Sunday, January 12, 2014

Property Tax Exemption of Charitable Organizations' Conservation Lands in Question

Forest land copyOn January 6, 2014, the Massachusetts Supreme Judicial Court heard arguments in an appeal from a Massachusetts Appellate Tax Board opinion upholding a town’s refusal to exempt from property taxation forestland that the New England Forestry Foundation (NEFF) owns in fee. NEFF is a charitable organization whose mission is to “conserve New England’s working forests through conservation and ecologically sound management of privately owned forestlands.” The property at issue is a 120-acre parcel of forestland, bordered on two sides by state forest, on which NEFF conducts sustainable forestry practices. Between 2000 and 2009, NEFF collected about $24,000 from the sale of timber products from the property. 

NEFF contends that its ownership and management of the property provides many benefits to the general public, including recreational and scenic opportunities (the property is open to the public), improved water and air quality, protection of habitat for a variety of wildlife, and education of private landowners and the public regarding sustainable forestry practices.

The town contends that NEFF’s dominant purpose with respect to the land is forestry, and that any educational activities it provides are minimal and, at best, ancillary to that dominant purpose. The town also contends that NEFF has done little to encourage public use of the land, alleging a lack of sufficient signage alerting the public to the property’s availability for public use, NEFF’s failure to disseminate information about the parcel to the public on any wide scale, and the public’s limited access to the property because the property is situated at the end of a dirt road that appears to be a private driveway.

In its January 2013 opinion in New England Forestry Foundation v. Board of Assessors of the Town of Hawley, the Massachusetts Appellate Tax Board ruled that NEFF failed to meet its burden of proving that it occupied and used the subject property in furtherance of a traditional or an otherwise accepted charitable purpose within the meaning of the state statute governing property tax exemptions. The Board dismissed NEFF’s argument that the property should be exempt because it provides an environmental benefit in the form of preservation of a habitat for diverse species. Citing to a tax exemption case decided in 1966, the Board noted that

while the preservation of nature may be a laudable goal, "simply keeping land open and allowing its natural habitat to flourish is not sufficiently charitable. Appellant must demonstrate 'an active appropriation to the immediate uses of the charitable cause for which the owner was organized.'"

The Board also noted that “[T]he absence of public access to land has consistently proven fatal to a landowner’s claim of charitable exemption.”

The Appellate Tax Board’s reliance on a 1966 court opinion for the proposition that “simply keeping land open and allowing its natural habitat to flourish is not sufficiently charitable” was misplaced. What constitutes a valid charitable purpose evolves over time as the needs of society change, new discoveries are made, and the conditions, characters, and needs of different communities evolve. In the almost 50 years since the 1966 decision was handed down there have been significant advances in our understanding of ecological processes and environmental science. We now recognize that many public benefits in the form of ecosystem services flow from protecting land in its undeveloped state, including the maintenance of biodiversity, the purification of air and water, the mitigation of floods and droughts, the detoxification and decomposition of wastes, the generation and renewal of soil and soil fertility, the pollination of crops and natural vegetation, and the dispersal of seeds and translocation of nutrients. Accordingly, it is not surprising that § 28 of the Restatement (Third) of Trusts, published in 2003, specifically recognizes the promotion of “environmental quality” as a valid charitable purpose that falls within the intentionally broad and evolving category of “purposes beneficial to the community.”

Moreover, providing public access to conserved lands could in some cases be detrimental to the protection of important conservation values, such as habitat for sensitive species. Providing public access also involves costs to the charitable organization owning the land, as it generally entails the maintenance of liability insurance as well as trail maintenance, maintenance of appropriate signage, monitoring, waste management and clean up, and repairs for vandalism. Domestic dogs and off-road vehicles can be particularly vexing problems, as they can negatively impact both the protection of conservation values and public enjoyment and safety.

A 2013 opinion of the New Mexico Court of Appeals reflects an understanding of the evolving definition of charitable purposes and the varied public benefits that can be provided through the conservation of land. In Pecos River Open Spaces v. County of San Miguel, the New Mexico Court of Appeals held that a 60-acre parcel of conservation land owned by a charitable conservation organization was “used for…charitable purposes” and therefore properly exempt from property taxation. The court explained that “there can be little question that conservation of land in its natural and undeveloped state generally benefits the public” and “the way conservation [of land] benefits the public is through maintaining the Property for the public's benefit in its natural, pristine state without any particular human activities or construction.” The court noted, however, that not every parcel of conserved land is “inherently suitable to be classified as substantially beneficial to the public, and thus charitable”—rather, a case-by-case analysis of the public benefits provided is required. The court found that conservation of the 60-acre parcel at issue provided substantial benefits to the public because of the land’s location near the Pecos River, its natural and undisturbed quality, and its contribution to environmental preservation and the beautification of San Miguel County and the State. “This use,” said the court, “provides a benefit of real worth and importance to the public.”

Whether the Massachusetts Supreme Judicial Court will follow the lead of the New Mexico Court of Appeals in considering whether conserved lands are being used for a charitable purpose is uncertain. However, in light of our current understanding of the many public benefits that can flow from conserved lands, as well as the economic and environmental costs that can be associated with providing public access to such lands, conditioning property tax exempion of conserved lands on public access would seem not only inappropriate but also unwise. A more nuanced approach is called for—one that takes into account the variety of public benefits that we now know can flow from the conservation of land.

Court filings in the case, including five amicus briefs, can be found here.

Boston Globe coverage of the case can be found here.

Additional property tax exemptoin battlegrounds include Universities, colleges, and upscale retirement complexes.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

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Nancy, I agree that we need a more "nuanced approach" to the charitable exemption under the real property tax, but we also need a more nuanced approach to conservation easements in general. Preventing development is not always a good thing and development value is not related to conservation value. The lack of public access to many conservation easement properties is a real issue. We are not assessing the environmental benefits to conservation easements at this point, and when we do, we don't take into account the costs as well as the benefits. We need more "nuance" all the way around.

Posted by: Jesse Richardson | Jan 13, 2014 6:12:15 AM

A stunningly anthropocentric and powerfully ignorant ruling by MA to deny true protection of natural areas, although NEFF's commercialization of a "preserve" is what should have been the primary reason to deny a tax exemption. Forestry is a commercial activity that conflicts with preservation. Maybe the land trust community will wake up to that reality some day.

Posted by: Fink | Jan 14, 2014 3:16:15 AM

This court’s insistence that, “Appellant must demonstrate ‘an active appropriation to the immediate uses of the charitable cause for which the owner was organized’” creates a catch 22 for open space and wildlife conservation. These ‘charitable causes’ do not necessarily benefit from ‘active’ appropriation (and as you mentioned may be harmed by it). (The reasoning in this case would actually create a perverse incentive for more logging because that would provide a more frequent ‘educational’ benefit.) I would argue that ‘active’ in this context does not have to include public access and use, but could be demonstrated by the monitoring or other regular stewardship practices undertaken to promote the open space and wildlife benefits.

The court did quote prior case law holding that,“[T]he absence of public access to land has consistently proven fatal to a landowner’s claim of charitable exemption.” It also described two other cases involving conserved lands that were insufficiently ‘accessible’ to provide a public benefit. However, for wildlife or ecosystem services, the benefits can accrue to a large segment of the public without the land being accessible or the public even being aware of it. (I also think those cases might be distinguishable because the primary charitable purpose was actually education or public use.)

These points were related to the second part of the court’s analysis, which was only needed because it first found that passive conservation is not “traditionally charitable purposes and methods.” The language this court relied on actually came indirectly from an 1867 case (which makes your point about an ‘evolving definition of charitable purposes’ even stronger):
“A charity in the legal sense, may be more fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.”

I think that charity, ‘in a legal sense,’ should now include purposes that are statutorily sanctioned by federal tax laws. The court stated here that, “the Board has repeatedly found that an organization’s charitable-exemption status ‘is not dispositive in determining whether its property qualifies for the Massachusetts property tax exemption.’” However, the cases it cited appear to address a different issue: that the organization ‘must prove that it is in fact so conducted that in actual operation it is a public charity.’ This is a question about whether it operates in accordance with how it looks on paper.

Moreover, the relevant state statute itself appears to tie a property’s charitable-exemption status to, “the purposes for which it (the charitable organization) is organized.” It does not limit those to ‘traditional’ purposes. Therefore I would think there should be room to argue that charitable-exemption status should be given the same weight as ‘traditional’ charitable purposes in evaluating tax exemptions for conserved lands. The only question should be whether the land is being used to contribute to the organization's charitable purposes.

Another way to look at this is that the ‘burdens of government’ have also evolved over time (to include natural resource conservation). This would permit the concept of ‘traditional’ charitable purposes to also evolve. Using either approach could entirely avoid the question of public access.

Posted by: Jonathan Haber | Jan 16, 2014 8:34:38 AM

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