneficiary of the trust, as appropriate.
- The land must, if owned by a business entity or trust, have been owned by the business entity or trust or by one or more of its members or creators, respectively, for the four years immediately preceding January 1 of the year for which the benefit of this section is claimed.
Land owned by general or limited partnerships, limited liability companies, or corporations will be assessed at its present-use value if the entity's principal business is forestry, and all the members of the entity are either individuals actively engaged in that business, or are relatives of individuals who are actively engaged in that business.
Effective for North Carolina property taxes imposed for taxable years beginning after June 2004, agricultural land, horticultural land, and forestland owned by a business entity may retain its present-use value status when the land is leased to a nonmember provided all members of the business entity are relatives. (Sec. 105-277.2(4)(b), G.S.)
Land owned by trusts will be assessed at its present-use value if:
- the trust was created by an individual;
- the land qualified for present-use valuation in the hands of that individual; and
- all of the current beneficiaries are either the trust's creator or relatives of the trust's creator, or a second trust whose current beneficiaries are the trust's creator or relatives of the trust's creator.
In addition, land owned by testamentary trusts will qualify for present-use valuation if the trust was created by an individual, the land qualified for present-use valuation in the hands of that individual, the creator of the trust had no relatives at the time of death, and the trust income is used for educational, scientific, literary, cultural, charitable, or religious purposes.
Land enrolled in the federal Conservation Reserve Program shall be assessed as agricultural land if it is planted in vegetation other than trees, or as forestland if it is planted in trees.
Valuation and Assessment:
North Carolina has 6 Major Land Resource Areas (MLRA's) designated by the United States Soil Conservation Service. Each MLRA is characterized by particular patterns of soils, relief climate, water resource, and land use. It is from these MLRA's that the bases for net income schedules are derived. Each schedule contains 5 net income ranges listed by decreasing income levels. A 100% assessment is applied to these values. Soil productivity and indicator tree species or stand type, the average stand establishment and annual management costs, the average rotation length and timber yield, and the average timber stumpage prices are considered in calculating the net income schedules.
To obtain present-use valuation, an application must be filed with the assessor of the county in which the property is located during the regular listing period of the year for which the benefit of this classification is first claimed or within 30 days of the date shown on a notice of a change in valuation A new application does not have to be submitted unless the property is transferred or becomes ineligible for present-use-value appraisal because of a change in use or acreage.
Change in Use:
The tax office maintains a record of the market value for forestlands enrolled in the present-use program. The difference between the tax based on a present-use valuation and the amount that would otherwise be due, together with any accrued interest, penalties or costs, is carried as a lien on the property as deferred tax. When the property, or any part of it, no longer qualifies for forestland classification, the applicable deferred taxes for the preceding three fiscal years, plus interest, are payable immediately.
For the complete text of the North Carolina General Statutes please refer to the North Carolina General Assembly statutes.
Additional information regarding North Carolina's property taxes are available from the North Carolina Department of Revenue. Included in their publications section is the Present-Use Value Program Guide which explains the present-use program in detail and provides many useful examples to illustrate common present-use value scenarios. Also available is the property tax Use-Value Manual for Agricultural, Horticultural and Forestland which is published yearly to Use-Value Advisory Board present-use value rates and to explain the methodology used in establishing the recommended rates.
North Carolina Cooperative Extension offers several publications that deal with tax issues including an excellent publication on North Carolina's Forestry Present-Use Property Tax Program.
The National Timber Tax Website can provide you with an in depth discussion of North Carolina's property taxes as well as in depth discussion of federal timber tax matters.