Present Use Value

 

Overview

Since 1973, agricultural land, horticultural land, and forestland have been specially assessed for the purpose of county property taxes.  N.C.G.S. § 105-277.4.  Property tax is a tax on real property, such as land or a home.  The property tax is assessed by multiplying the value of the property by the tax rate.  Land falling into these classes is qualified to be taxed at its “present use value” rather than its “highest and best use value” (i.e., the value of farmland is taxed for its value as a farm rather than its potential value as residential or commercial property).  N.C.G.S. § 105-277.4.  The practical effect of this is that the property is valued at a lower rate, and therefore the owner’s land is taxed at a lower rate.  Present use value assessment preserves farmland and other open space by allowing farmers to continue farming while property values rise due to urban growth.

In 2002, conservation easements became qualified for present use value assessment.  N.C.G.S. § 105-277.3(d1).  In 2007, “working waterfront” land became qualified, and land managed for wildlife habitat under a plan approved by the NC Wildlife Resources Commission became qualified in 2008.  N.C.G.S. §§  105-277.14105-277.15.

 

Applicable Law

Property Subject to Taxation - N.C.G.S. §§ 105-277.2 – 105-277.7

 

FAQs

What are the ownership requirements to receive present-use value assessment on agricultural/horticultural/farm land?

Property qualifying for present-use value must be “individually owned.”  N.C.G.S. § 105-277.3(a)(1).  The term “individually owned” includes all of the following types of ownership:

  • A natural person (i.e., a human being, not a business entity or a trust) – To qualify for present-use value, land owned by a natural person must be (1) the person’s place of residence; (2) owned by the current owner or a relative of the current owner for the four years immediately preceding the year for which present-use value assessment is sought; or (3) a distribution of qualified present-use value land from a trust or business entity to a member of such trust or business entity.  N.C.G.S. § 105-277.3(b).
  • A business entity – A business entity may qualify for present-use value if its principal business is agriculture, horticulture, or production of forest products, and all its members are natural persons who are either (1) actively engaged in the business of the entity; (2) a relative of a member who is actively engaged in the business of the entity; or (3) a devisee of a relative who met condition (1) or (2).  A business entity whose members are all relatives may meet requirements (1) and (2) by leasing the land to an operator who uses the land for agriculture, horticulture, or forest product production. N.C.G.S. §105-277.2(4)(b).

  • A trust – A trust may qualify for present use value if it was created by a natural person who transferred the land to the trust and each of whose beneficiaries who is currently entitled to receive income or principal meets the following conditions: (1) is the creator of the trust or the creator’s relative, or (2) is a second trust whose beneficiaries who are currently entitled to receive income or principal are all either the creator of the first trust or the creator’s relatives.  N.C.G.S. § 105-277.2(4)(c).

  • A testamentary trust – To qualify for present-use value, a testamentary trust must meet all of the following conditions: (1) was created by a natural person who transferred to the trust land that qualified in that person’s hands for present-use value; (2) at the time of the creator’s death, the creator had no relatives; or (3) the trust income, less reasonable administrative expenses, is used exclusively for educational, scientific, literary, cultural, charitable, or religious purposes.  N.C.G.S. § 105-277.2(4)(d).

  • Tenants in common – Tenants in common can qualify for present-use value if each tenant is either a natural person or a qualifying business entity.  N.C.G.S. § 105-277.2(4)(e).

Must my land be a minimum size in order to qualify for present-use value?

Yes.  There is a statutory minimum that is dependent on the land use:

 

May I receive present-use value assessment if my farm unit consists of multiple tracts that are smaller than the statutory minimum?

Acreages smaller than the statutory minimums may qualify for present-use value if they are in actual production and are part of the same farm unit as a tract that qualifies on its own. To be considered part of the same farm unit, tracts must be: (1) under the same ownership; (2) under the same classification; and (3) either within the same county or within 50 miles of each other.  N.C.G.S. § 105-277.2(7).

 

Must my land produce a minimum income to qualify for present use value?

Yes, if the land is in agricultural or horticultural use.  Each farm unit must contain at least one tract that has produced an average yearly gross income of $1,000.00 for the three years immediately preceding the calendar year of the application or audit.  N.C.G.S. §§ 105-277.3(a)(1) and (2).

In determining income, County Tax Assessors must consider only the value of production of agricultural or horticultural commodities produced on the land.  For example, if the landowner receives rent from a farm operator who is farming the land, such rental payments may not be considered income for present-use value qualification.  However, Conservation Reserve Program payments to the landowner and payments to the landowner from the federal tobacco quota buyout are considered income for the purpose of the minimum gross income requirement.  N.C.G.S. § 105-277.3(a)(1).

 

How must my land be managed to qualify for present use value?

For land to be eligible for present-use value assessment, the County Tax Assessor must find that the land is being operated under a program of sound management.  Agricultural or horticultural land is conclusively presumed to be under a program of sound management if the landowner can show any of the following:

  • Enrollment in and compliance with an agency-administered and agency-approved farm management plan;
  • Compliance with a set of best management practices;
  • Compliance with a minimum gross income per acre test;
  • Evidence of net income from the farm operation;
  • Evidence that farming is the farm operator’s principal source of income; or
  • Certification by a recognized agricultural or horticultural agency within the county that the land is operated under a sound management program.

N.C.G.S. § 105-277.3(f).  If you cannot show any of the six criteria above, the County Tax Assessor may also look at other similar criteria.  N.C.G.S. § 105-277.3(f).

For forest lands, you may show sound management only by an approved written management plan which includes the production and sale of forest products.  N.C.G.S. § 105-277.3(g).

 

My land qualifies for present-use value, but is not currently in present-use value.  How do I apply?

An initial application must be timely filed during the regular listing period (normally between January 1 through January 31 of each year), or within 30 days of a notice of change in value.  N.C.G.S. § 105-277.4(a).  The local board may approve untimely applications if good cause is shown for failure to file a timely application.  N.C.G.S. § 105-277.4(a)

Applications specific to the potential uses are available here.

 

I have recently acquired property currently in present-use value.  Will I continue to receive present-use value?

If you meet the requirements for continued qualification of transferred property without removal from present-use value (size, use, income, and management), you must file a new application within 60 days of the date of transfer.  N.C.G.S. § 105-277.4(a).  The application must still show that the property falls within one of the approved classes and any other information relevant to the tax assessor to properly appraise the property at present-use value.  N.C.G.S. § 105-277.4(a).

Applications specific to the potential uses are available here.

 

If I stop using land as agricultural/horticultural/forest land, will I owe back taxes?

Yes.  The present-use value of land in North Carolina is generally much less than its fair market value.  The property tax on the difference between fair market value and present-use value is deferred until such time as the land no longer qualifies for present-use value assessment.  The deferred taxes constitute a lien on the land.  N.C.G.S. § 105-277.4(c).

As soon as the present-use value land is no longer eligible for the program, the deferred taxes for the current tax year and the three preceding tax years become due and payable with interest.  Interest accrues as if the taxes had become payable on the dates on which they originally became due. N.C.G.S. § 105-277.4(c).  If the land loses its present-use value status because  you are selling it to someone who will use it for a different use, i.e., a developer, the issue of who pays this “rollback” tax can be negotiated in a real estate closing, but the grantor (you, in this case) is ultimately responsible for its payment.

 

Are there any exceptions from the rollback tax when conveying present-use value land?

Yes.  The following conveyances do not trigger the rollback tax:

  • Transfers to a qualifying business entity created by the current natural person owner.
  • Transfers to another farmer who agrees to maintain the current use and accept responsibility for the rollback tax.  For this kind of transfer to qualify, all of the following conditions must be met:
    • The land was appraised at its present-use value at the time title to the land passed to the new owner.
    • The new owner will continue to use the land for the purposes it was classified for appraisal at its present-use value under the previous ownership.
    • The land will continue to meet all the applicable size requirements.  If the new owner does not own any other land in present-use value, the land must be able to meet the size requirements for an initial qualifying tract.  If the new owner already has a qualifying tract of the same classification in use value, the transferred land may be less than the minimum initial required acreage if the land can properly be considered an additional tract of the existing farm unit.
    • The new owner must file an application for present-use value within 60 days of the date of transfer.
    • The new owner certifies that he will accept responsibility for the deferred taxes.  If the new owner farms the tract for at least three years, the assumption of liability for the existing deferred taxes will not increase his deferred tax liability if he should subsequently sell the tract. 

N.C.G.S. § 105-277.3(b2)(1).

(3)    Transfers by gift to a nonprofit organization for a use that qualifies for exclusion from the tax base pursuant to N.C.G.S. § 105-275(12) or N.C.G.S. § 105-275(29)N.C.G.S. § 105-277.4(d)(2).  These uses include:

a.     Real property owned by a nonprofit corporation or association exclusively held and used by its owner for educational and scientific purposes as a protected natural area (a nature reserve or park in which all types of wild nature, flora and fauna, and biotic communities are preserved for observation and study).  N.C.G.S. § 105-275(12).

b.     Real property and easements wholly and exclusively held and used for nonprofit historic preservation purposes by a nonprofit historical association or institution.  N.C.G.S. § 105-275(29)

(4)    Transfers of land that are subject to a qualifying conservation easement.  If property is appraised at its present-use value at the time it becomes subject to a conservation easement that qualifies for the state’s Conservation Tax Credit, it will continue to qualify as long as the easement is in place and the landowner continues to comply with the terms of the easement.  Such land no longer has to meet any income or management requirements.  N.C.G.S. § 105-277.3(d1).

 

When I am acquiring current present-use value land, can the land immediately qualify for present-use value for me?

Normally when present-use value land is conveyed, the new owner will have to wait four years before the land may again qualify for present-use value.  However, in exceptions 1, 2, and 4 in the previous question, the land will still qualify for present-use value without interruption.

Additionally, if a new owner of land in the present-use value program already owns other land that is in present-use value, the new tract will qualify for present-use value assessment immediately if the circumstances are as follows:

  • At the time of transfer, the land being transferred was being used for the same purpose as the land owned by the new owner that is already in present-use value.

Note that the term “same purpose” is unclear – some tax assessors will require that the land continue to produce the same commodity or type of commodity; others will allow the land to stay in present-use value as long as it continues its current classification (i.e. agricultural, horticultural, or forest land).

  • At the time of transfer, the land being transferred was eligible for present-use value with regard to production and sound management requirements.
  • The new owner timely files a new application during the next listing period.  Since properties attempting to qualify under this exception were either not in present-use value at the time of transfer or were removed from present-use value due to the transfer, the property will need to qualify under an initial application.  N.C.G.S. § 105-277.3(b2)(2).

There is also an exception if the grantor is a natural person and the present-use value land is transferred to a relative (a spouse, a lineal descendant of the landowner or spouse, a sibling of the landowner or spouse, or their lineal descendant or an aunt or uncle).  N.C.G.S. § 105-277.2(5a).

 

Can I continue to receive present-use value if I convert my land to another qualifying use?

There are no provisions in the present-value statutes, so it largely depends on your County Tax Assessor.  However, the following analysis is derived from the guidelines provided to County Tax Assessors by the North Carolina Department of Revenue:

 

Conversion from Agriculture or Horticulture to Forestry

A qualifying agricultural or horticultural tract that is being converted to forestry will most likely be allowed to continue in present-use value, as long as the tract contains at least 20 acres in forest product production.  The conversion should be done quickly (no longer than one agricultural or horticultural growing season), or else the land will be out of production and will not receive present-use value if lying unused.

Once the conversion is completed, you should file an updated application during the next regular listing period, along with a sound management plan for the commercial production of timber.  Page 58, Present-Use Value Program Guide, North Carolina Department of Revenue, Property Tax Division, David Baker, Director, First Edition, April 2, 2007.

 

Conversion from Horticulture to Agriculture

As long as the horticultural tract has at least 10 acres in production, conversion from agricultural to horticultural production will likely always qualify for present-use value.  The horticultural tract was already meeting the income requirement and therefore was in production for at least the previous three years, and the new agricultural crops will immediately begin producing income, so this will meet the income requirement.  Again, the conversion must be done quickly (no longer than one agricultural or horticultural growing season) to ensure that the land will not be out of production.

Once the conversion is completed, you should file an updated application during the next regular listing period.  Page 58, Present-Use Value Program Guide, North Carolina Department of Revenue, Property Tax Division, David Baker, Director, First Edition, April 2, 2007.

 

Conversion from Agriculture to Horticulture (Annual Crops)

Conversion from agricultural use to annual horticultural use will likely always qualify for present-use value if the agricultural tract contains at least five acres in production.  The agricultural tract was already satisfying the income requirement and therefore was in production for at least the previous three years.  The new annual horticultural crops will immediately begin producing income, thus meeting the income requirement.  The size requirement should also be met, as the minimum agricultural size requirement is ten acres and the minimum horticultural size requirement is five acres.

Again, the conversion must be done quickly (no longer than one agricultural or horticultural growing season) to ensure that the land will not be out of production.

Once the conversion is completed, you should file an updated application during the next regular listing period.  Pages 58-59, Present-Use Value Program Guide, North Carolina Department of Revenue, Property Tax Division, David Baker, Director, First Edition, April 2, 2007.

 

Conversion from Agriculture to Horticulture (Perennial Crops)

Conversion from agricultural use to perennial horticultural use (orchards, vineyards, etc.) probably will not qualify for present-use value.  The agricultural tract was satisfying the income requirement, but the new perennial horticultural crops will not begin producing income for a number of years and will therefore fail to meet the income requirement.  Page 59, Present-Use Value Program Guide, North Carolina Department of Revenue, Property Tax Division, David Baker, Director, First Edition, April 2, 2007.

 

Conversion from Forestry to Agriculture or Horticulture

Conversion from forestry to agricultural or horticultural use is the most difficult conversion in which to retain present-use value.  If the land is immediately cleared and then planted in annual crops, the land will immediately begin producing income.  There was no income requirement when the land was used for forestry, but there is an income requirement for agriculture or horticulture.  Technically, upon conversion, the tract will not be able to show that it has produced an average gross income of $1,000.00 for the previous three years, but the tract will immediately be able to show income.

If the conversion does not take longer than one agricultural or horticultural growing season, the assessor may consider allowing the property to continue its present use value.  The tract does not meet the technical income requirements but may come close to meeting the overall intention of the present-use value statutes.  It will essentially be up to the assessor’s discretion whether to adhere to the technically correct interpretation or to take a position that may or may not be more in line with the presumed intent of the present-use value statutes.  Page 60, Present-Use Value Program Guide, North Carolina Department of Revenue, Property Tax Division, David Baker, Director, First Edition, April 2, 2007.

 

What are the reporting requirements for a change in use?

The owner of any land receiving present-use value has the responsibility and duty to notify the tax assessor of any change that could disqualify all or part of that land from receiving present-use value.  Notice to the assessor must include complete information regarding the change, and notice must be given before the close of the listing period following the change in use.  Any property owner who does not notify the assessor of the potentially disqualifying changes will be subject to a penalty of ten percent (10%) of the total amount of the deferred taxes and interest thereon for each listing period for which the failure to report continues.  Page 133, Present-Use Value Program Guide, North Carolina Department of Revenue, Property Tax Division, David Baker, Director, First Edition, April 2, 2007.

 

What are the ownership requirements to receive present-use value assessment on wildlife habitat?

Beginning in tax year 2011, some lands managed for wildlife conservation may receive present-use value tax status.  S.L. 2008-171, eff. July 2010.

The land must be owned by a natural person, a family business entity, or a family trust.  Land owned by a business entity is not eligible for this present-value classification if the business entity is a corporation whose shares are publicly traded or one of its members is a corporation whose shares are publicly traded. 

The land must also have been owned by the same owner for the previous five years, except as follows:

  • If the land is owned by a family business entity, the land meets the ownership requirement if the land was owned by one or more members of the family business entity for the required time.
  • If the land is owned by a family trust, the land meets the ownership requirement if the land was owned by one or more beneficiaries of the family trust for the required time.
  • If an owner acquires land that was classified as wildlife conservation land when it was acquired and the owner continues to use the land as wildlife conservation land, then the land meets the ownership requirement if the new owner files an application and signs the wildlife habitat conservation agreement in effect for the property within 60 days after acquiring the property.

S.L. 2008-171, eff. July 2010.

 

What are the size and use requirements to receive present-use value assessment on wildlife habitat?

The minimum size requirement for wildlife habitat conservation land is 20 contiguous acres.  Unlike other types of present-use value land, wildlife habitat will have a maximum size of 100 acres per owner, per county.  S.L. 2008-171, eff. July 2010.

The land must be managed under a written wildlife habitat conservation agreement with the North Carolina Wildlife Resources Commission that is in effect as of January 1 of the year for which the benefit of present-use value is claimed and that requires the owner to do one or more of the following:             

  • Protect an animal species that lives on the land and, as of January 1 of the year for which the benefit of present-use value is claimed, is on a North Carolina protected animals list published by the Commission under N.C.G.S. § 113-333.
  • Conserve any of the following priority animal wildlife habitats: longleaf pine forest, early successional habitat, small wetland community, stream and riparian zone, rock outcrop, or bat cave.
  • One of the following:
    • The agreement must have been classified under N.C.G.S. § 105-277.3 when the wildlife habitat conservation agreement was signed, or
    • The owner must demonstrate to both the Wildlife Resources Commission and the assessor that the owner used the land for a purpose specified in the signed wildlife habitat conservation agreement for three years preceding January 1 of the year for which the benefit of present-use value is claimed.

 

Can I continue to receive present-use value if I convert my land from wildlife habitat conservation land to another qualifying use?

Land qualifying for present-use value as wildlife habitat which was previously qualified as agricultural, horticultural, or forest land may revert back to its original classification without penalty.  However, land that qualified originally as wildlife habitat will be assessed the rollback tax and will have to sit out of the program for four years if the owner wishes to change the use to agriculture, horticulture, or forest production.  S.L. 2008-171, eff. July 2010.

 

 

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