If you live in Maine you know it is a state with massive amounts of undeveloped, forested, or otherwise wild space. Often this type of land has been held in a family for several generations. The property tax burden of sitting on open land can continue to grow as municipalities require more revenue. If the burden of continuing to hold undeveloped land gets excessive, landowners are encouraged to either develop the land or sell it to someone who will. Maine has a tax program that allows landowners to designate undeveloped land and receive a reduction in property taxes. While this program is not for everyone, it definitely can provide tax relief to people who wish to keep their land undeveloped.
There are three different current use designations that can be used to reduce one’s property tax bill, Open Space; Tree Growth, and finally, Farmland. The programs provide tax relief by providing for a reduction in the assessed value of the property. Each destination comes with its own requirements for classification. Further, landowners will face a penalty if he or she decides to remove the property from the program. Depending on several factors, such as time in the program, value of the land, or tax benefit given to the landowner, the penalties can be enormously expensive.
The Tree Growth designation requires ten acres of commercially forested land. Further, land held in Tree Growth needs to have a management plan prepared by a forester. The landowner is required to actually follow the management plan. The management plan needs to be renewed every 10 years and statements confirming that the plan has been developed and is being followed must be submitted to the town.
The penalty for removing land from the program is the greater of the tax savings for the last five years or percentage of the increase in value after removing the land from the program. This percentage starts at 30% and is reduced depending on how long the land is held in the program. For example, a piece of land available for development is worth $200,000. With the restrictions, it is worth $100,000. If the land is held in the program for 6 years, the penalty would be 30% of the increase in value when taking the land out of the program. This would result in a $30,000 penalty. If the land was held in the program for 20 years, the penalty would only be 20% of the difference or $20,000. Because of how the penalties are structured the program is best for landowners who intend to keep the land in the program for more than a decade, as opposed to a couple of years.
Unlike the Tree Growth designation, open space does not require a formal management plan prepared by a forester. Additionally, the Open Space designation does not have a minimum amount of acreage for land to be eligible. However, the land is required to be restricted in use to provide a public benefit. Statute defines public benefit a restriction that promotes benefits such as scenic resources, public recreation opportunities, game management, and wildlife and wildlife habitat. The tax benefit is generally dependent on the level of protections on the land. For example, if the land is protected by a Conservation Easement (more on these later), then the reduction in assessed value and resulting tax bill reduction will be greater.
The penalty for removing land from Open Space will be the same as the Tree Growth penalty discussed above.
As you may have guessed from the name, the Farmland designation is for land used for farm and agricultural purposes. The requirements include the following: the land must be a minimum of five acres in size; it must be used for agriculture/farming; and finally, the land must generate a minimum of $2,000 in farming income annually. The benefit of designation is the tax assessment of the property will not reflect any development value of the property.
The penalty for removing land in Farm land is the equivalent of the last five years of tax savings plus interest. For example, if you saved $2,000 a year for the last five years, the penalty would be $10,000.
In conclusion, if you are considering placing your property in one of these programs (or buying designated property) consult with an attorney who can advise you one what the designation means for you and what consequences can come down the road when you want to remove the property from the program. Designating land under any of these programs is not something you should do lightly without first knowing the consequences.
*Blog posts are meant to be brief introductions to legal issues. All posts are for educational purposes and are not a substitute for direct consultations with an attorney regarding your situation.