Taxation; Ad Valorem Taxes; Exemption; Agricultural Land; Present Use Value

February 14, 1984

Subject:

Taxation; Ad Valorem Taxes; Exemption; Agricultural Land; Present Use Value; G.S. 105277.2; G.S. 105-277.3; G.S. 105-277.4

Requested By:

George A. Weaver Wilson County Attorney

Question:

Are all taxpayers who file proper application under G.S. 105-277.4 entitled to have agricultural land appraised at its present use value, if the application establishes that the property comes within one of the classes set forth in G.S. 105-277.3 and if other relevant information required by the Tax Supervisor is provided?

Conclusion:

Yes, assuming that the present use value is less than the fair market value of the land appraised according to its highest and best use.

Wilson County is undergoing its octennial revaluation of real property for ad valorem tax purposes. G.S. 105-286(a). In that connection, the Tax Supervisor has developed and compiled "uniform schedules of values, standards and rules," which have been reviewed and approved by the board of county commissioners. G.S. 105-317. Among the schedules of value which have been adopted are those that establish, with regard to "Class I – open and pasture land on a paved road," whose highest and best use is for agriculture, a fair market value of $1800 per acre, and with regard to the same kind of land on the basis of "present use," a value of $800 per acre.

The basis for "fair market value" is found in G.S. 105-283, which states in part: "All property, real and personal, shall as far as practicable be appraised or valued at its true value in money. When used in this Subchapter, the words "true value" shall be interpreted as meaning market value, that is, the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used."

The basis for "present use value" is found in G.S. 105-277.3 and G.S. 105-277.4, which classify certain agricultural, horticultural and forest land for tax purposes, upon proper application, on the basis of "present use," rather than highest and best use, and in G.S. 105-277.2(5), which defines "present use value" as "the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell, assuming that both of them have a reasonable knowledge of the capability of the property to produce income in its present use and that the present use of the property is its highest and best use."

Against that background, the Wilson County attorney has stated the following assumptions as operative facts:

The figures contained in the Rural Land Schedule were arrived at in accordance with the standards set forth in Chapter 105 of the North Carolina General Statutes as interpreted by the North Carolina Supreme Court;
The property in question is within one of the classifications contained in G.S. 105-277.3.

He then asks, "Are all taxpayers, who file an application under G.S. 105-277.4 entitled to have their property appraised at its present use value, if the application shows only: (1) that the property comes within one of the classes set forth in G.S. 105-277.3 and if (2) other relevant information required by the Tax Supervisor is provided?" He further asks whether the taxpayer has the burden in this case of proving that his property has a greater value for other uses, if the answer to the first question is "no."

Under the factual circumstances described herein, it is our opinion that all taxpayers who file an application under G.S. 105-277.4 are entitled to have their property appraised at its present use value, if the application shows only: (1) that the property comes within one of the classes set forth in G.S. 105-277.3 and if (2) other relevant information required by the Tax Supervisor is provided?" He further asks whether the taxpayer has the burden in this case of proving that his property has a greater value for other uses, if the answer to the first question is "no."

G.S. 105-277.4(a) provides that "property coming within one of the classes defined in G.S. 105

277.3 but having a greater value for other uses shall be eligible for taxation on the basis of the value in its present use if a timely and proper application is filed with the tax supervisor of the county in which the property is located." The application must "clearly show that the property comes within one of the classes and shall also contain any other relevant information required by the tax supervisor to properly appraise the property at its present-use value." Thus, the application itself must show only that (1) the property comes within one of the statutory classes, and (2) that relevant required information has been furnished; and the satisfaction of both of these requirements has been assumed in the County’s statement of the question.

With regard to the requirement that property entitled to "present use" valuation must have "a greater value for some other uses," this is simply a situation which triggers the application, since if the present use value were identical to some other value, there would be no point in the application. Moreover, the County’s own schedules of value establish a greater value (and it is assumed that the schedules were properly prepared) so that no other proof is required.

It is perhaps worth noting that there is no requirement that there be a difference between agricultural land valued for that use (as its highest and best use) and that valued for its present use as agricultural land. Appraisers frequently assert that when all factors are known and properly weighed, there should be no difference between indications of value produced by the market approach and the income approach. As the Supreme Court has recently observed, the definition of "present use value" emphasizes the income approach, but this does not mean that comparable sales can never be used:

"This is not to say, however, that sales of similarly used lands may never be used to establish present use valuation. Sales of such land may be used if they are sales of land actually comparable to the land whose present use value is being determined. In order for a county to use sales of similarly used land in establishing present use valuation, the county must demonstrate that the buyers and sellers involved in the comparable sales transactions had knowledge of the property’s capability to produce income in its present use, that the present use is the highest and best use and that the purchaser intended to continue to use the property in its present use. If a truly comparable sale can be found – one of land of the same quality, used for the same purposes and whose present use is its highest and best use – the sales price received does reflect the present use value." In re Appeal of McElwee, 304 N.C. 68, 283 S.E.2d 115 (1981).

If such sales were truly comparable, there should theoretically be little or no difference between the "present use value" and the "highest and best use" value of farm land and the two schedules should be, in that case, quite close, or identical. Here the problem, if there is one, lies in the fact that either there was insufficient data available dealing with truly comparable sales, or there was insufficient data collected, or it was insufficiently analyzed and applied, and more than likely the first instance was the case. That being so, and it being given that the schedules were properly arrived at, the schedules themselves establish the difference in value which brings the statute into play. Consequently, the taxpayer need show nothing on that subject which the County has not already established in its schedules.

Since the answer to the first question is "yes," the second question is not reached.

RUFUS L. EDMISTEN Attorney General

Myron C. Banks Special Deputy Attorney General