Less Taxation with Forestry Consultant Representation, 0915 SCBJ, SC Lawyer, September 2015, #39

Author:By Jay S. Claypoole, John C. von Lehe and Timothy M. Zwerner

Less Taxation with Forestry Consultant Representation

Vol. 27 Issue 2 Pg. 39

South Carolina BAR Journal

September, 2015

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 By Jay S. Claypoole, John C. von Lehe and Timothy M. Zwerner

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The forest products industry is big business in South Carolina, making a greater than $17 billion annual economic impact on the state.1 In fact, according to the South Carolina Forestry Association, timber is the number one cash crop in the state and provides more than 90, 000 jobs to its citizens. Compliance with local, state and federal tax laws play an important role in timber ownership, management and forest stewardship. So when the S.C. Attorney General and various county tax assessors disagree on the manner in which timberlands are assessed for ad valorem property tax purposes, and a circuit court is asked to intervene, a timberland owner is wise to take note.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Ad valorem tax treatment

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Property taxes are a substantial part of the revenues derived by local governments within the State of South Carolina. In general real estate is taxed with numerous exemptions from taxation. Property is taxed at its assessed value, which is determined by taking the property's true value in money (appraised value) and applying an assessment ratio. The ratio varies with the class of property. For example, commercial property is assessed at six percent of its commercial value. The county assessor is responsible for the valuation and assessment of commercial property2 However, S.C. Code Ann. 12-43-220(d) provides that agricultural real property that is actually used for such agricultural purposes shall be taxed on an assessment equal to four percent of its fair market value for such agricultural purposes. Thus, as in the case of a seven-acre beachfront lot on Kiawah Island, South Carolina worth $22 million3 receiving a $12.75 property tax bill, having the county tax assessor recognize real property as " agricultural real property which is actually used for such agricultural purposes" rather than commercial real property can result in substantial tax savings.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0"Agricultural real property" under the S.C. Code

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0"Agricultural real property" is statutorily defined as being any tract of land used to raise, harvest or store crops, feed, breed or manage livestock, or to produce plants, trees, fowl or animals useful to humans, specifically including, but not limited to, real property used for agriculture, grazing, horticulture, forestry, dairying and mariculture.4 The same statute provides that if at least 50 percent of a tract qualifies as "agricultural real property, " then the entire tract shall qualify, provided no other business for profit is being operated on the tract.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0"Agricultural real property" under S.C. tax regulations

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0For tax purposes, the S.C. Department of Revenue defines "agricultural real property, " in pertinent part, as follows:

[T]he term Agricultural Real Property shall not include any property used as the residence of the owner or others. In no event shall real property be classified as agricultural real property when such property is not used for bona fide agricultural purposes ... The agricultural use of the property must be genuine in nature as opposed to sham or deception.5

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Determining whether property qualifies as "agricultural real property"

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The regulation enumerates a non-exhaustive list of factors to be considered by county assessors in determining whether the property in question is agricultural real property, including (1) the nature of the terrain; (2) density of the marketable product (such as timber, etc.) on the land; (3) past usage of the land; (4) economic merchantability of the agricultural product; (5) use or not of recognized care, cultivation, harvesting and like practices applicable to the product involved, and any implemented plans thereof; and (6) the landowner's business or occupation. The regulation further provides a number of uses of real property that do not qualify as agricultural. The focus of this article, however, will be on timberland.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0In addition to all other requirements for timberland to be classified as agricultural real property, the property must meet the...

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