The Clean and Green program has been around for a long time now- since 1974 to be exact. It has been amended a few times to make the program uniform across the state and to allow for recreational leasing of enrolled land, but for the last ten years, the program hasn’t changed. However, sometimes landowners with enrolled land make mistakes when making a transfer, or grantees cause themselves trouble after receiving enrolled lands. Generally, these mistakes can be avoided, but due to the complexity of Clean and Green, often mistakes happen because certain provisions of the program are taken for granted or forgotten. This post hopefully will serve as a refresher on the main transfer and use restrictions of Clean and Green. Additionally, it will explain costly real world scenarios that can be avoided when transferring or receiving enrolled land.
What is the Purpose of Clean and Green?
The purpose of Clean and Green is to provide owners of agricultural, agricultural reserve, or forest reserve land preferential assessment of their land, or put more simply, a tax break. Land owners must apply for preferential assessment with their county tax assessors. If approved, the land receives an assessment based on its “use value,” which is generally less than its market value. If land becomes ineligible after it is enrolled, the owner is assessed a rollback tax.
What is the Rollback Tax?
A rollback tax uses the “fair market value” of the enrolled lands looking back over the preceding seven years. The fair market value is determined based on the county’s assessment of what the value of the land is without preferential assessment. The county will determine what the taxes would have been for those seven years had the land been taxed based on the fair market value. The sum of the taxes owed plus interest, less the amount of taxes actually paid, will equal the rollback tax.
The rollback tax is only assessed when there is a use violation, not when there is a transfer. As long as transferred parcels maintain the eligibility requirements of either agricultural use, agricultural reserve, or forest reserve, no rollback tax will be assessed. Additionally, rollback taxes are assessed against the current owner of the land when the use becomes ineligible, which may not be the owner that enrolled the land.
Eligibility and Land Transfers
Eligibility requirements include meeting the definition of either agricultural use, agricultural reserve, or forest reserve land, which is relatively straightforward under the statute. Complications arise when the use of the land changes. Obviously, taking the parcel out of its eligible use will obligate the owner to pay rollback taxes. However, the same obligation can occur if the land is “separated,” meaning a tract of ten acres or more is conveyed and taken out of its eligible use, causing the parcel to be ineligible. The new owner of the ineligible tract is required to pay the taxes equal to the entire assessment value of the original parent parcel. If the tract maintained its eligible use for seven years after the conveyance and then became ineligible, rollback taxes would be owed only for the tract that was purchased.
Eligibility can also be affected by a “split-off,” which occurs when the land owner of enrolled lands subdivides by conveyance or other action a less-than two acre parcel from the enrolled land. (Though sometimes the parcel can be greater than two acres if extenuating circumstance exist.) This parcel is generally used for the purpose of building a residential dwelling to be occupied by the new owner. Split-offs cannot, in the aggregate, exceed the lesser of ten acres or ten percent of the entire tract, and can only occur once annually, meaning the owner of the enrolled lands cannot divide-off more than two acres per year. Done correctly, the new parcel will only be assessed rollback taxes for the portion that was split off. Often, mistakes with split-offs occur when the land owner dies and leaves multiple two acre tracts to his or her beneficiaries for the purpose of constructing homes, causing more than one split-off to occur at a time. This is an important consideration when drafting a will or other estate planning tool. If split-off incorrectly, the new parcels and the original parcel will be assessed rollback taxes for the entire original parcel.
Another common scenario is when separate but contiguous tracts are owned by one land owner, and then conveyed by one deed. If there are ineligible tracts and enrolled tracts conveyed on the same deed, the ineligible tracts may make the entire parcel ineligible and rollback taxes will be assessed.
Miscellaneous Tips for When You are Transferring Enrolled Lands
The county assessment board prefers to have a 30 day notice signed by all grantors when a separation or split-off occurs. Additionally, you can request an estimate on rollback taxes for a parcel from the county. When there is a termination of enrollment, all affected landowners must sign the termination notice to the county.
It should be noted that buildings for personal residence and farm-related operations may be constructed on enrolled lands. However, the valuation will be different for the building acreage than the rest of the enrolled land.
Ways We Can Help
Have an attorney who is very familiar with the ins and outs of Clean and Green review purchase agreements and estate plans to help you save time and potentially great amounts of money in the long run. Contact our experienced Real Estate Group if you have any questions or concerns related to Clean and Green, tax assessment, or farm and forest conveyances.