Relating to the property tax exemption for forest reservations and fruit-tree reservations and including effective date, applicability, and retroactive applicability provisions

Sponsored by the Senate Natural Resources and Environment Committee

Topics:Taxes Property taxes

Same legislation: SF 112

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Where it is now

Done: IntroducedJanuary 20, 2021
Done: SubcommitteeJanuary 25, 2021
Done: Senate committeeFebruary 11, 2021
Stopped: Passes the SenateDied when the General Assembly ended
Next: House committee
Next: Passes the House
Next: To the Governor
Next: Signed into law

Died when the session ended The 2022 session adjourned on May 24, 2022, the General Assembly’s last regular session. Bills that didn’t pass both chambers died. What’s a funnel?

What’s in it

Current Code chapter 427C authorizes a property tax exemption for certain forest reservations and fruit-tree reservations. To qualify for the exemption as a forest reservation, the property must be at least two acres in continuous area and meet certain tree density requirements. This bill provides that for assessment years beginning on or after January 1, 2022, the exemption for forest reservations and fruit-tree reservations is percent of the actual value of the property comprising the forest or fruit-tree reservation.

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Current law requires each forest reservation to be not less than two acres in continuous area. For assessment years beginning on or after January 1, 2022, each forest reservation must be not less than acres in continuous area and the period of the exemption is for a period of five years. However, the bill establishes provisions to governing forest reservation exemption applications filed on or before February 1, 2021. For forest reservation exemption applications filed on or before February 1, 2021, unless the reservation fails to meet the 10-acre requirement, the period of the exemption ends at the conclusion of the fifth assessment year following the certification conducted by the department of natural resources as provided in the bill. For forest reservation exemption applications filed on or before February 1, 2021, if the reservation fails to meet the 10-acre requirement, the reservation’s exemption terminates beginning with the assessment year beginning January 1, 2022. The bill provides that for forest reservation exemption applications filed after February 1, 2022, if, following approval of the exemption, the department of natural resources determines that the forest reservation meets the criteria for depredation under Code chapter 481C, the owner must enter into a depredation agreement with the department of natural resources for each of the remaining years of the exemption period. For each such depredation agreement, the number of licenses issued each year to persons other than the landowner or a family member shall not be less than percent of the total licenses issued for that year. The bill also requires the department of natural resources to inspect the area for which an application is filed for a forest reservation tax exemption before the application is accepted. Additionally, an area that is a forest reservation may be inspected each year by the department of natural resources to determine if the area is maintained as forest reservation. The bill also directs the department of natural resources to conduct an inspection of each forest reservation receiving an exemption that meets the 10-acre requirement that was approved for an assessment year beginning before January 1, 2022. If the forest reservation meets the requirements for the exemption, the department shall certify the reservation’s compliance to the county auditor of the county where the forest reservation is located to be used in determining the period of the exemption. If the forest reservation fails to meet the requirements for the exemption, the department shall deny certification and shall notify the owner and the county auditor of the county where the forest reservation is located of the denial and the exemption shall cease beginning with the immediately succeeding assessment year. The certification or denial of certification by the director of the department of natural resources for each of the forest reservations shall be completed by July 1, 2026.22, for assessment years beginning before January 1, 2022, and for duties, powers, protests, appeals, proceedings, actions, or remedies attributable to an assessment year beginning before January 1, 2022.

Full bill text¹

Senate subcommittee

Named February 16, 2021. On March 15, 2021 it recommended indefinite postponement.

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Fiscal note

AI summary This bill changes the rules for the forest and fruit tree property tax exemption by increasing the minimum parcel size to 10.0 acres, reducing the exemption to 75.0%, and limiting the exemption to five years. The changes are estimated to reduce State General Fund school aid by $1.4 million in fiscal year 2024, fiscal year 2025, fiscal year 2026, fiscal year 2027, and fiscal year 2028, and by $3.0 million in fiscal year 2029 and beyond. Additionally, the bill is projected to increase local government revenue by $5.8 million in fiscal year 2024, fiscal year 2025, fiscal year 2026, fiscal year 2027, and fiscal year 2028, and by $12.6 million in fiscal year 2029.²

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Description

Senate File 352 places new restrictions on an existing property tax exemption available for qualified forest and fruit tree reservation land. Current law allows for a 100.0% tax exemption for qualified forest land parcels of 2.0 acres or larger. This Bill raises the minimum required parcel size to 10.0 acres and reduces the property tax exemption to 75.0%. Additionally, the Bill limits the exemption to five assessment years. Under current law, the exemption duration is unlimited. The changes are effective beginning assessment year (AY) 2022 (FY 2024).

Background

For AY 2020, there are 803,000 acres with a combined assessed value (market or productivity value, prior to the applicable rollback to taxable value) of $733.0 million benefiting from the existing tax exemption for forest and fruit tree reservations. Figure 1 applies the most recent property tax rollback percentages (AY 2020) and most recent relevant Statewide average property tax rates by property class (FY 2021), to calculate the amount of taxable value within forest and fruit tree reservations and the total value of the property tax exemption under current law ($15.1 million).

When a property tax exemption is reduced or eliminated, the taxpayer owes the consolidated property tax on the taxed property value that is no longer exempt (a property tax increase), the State General Fund appropriation for schools is reduced by $5.40 per $1,000 of taxed valuation by action of the State school aid formula (the property owner is now paying the $5.40 basic levy instead of the State), and local property tax revenue increases by the applicable consolidated property tax rate (in this case an average of $27.94 per $1,000 of taxed value). The net increase in local government income increases by the sum of the increase in property tax revenue minus the decrease in State school aid.Average Value of Assessed Taxable Tax Prop. Tax

Value Rollback Value Rate Exemption

Agricultural 448.0$ 84.0305% 376.5$ 25.03$ 9.4$ Residential 273.1 56.4094% 154.1 34.44 5.3 Commercial 10.1 90.0000% 9.1 37.21 0.3 Industrial 0.6 90.0000% 0.5 31.24 0.0 Multiresidential 1.2 67.5000% 0.8 37.84 0.0 Total All Classes 733.0$ 541.0$ 27.94$ 15.1$ Figure 1 Forest and Fruit Tree Reservation Property Tax Exemption

Dollars in Millions

Assumptions

As presented in Figure 1, the value of the property tax exemption for existing forest and fruit tree reserves is calculated to be $15.1 million for FY 2022.
For the three years between AY 2017 and AY 2020, the number of acres subject to the forest and fruit tree property tax exemption increased at an average annual rate of 0.9%. This rate of growth is assumed to continue in both the current law and proposed law projections for FY 2023 and after.
To simplify the calculations, the rollback percentages and average property tax rates for each class of property are assumed to remain constant for all years.
Based on a 2003 Forestry Reserve Study reported by the Department of Natural Resources, 70.0% of forest reserve owners who responded to the survey indicated that they owned 10.0 acres or more of forest reserve property. Based on this survey, the value of the existing property tax exemption for FY 2024 and after is reduced to 70.0% of the current law projection to adjust for the proposed 10.0-acre minimum.
Existing forest reserve property is assumed to continue to receive the benefit of the exemption for FY 2024 through FY 2028 (five years), while new property is assumed to receive the benefit of the exemption for five years after being added to the reserve.

Fiscal Impact

The proposed limits on the existing forest and fruit tree reserve property tax exemption are projected to reduce the State General Fund appropriation to school aid by the amounts presented in the final column of Figure 2. The projected appropriation reduction continues at the $3.0 million level in years beyond FY 2029.

The projected revenue increase for local governments is also presented in Figure 2. The projected total impact on local government finances is the combination of the property tax increase and the school aid appropriation decrease.Exemption Exemption Increase Local

Value Value In Government School Aid

Current Proposed Property Revenue Appropriation

Law Law Taxes Increase Decrease

AY 2021 FY 2023 15.3$ 15.3$ 0.0$ 0.0$ 0.0$ AY 2022 FY 2024 15.4 8.2 7.2 5.8 -1.4 AY 2023 FY 2025 15.5 8.3 7.2 5.8 -1.4 AY 2024 FY 2026 15.7 8.4 7.2 5.8 -1.4 AY 2025 FY 2027 15.8 8.6 7.2 5.8 -1.4 AY 2026 FY 2028 15.9 8.7 7.2 5.8 -1.4 AY 2027 FY 2029 16.1 0.4 15.6 12.6 -3.0 Figure 2