January 23, 2013
Conservation Land = Tax Exempt?
When it comes to conservation easements, there are a lot of tax issues that arise. Yesterday, I referred to charitable tax deductions associated with donated conservation easements. Many conservation easements also result in reduced property taxes for landowners. This varies by state law and only occurs where the conservation easement reduces the property value. Generally, however, lands encumbered with conservation easements are still taxed. In fact, the fact that the land stays on the tax rolls has been touted as a benefit of conservation easements (when compared to government acquisition of the land). That is, tax revenue generated by the land may be reduced, but the landowner is still contributing to local services. A new case from a New Mexico Appeals Court holds that for some conserved property, no property taxes will be owed.
The court held that property owned by a conservation organization, subject to a conservation easement prohibiting all construction, for the purpose of open space conservation constitutes a “charitable use” that is exempt from property taxes under the New Mexico Constitution. The state Constitution provides that “all property used for educational or charitable purposes [among various other uses]… shall be exempt from taxation.”
The local government argued that it conservation should not be considered a charitable “use” because the “land that is idle, unimproved and not in actual use” and there “is no direct and immediate charitable use, and for which the claimed environmental benefit—even if construed to be a charitable purpose—is, at best, remote and consequential.” The court disagreed, explaining that “conservation benefits the public … through maintaining the Property for the public’s benefit in its natural, pristine state without any particular human activities or construction.” The court emphasized that not all conserved parcels would meet the charitable use criteria and a case-by-case analysis will be necessary. This will likely be a hard standard to meet for most conservation easements and it is not clear how important the identity of the underlying landowner was.
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