Tax break a growing concern

State's agriculture assessment program draws criticism amid perceived abuses For the price of a medium pizza, you could pay the annual property tax bill for a 5-acre beachfront lot on Kiawah Island that's worth an estimated $7 million. How? For tax purposes, that large lot is timberland, and it's worth just $1,500. Like tens of thousands of other Lowcountry properties, the lot qualifies for a state program designed to aid farmers and timber companies by giving them special agricultural assessments that can eliminate more than 99 percent of a property's taxable value. The beachfront lot with a $9.60 tax bill is unusual, but it's not unique. "I just changed one (assessment) today where the people would have paid around $15,000, and instead they paid $92," said Dorchester County Assessor Greg Thacker. In Berkeley, Charleston, Colleton and Dorchester counties, 21,353 properties received agricultural assessments. The tax break reduced the combined taxable value of those properties by nearly $3.6 billion last year, shifting some of the tax burden to other property owners. Local farms and timber operations benefitted, as intended, but so did large developers with multimillion-dollar tracts of land. Many of those developers paid less property tax last year than the average homeowner, a Post and Courier analysis of property and tax records found. A tax break under fire Criticism of perceived abuses of the agricultural assessment program has been rising, as state lawmakers debate property tax reform, because tax breaks for one class of property mean higher taxes for everyone else. State laws also contain property tax breaks, though much less generous, benefiting homeowners, the elderly, the severely disabled, and developers who own multiple lots. Gov. Mark Sanford weighed in on the issue during his State of the State address in January, saying "... we ought to look at the (tax) code itself and the way it is, or is not, enforced by local government. As an example, back home on the coast I know of a lot of folks whose lands are taxed at agriculture rates, though the land is in fact development land owned by developers - not farmers." Sanford has not proposed changing the agricultural assessment program and has declined to elaborate on the concerns raised in his televised address. The governor's office refused to make him available for an interview despite numerous requests. "The State of the State speaks for itself," Sanford spokesman Joel Sawyer said. County assessors say they are correctly applying the state law, and that it doesn't take much in South Carolina to qualify for the preferential tax treatment that comes with an agricultural assessment. Just about any piece of land with at least five acres of trees or 10 acres of crops qualifies as an agricultural use, and in some cases smaller parcels can be included in the program. "Our hands are tied as long as that's the use," said Charleston County Assessor Michael Huggins. "My response is: If you want it done differently, change the law." If land in the agricultural assessment program is developed, the owner is supposed to pay five years of interest-free back taxes on the true value of the property. Some say that provision is enough to assure that big developers don't get an unfair benefit. "If someone is going to buy a large tract to invest, they are typically going to turn it around quickly," said Berkeley County Deputy Assessor Wilson Baggett. "The developer is still going to pay the taxes." Assessors sometimes attempt to tighten up the regulations on who qualifies for the program by going to court. Last year Charleston County won a significant case before an administrative law judge who ruled that properties can't qualify as timber businesses if they are in subdivisions with covenants that prohibit cutting down the trees. (That beachfront lot on Kiawah is owned by the family of the island's former owner, and is exempt from covenants, according to assessors). Also last year, Charleston assessors reviewed agricultural assessments and revoked the status of about 150 small lots that no longer qualify. While trying to close loopholes, assessors say they try to help bona fide farmers, sometimes encouraging them to apply for the program. Charleston County has tried outreach programs at churches in poor rural areas. "I'm all for it, for true farmers," said Thacker. "Those people who abuse it are the problem. Farmers count on it For farmers large and small, the 30-year-old agricultural assessment program is a financial lifeline. Those engaged in mariculture also qualify for the tax break, which means the shrimpers on Shem Creek get a tax break on their land, too. "Without the agricultural exemption there's no way you could pay the property tax with what you can make from farming," said Thomas Legare, an owner of the more than 300-acre Legare Farms on Johns Island, by the Stono River. "I'm terrified that well-meaning politicians will do away with the agricultural exemption and drive the farmers out," said Legare. "We might as well pave the whole state." A look at who controls the most valuable land that was taxed as agricultural in 2005 shows how the benefits are divided among farmers, developers and timber companies. In Charleston County the most valuable piece of land in the agricultural program is Boone Hall Farms. Located at the intersection of Longpoint Road and Highway 17, the farm land would be worth an estimated $70.5 million on the open market, but the agricultural assessment knocks the taxable value down to $110,000. Boone Hall Plantation and the land it sits upon is taxed separately. "It seems to me the goal is to allow people like Willie McRae to have places like Boone Hall," said Coastal Conservation League Director Dana Beach. "If he had to pay taxes on $70 million he'd have sell in two months." Kiawah Development Partners and its affiliates control the second-most valuable collection of agricultural land in the county, 11 parcels including the Mullet Hall Plantation property, collectively worth more than $65 million. As agricultural land, those properties are together valued at $201,700. Other valuable Charleston County properties are owned by Carolina Park Associates, Weber USA Corp., Center Pointe Developers, ParkWest Development, MeadWestvaco Forestry, and the Hamlin Family Partnership. (The Post and Courier's parent company, Evening Post Publishing Co., and its affiliate, White Oak Forestry Corp., have agriculturally assessed timberland in Charleston County worth an estimated $17 million.) The loopholes Some assessors, and others familiar with the program, said the trouble with agricultural assessments isn't with large developers, because of the requirement to pay back taxes on land that is developed. "It's just like a bonus for them," said Beach. "The property taxes are the least of their cost problems." Beach, who owns a 25-acre property on John's Island that's agriculturally assessed, said that if state officials believe developers are abusing the system, they could double the tax payback period, to 10 years, and add interest to the payment. Assessors and the South Carolina Forestry Association say abuse of the program occurs when small, valuable lots that aren't really agricultural slip through several loopholes in the law. "Let's say you have a legitimate tree farm that's 100 acres in Charleston County. Under existing law, you could buy three acres on Lake Murray in Lexington County and say it's part of the same tree farm," said Bob Scott, president of the Forestry Association. "That's where most of the abuse is occurring." The law allows unconnected, undersized properties to be considered agricultural if they are part of a "timber management system." "There's one man who buys up little lots at tax sales and joins them under the same timber management system," said Scottie Warren, who reviews and inspects agricultural assessments for the Charleston County Assessor. Bob Scott said the association is concerned that abuse of the program could lead to new restrictions unfavorable to farmers. The association suggests raising the minimum lot size for agricultural timberland from five acres to 10, and eliminating the loophole that allows smaller lots to qualify. "Nobody can realistically call themselves a tree grower, for commercial purposes, if they don't have at least 10 acres that are contiguous," he said. Warren also believes raising the timber lot size to 10 acres would be a good step. She said the current rules are backwards, and non-timber farming should have the smaller of the size requirements. State lawmakers established the minimum lot sizes in the mid-1990s, in response to reports about abuses of the system. Smaller lots that had previously qualified were "grandfathered" under certain conditions and allowed to remain on the books as agricultural land. Some, like Warren, say that's another loophole. "Some of the properties that were grandfathered in are just not agricultural," said Thacker, the Dorchester assessor. "You can have a lot in the middle of Summerville that's half an acre with some trees." With concern about the agricultural assessment program coming from assessors, large forestry companies, and state policy makers, the tax break appears likely to endure some close scrutiny this year as the property tax reform debate continues. How it works South Carolina law partially defines agricultural real property as "any tract of real property which is used to raise, harvest or store crops or feed, breed or manage livestock, or to produce plants, trees, fowl or animals useful to man, including the preparation of the products raised thereon for man's use and disposed of by marketing or any other means." Properties that qualify for an agricultural assessment are taxing based upon soil quality and other factors, rather than what the land would be worth on the open real estate market. The agricultural values are set by the state and haven't changed since 1991. Agricultural values do not change during reassessment. Property owners must apply to receive the tax break, but are not required to reapply annually. If the qualifying land is later developed, five years of back taxes are due on the difference between the agricultural value and the true market value of the property. Most timberland tracts must be at least five acres, and devoted to actively growing trees for commercial use. Smaller tracts qualify if they adjoin a qualifying tract, are under the same management system as a qualifying tract, or are owned in combination with qualifying non-timberland. Non-timberland tracts must be at least 10 acres, or contiguous tracts with identical ownership that add up to 10 acres, unless the applicant earns a certain amount of income from farming a smaller tract, or the tract has been under the same family ownership since 1984 and was classified as agricultural during the 1994 tax year. Dockside facilities whose primary use is the landing and processing of seafood also qualify. If at least half of a property qualifies, the entire property qualifies, as long as there is no other for-profit business on that land. Timberland vs. beachfront One irony of the agricultural assessment system is that the timber companies sometimes get far less of a tax break than the owners of small but valuable pieces of land on the coast. For example, forestry giant MeadWestvaco and development company Kiawah Resort Associates each own parcels of land in Charleston County worth roughly $15 million. MeadWestvaco's parcel is a vast tract of timberland -- more than 30,000 acres -- at the western edge of the county. The land is valuable for agricultural purposes, so despite the tax break, MeadWestvaco still paid more than $74,000 in property tax on the land in 2005. Kiawah's equally valuable real estate is a 16-acre parcel with beach and river access. It's not worth much for agricultural purposes, under the state formula, so Kiawah Resort Associates paid just under $20 in property tax on the parcel last year. Differences in property values help explain why agricultural assessments took nearly $1.6 billion off the tax books in Charleston County, but only $486 million in more rural Colleton County, where nearly one in five properties qualifies for the program. In Dorchester County 4,680 properties worth nearly $560 million are in the program. In Berkeley County there are 5,770 properties worth just over $1 billion assessed as agricultural land.

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