Saving Money With North Carolina's Forestry Present-Use Property Tax Program
For landowners with managed woodland that meets specific requirements, The North Carolina Forestry Present-Use Value Program (NCFPUVP) can result in a substantial property tax bill reduction. In the program, woodland acreage is taxed at its agricultural value for growing trees rather than market value.
Common Misconceptions about the North Carolina Forestry Present-Use Value Program
Unfortunately, many landowners have misconceptions about the program—who writes the forest management plan, what constitutes forest management, etc. So, before I get into an overview of the program, lets clear up some of these mistaken beliefs.
Only the North Carolina Forest Service can write the plan. False. This untrue notion is the most prevalent belief I encounter. Some very poor advice can be found (from an environmental, feasibility, and financial standpoint) in these boilerplate government plans (contact me if you’d like examples). A private registered forester* can prepare a forest management plan that is sound, both environmentally and financially, that fits with your long-term objectives for your land. Additionally, you can write your plan if you have the requisite knowledge and technical skill.
*In North Carolina, the label “forester” or “registered forester” can only legally be used by those individuals who’ve met educational, experience, and knowledge requirements sufficient to be licensed by the State Board of Registration for Foresters.
Just before writing this post, I checked the the NC Forest Service’s website. In the counties within my work area, not one of the “rangers” was a forester.
To see if your county ranger is a registered forester, check the roster of North Carolina registered foresters here. More on North Carolina’s legal definition of a “forester” and “consulting forester” here.
You must clearcut your timber when harvesting. False. Other options are available for regenerating a forest. Of the NC Forest Service plans I’ve reviewed, almost all prescribe clearcutting, followed by reforesting with loblolly pine. I think the pervasiveness of this management prescription has led to many landowners believing this common misconception. Learn about clearcut alternatives here.
After the harvest, you must plant pines. False. Almost every native forest you’ve ever seen has been harvested at some point and was regenerated naturally, without mechanical site preparation, herbicides, and genetically improved loblolly pines. If site conditions are suitable, I encourage landowners to consider natural regeneration on at least a portion of their land if it fits with their overall forest management goals. You wouldn’t put all your retirement in one stock, so don’t convert your forest to one species. Just like with investments, diversification will reduce your level of risk (disease, timber market swings, etc.)
The government tells you when to harvest your trees. Maybe. Each plan has a harvest scheduling timeline. If you hire the government to write your plan, they’ll set the scheduling. Failure to comply within a reasonable window of time will result in your expulsion from the program, followed with a substantial back-tax bill with interest penalties. If you work with a private forestry consultant, you’ll have input into your management plan and can build in scheduling flexibility. There is no one way to write your plan—each tract of land and ownership goals are unique.
It is a forest preservation program. False. The NCFPUVP is for woodland actively managed for the production of commercial forest products. You are required to produce timber income (this means harvesting trees) at some point. Creative planning and scheduling can help protect sensitive and unique areas from the saw blade.
The Basic Requirements of the North Carolina Forestry Present-Use Value Program
Property Ownership Types
Tenants in common
Businesses.** An entity (Corporations, LLCs, etc.) whose principal activity is the commercial production of timber products.
**Make sure when forming your business, the Articles of Incorporation/Organization clearly state that the primary purpose of the company is forestry and the management of forestland for commercial timber production. I recommend consulting an attorney to ensure your business or trust establishment documents include the necessary language to meet the requirements for entry into the program.
The landowner resides on the property
Properties other than a residence must have been owned by the present owner for at least four full years to qualify.
If a buyer is purchasing land that is already in the NCFPUVP, the new owner may continue that use. The new owner must apply for present-use within 60 days of closing. I recommend that buyers let the assessor’s office know ahead of closing their intention of continuing the use and have
A property must have 20 acres of wooded land in timber production. This initial tract is the “parent tract.” Once your parent tract is qualified, smaller tracts may be placed in the program as long as they have the same ownership, are soundly managed, within the same county, and are located within 50 miles of the parent tract.
Unlike most other agricultural present-use tax programs, the NCFPUVP doesn’t require yearly income. Still, at some point, you will have to show management activity and timber sale revenue.
The North Carolina Department of Revenue Present-Use Value Program Guide defines sound management as “a program of production designed to obtain the greatest net return from the land consistent with its conservation and long-term improvement.” The guide goes on to say that “if the owner of forestland demonstrates that the forestland complies with a written sound forest management plan for the commercial production and sale of forest products, then the forestland is operated under a sound management plan.” The guide says nothing about the NC Forest Service writing your plan, required clearcutting, or planting pines after the harvest.
Required Key Elements of a Sound Forest Management Plan
Management and Landowner Objectives Statement
Location and Stand Type Maps.
Forest Stand(s) Description/Inventory and Management Recommendations. Each stand description should include acreage, species, diameter, basal area, heights, condition, topography, soils, and productivity information.
Management recommendations for each stand and a timeline for implementation
Harvest type (clearcut, seed tree harvest, etc.) and date
Regeneration objectives and methods. Specify natural or planted and the steps to be taken to establish adequate stocking of the new stand.
Note: Plan objectives and management recommendations can be changed to reflect forest changes, market conditions, and landowner needs. Any modifications to the plan should be documented and sent to the county assessor’s office.
Application and Compliance
Steps for Applying for Forestry Present-Use
Have a forest management plan prepared
During the normal listing period (January 1 through 31), Form AV-5 must be submitted, along with your forest management plan, to your county assessors office. See a sample of AV-5 here.
If you miss the normal listing period, contact the assessor’s office to see if they’ll allow a late filing.
Note: As previously mentioned, new owners who’ve purchased a property already in the program may continue that use by applying for forestry present-use within 60 days of closing (ownership transfer).
The county assessor’s office reviews at least one-eighth of parcels in the present-use tax program each year. Failure to demonstrate that you’ve not practiced “sound management” will result in your property’s disqualification. You may appeal this decision, but I strongly suggest that you do not let things get to that point.
Penalty for Non-Compliance
If your property is disqualified for non-compliance, a “rollback” tax applies. Your property will be taxed for the current year plus the three previous years at fair market assessment value. Additionally, interest will be due for those previous year’s payments. If you own high-value property, this tax bill can be substantial.
Selling Property in the Forestry Present-Use Property Program
If the property changes use, it will trigger the rollback tax mentioned above. If you sell your property to a buyer who doesn’t continue the use, those taxes will come due at closing. This condition needs to factor into your sale price.
If you plan on selling property in the future, and your property is not in the present-use program, consider entering the program. Having the property assessed at the agricultural rate with be an attractive selling point for a new buyer who can roll directly into the program. Plus, it’ll save on property taxes at closing.
How Much Can You Save?
The higher the fair market value of your property, the more you will save each year. Back in 2006, I wrote a plan for a client who had 90 acres valued at a little over $2,200,000. His tax bill was almost $15,000 per year! In 2007 his property tax bill dropped to $200. To date, he’s saved over $200,000 in property taxes (closer to $300,000 if a yearly interest rate of 5% is applied).
I also have clients who have high-value small acreage tracts that, individually, are too small to qualify for the program. Fortunately, they have a 20-plus acre “parent tracts” that allows them to enter the smaller parcels into the present-use program. If you own small, high-value vacant properties that you plan to hold long-term, it may be worth your while to consider investing in a 20-plus wooded acre rural property (within 50 miles) to serve as a parent tract to qualify the smaller parcels.
My Recommendations for Landowners
Update your plan at least every five years. You’ll stay ahead of the taxman and stay on top of your forest health and harvest scheduling.
For your merchantable stands of timber, have a thorough inventory (timber cruise) performed when the plan is updated. The hard numbers (volume, value, species distribution) generated will provide a better basis for planning than a walk-through stand typing. County rangers don’t do appraisals or growth and yield projections.
If you insist on having your plan written by the North Carolina Forest Service, at the very least, have registered forester working in the private sector review it before filing with the tax assessor. I’ve found that many of the plans have poor advice and implementation feasibility issues. I strongly advise that you have the forester responsible for carrying out the plan to write the plan. County rangers have no skin in the game, meaning if they screw up, there is no way to hold them accountable.
Do not wait until the last minute to act on the prescriptions in your plan. Once the county assessor gives you a deadline, there is little time or flexibility to make changes to your plan. I’ve seen landowners with NC Forest Service plans forced to clearcut hardwood areas that, in my opinion, weren’t ready for harvest. Because clearcutting and planting pines were the prescribed management activities, and they had failed to act or change their management recommendations by the deadline, they were forced to carry out the plan as written or face a massive property tax rollback bill.
Land prices keep going up, and with this increase, so do the property taxes. For many, the present-use property tax programs are the only way they can afford to hold their property long-term.
Of all the present-use value programs (agriculture, horticulture, wildlife), the forestry route is the least “hands-on.” There is no yearly income requirement, and depending on forest type and age, it can be years (sometimes decades) before any management activity is required.
For more detailed information on The North Carolina Forestry Present-Use Value Program and the other present-use tax options, see the NC Department of Revenue Present-Use Program Guide.
Free Forest Management Plan Review
Send a copy of your plan to me (Forest Service or private), and I will review it and give you feedback at no charge. If your property is within my work area, I’ll be glad to make an on-site inspection.
If your current plan doesn’t reflect your management goals or desires for your property, it can be rewritten and refiled with the assessor’s office—I do it all the time.