Shifting the Tax Burden

Two statewide tax programs allow for significant savings and guess who is taking advantage of these tax benefits

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Shifting the Tax Burden

If you live in Columbia County, you’ve probably driven past it a time or two.

The huge horse farm on Hereford Farm Road directly across from Evans Middle School and the Columbia County Board of Education building.

With its winding wood fences and handful of horses galloping around in big open fields, the farm looks as if it belongs among the rolling hills of Kentucky.

But this 27-acre horse farm is the home of former Columbia County Attorney Douglas Batchelor, who recently resigned from his position in early January.

If you are looking to cut back on your workload, spending some additional time enjoying this beautiful horse farm sounds extremely appealing, especially if you’ve figured out a way to save a little extra money as owner of the property.

Batchelor is obviously a very smart man.

According to the Columbia County Tax Assessors’ Office, Batchelor’s 27-acre property, which includes a 4,440-square foot home with four bedrooms and two and half baths, is valued at $274,786.

That’s right. This large horse farm is valued less than $275,000.

Sound too good to be true?

It’s not.

Batchelor’s land is one of more than 1,200 properties in Columbia County that falls under what is defined as either a Conservation Use Valuation or Preferential Agricultural Assessment parcel. These landowners, like Batchelor, earn property tax benefits from one of these two programs as an alternative to fair market values.

Specifically, Batchelor’s property is under a 10-year program called Conservative Use, explained Columbia County’s Chief Appraiser Debbie Robertson.

“It is a statewide program that usually lowers the taxable valuation of the land itself,” Robertson stated, adding that there is no decrease in value on any buildings on the property or improvements. “In this program, the land is valued for tax purposes by soil types, instead of fair market value.”

Basically, conservation use land value is based on the property’s use, location and soil productivity, Robertson explained.

Trained staff appraisers of the Georgia Property Tax Division determine values of conservation use property after taking into account the ability of the soil to grow certain agricultural commodities, according to the Georgia Department of Revenue.

But the appraisers also review the typical selling price when sales of land are made from “farmer to farmer” and not from “farmer to developer.”

So what is the fair market value of Batchelor’s farm?

It is $700,139 according to 2013 assessment, Robertson said.

What other familiar public officials living along Hereford Farm Road have taken advantage of this statewide program to save money on their home?

None other than Columbia County Tax Commissioner Kay Allen and her husband, Columbia County Commissioner Charles Allen Jr.

The same Kay Allen who is being investigated by the FBI and the Columbia County Sheriff’s Office to find out whether she improperly profited from contracts to collect taxes for Harlem and Grovetown.

Kay Allen’s 2,850-square-foot home on Hereford Farm Road is nestled in a heavily wooded 18.9-acre lot.

This beautiful house with white rocking chairs out front features three bedrooms and two baths.

In 2013, Kay Allen’s property located on prime real estate in Columbia County was valued at $264,373.

“Yes, both of these parcels are under a 10-year program called Conservation Use,” Robertson said of Batchelor’s farm and Allen’s property. “We are required, however, to keep track of the fair market value on each parcel.”

According to Robertson, the fair market value of Kay and Charles Allen’s home and land is $551,549.

Charles Allen Jr. also co-owns a 4-acre piece of property with his daughter, Lorraine Godowns, right next to the Allens’ home on Hereford Farm Road which also includes a 2,252-square foot home with three bedrooms and two baths on the lot.

This property located at 4921 Hereford Farm Road has a value of $223,800.

So how does the conservation use valuations work?

Under Georgia law, the state allows for up to 2,000 acres of property of a single owner, where the primary purpose of the property is any “good faith production,” to enter into a 10-year covenant agreement.

A “good faith production” includes subsistence farming or commercial production of agricultural products or timber. Property deemed “environmentally sensitive” can also qualify for conservation use.

Specifically, the allowable uses for a property with a conservation use valuation are raising, harvesting or storing crops; feeding, breeding or managing livestock or poultry;

producing plants, trees, fowl or animals; and the production of fish or wildlife by maintaining no less than 10 acres of wildlife habitat.

Property that is devoted to bona fide conservation uses is assessed at 40 percent of its current use value, according to the Georgia Department of Revenue.

This favorable tax treatment was designed to protect property owners from being pressured by the property tax burden to convert their land from agricultural use to residential or commercial use.

The Georgia Land Conservation Program describes Conservation Use Assessment as a “state law that was passed about 20 years ago to aid farmers who were being forced off their land because the fair market value of their property was increasing being based on its potential for development and not on farming.”

“Conservation Use is like a homestead property tax exemption in that it acts to reduce the amount of property taxes that the property owner would otherwise pay,” the Georgia Land Conservation Program states. “Conservation Use does not lower overall tax collections but merely shifts the tax burden from one group of taxpayers to another group.”

The state code also defines primary purpose of a landowner’s property as “the principle use to which the property is devoted, as distinct from an incidental, occasional, intermediate or temporary use.”

In order to qualify for either of these tax programs, the Columbia County Board of Assessors must review the current use of the property. If the property is less than 10 acres or has multiple residences, a staff member from the Tax Assessors’ Office will perform an on-site inspection of the property and prepare a report for the Board of Assessors.

Property owners are advised to submit any documentation they have regarding the bona fide conservation use of the property to the Tax Assessors’ Office including a Federal Income Tax Schedule E or F with Form 1040; timber management plans; receipts of sale of hay, livestock and produce; receipts for purchase of feed, fertilizers, seed and equipment; and pictures of farm-related activities.

There has been so much interest in these two tax programs that Robertson developed a guide in March 2013 called “Answers to Frequently Asked Questions About Conservation Use Valuation and Agricultural Preferential Assessment.”

“All landowners who qualify for Conservation Use Valuation are entitled to have their land valued according to its current use (agriculture, forestry, or environmentally sensitive) instead of the fair market value for ad valorem taxation,” the 2013 guide states. “This can reap large tax benefits… Conservation Use values for land cannot change more than 3 percent per year or more than 34.39 percent over the life of the (10-year) covenant.”

However, the land will be taxed according to fair market value at the end of the covenant unless the property owner renews the covenant.

According to the county’s 2013 information guide, conservation use can offer significant savings, in some cases greater than 50 percent from fair market value, while Agricultural Preferential Assessment generally provides a 25 percent tax advantage over the fair market value.

Therefore, many people have asked, if conservation use valuation offers such large savings and the land values are more stable, why would anyone consider Agricultural Preferential Assessment?

“Agricultural Preferential Assessment applies to all land and up to $100,000 in building value on agricultural production and storage buildings,” the county guide states. “Conservation Use Valuation applies only to land values and has no effect on building values.

“A taxpayer that has a small amount of land with a good number of agricultural buildings, such as chicken farming, may receive greater benefits under Agricultural Preferential Assessment.”

The only catch about a conservation use valuation is a property owner is legally bound by the agreement with Columbia County for the duration of the 10-year covenant.

And to get out of the covenant early or if it is discovered that the owner has breached the covenant, a property owner must pay a tax penalty equal to twice the tax savings enjoyed to date, plus interest.

That’s a pretty steep penalty.

If it is found that you are not using the property for subsistence farming or commercial production of agricultural products or timber, it is considered a breach of the conservative use covenant.

“Breaching a Conservation Use covenant results in a penalty that applies to the entire tract that is placed under an original covenant, even if the breach occurred on only a small portion of the tract under covenant,” the county guide states.

And if a landowner sells the property to a buyer who also qualifies for conservation use and the new owner breaks the covenant, the penalties are applied to the entire tract under the original covenant.

“The original covenant holder will pay a fine based on the tax savings enjoyed on all of the acreage, from the beginning of the covenant up to the time of sale of land, and of the breach,” the county guide states. “The subsequent covenant holder would pay a fine based on the tax benefits enjoyed from the time of covenant land purchase up to the time of the breach.”

To make matters worse, the penalty plus interest constitutes a lien against the property until the taxes are paid.

Below is a chart created by the Columbia County Board of Tax Assessors showing how a penalty might be calculated if a covenant was breached in the sixth year of the 10-year agreement.

Screen Shot 2014-02-04 at 7.02.49 PM_web

There are four basic conditions that a landowner can end the 10-year covenant with little or no penalty: death; eminent domain; a medical condition that prohibits the owner from continue maintaining the land in its qualifying use; and foreclosure on the property.

If a landowner chooses to extend the conservation use past the 10-year covenant, the owner must reapply for a new covenant if he or she wants the tax exemption to continue.

All in all, it’s a pretty good deal for property owners who have land that is devoted to bona fide conservation uses.

So, while Batchelor’s 27-acre farm is currently valued at $274,786 under the conservation use assessment, what is the value of his neighbors’ homes?

Right next door to Batchelor’s property is a three-bedroom, 2.5 bath home on 18.5 acres off Canterbury Drive that is valued at $563,252.

Across the street on Hereford Farm Road is a row of homes, each developed on approximately one acre of land.

A five-bedroom, 3.5 bath home located on 0.92 acres is valued at $282,198.

Another three-bedroom, 2.5 bath home, also on 0.92 acres of land, is valued at $204,508.

A little further down the street is a four-bedroom, 2.5 bath home on one acre of land that is valued at $288,890.

Over by Kay Allen’s 18.9-acre property, which has a conservation use valuation of $264,373, there is a three-bedroom, 1.5 bath home on seven acres of land, owned by one of her neighbors, that is valued at $257,117.

Another neighbor has a three-bedroom, 2.5 bath home on 2.27 acres that is valued at $214,749.

However, there are clearly some of Kay Allen’s and Douglas Batchelor’s neighbors who have also taken advantage of the conservation use program. There is more than 120 acres of land off Byrd Road that is located directly behind Doug Batchelor’s farm which is owned by an Appling resident and it is valued at merely $103,909.

It’s a good deal if you can get it.

But it comes as a price.

According to a 2011 report from the University of Georgia’s Center for Forest Business, the conservation use program is having a fiscal impact on the state because of the ever-increasing number of property owners applying and getting approved for these tax breaks.

“Since the implementation of Conservation Use Valuation in 1992 through 1999, the most recent year for which partial data is available, the number of parcels in this program has risen from approximately 16,000 in 1992 to more than 65,000 in 2000, and to 168,673 in 2009,” the 2011 report states. “The total annual tax dollars saved (by taxpayers) has increased from $8.9 million in 1992 to $50.533 million in 2000, and to $292.1 million in 2009.”

That is a good chunk of change. But the 2011 report by UGA’s Center for Forest Business also pointed out that it is still a small percentage of the overall taxes that are collected each year in Georgia.

“The $292.1 million in Conservation Use Valuation tax savings for 2009 equals 2.61 percent of the total $11.2 billion in property taxes collected in the state for that year,” the 2011 report states. “The fiscal impacts are of some concern, but appear to be minor or isolated at this time.

“The fact is, the rapid growth in total property taxes collected, an average of 8 percent a year, is pushing up taxpayer demand for tax relief.”

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