In this Issue:
- Key Takeaways from the ACF Conserved Lands Study
- How the Republican Tax Bill Affects Land Trusts
- E-Bulletin Information
Key Takeaways from the ACF Conserved Lands Study
Ever since the Maine Supreme Court held in the 2014 Francis Small Heritage Trust case that land conservation is a charitable purpose and that conservation land owned by nonprofit land trusts are generally exempt from property taxes, Governor LePage has crusaded mightily against Maine land trusts. LePage recently devoted several minutes of his final State of the State address to a veritable rant against land conservation and land trusts. Fortunately, all of the Governor’s rather unhinged attacks have fallen flat in the face of basic facts. The most recent example comes by way of a legislative committee report on the issue of property taxation of conserved lands.
In late February, the Maine Legislature’s Committee on Agriculture, Conservation and Forestry (ACF) released a Study of Conserved Lands Owned by Nonprofit Organizations. The Conserved Lands Study deals quite a blow to the Governor’s efforts to malign Maine land trusts, concluding that Maine land trusts provide “a myriad of public benefits” and “great value to the residents of Maine.” The Study faults the LePage Administration for failing to provide any data or assistance to the Committee, and in the absence of any government data relied largely on a survey conducted by Maine Coast Heritage Trust, as well as input from various stakeholders.
The Conserved Lands Study is a good read and contains a host of facts that demonstrate the public benefits that Maine land trusts provide. But rather than summarize these figures, I want to assess the state of play in this ongoing debate. Here are the key takeaways from my perspective:
- The broad issue of how land conservation in Maine should and does affect municipal property tax revenues has existed since the very first property was conserved. And because we live in a dynamic democracy, it will never be resolved definitively one way or the other. For those expecting that the issue is now settled, think again.
- The Maine land trust community should feel vindicated by the Conserved Lands Study, which amounts to a firm pushback against the Governor’s distorted attacks. The Study is a perfect example of how facts trump oratory, and shows that land conservation continues to enjoy strong bipartisan support. That said…
- The ACF Committee heard testimony of a handful of dissenting voices from small and mostly rural towns, and these voices are best not ignored. Although statewide laws and policies should not be tailored around these minority views, local conservation efforts in these communities must be sensitive to them. Moreover, the Conserved Lands Study recommends that “the Legislature reexamine current-use tax programs and how these tax programs may adversely affect certain communities.” Expect some bills next year that seek to limit the exemption or Open Space acreage or tax reductions available in thinly populated areas. Given the unknowns about the composition of the Legislature or who fills the Governor’s seat, it’s impossible to say whether any of these bills might have legs.
- Public access is more important than ever. The Conserved Lands Study recommends that “a certain level of public access to land should be a requirement in order for a property owner to be eligible for a reduced rate of property tax.” Again, expect one or more bills next year to implement this suggestion. I might add that I don’t think it’s a bad idea. There’s a lot to be said for the notion that public access should be required for property tax exemption or for Open Space qualification. (The Tree Growth and Agricultural categories are more complicated, as their goals are quite different.) Although the Francis Small case did not establish a public access requirement for exemption, the Court’s opinion did identify access as an important factor in determining eligibility. Given the recommendation of the Conserved Lands Study, a thoughtfully crafted bill that imposes a reasonable level of public access, perhaps with partial or full exceptions for sensitive wildlife habitat, could very well make it through the Legislature sooner or later.
- Much of what happens next, both for the narrow issue of property taxation for conserved lands and the broader question of how to advance land conservation in Maine, depends on who succeeds LePage as governor. Fortunately, none of the current declared candidates has exhibited LePage’s disdain for land conservation, and so hopefully we have nowhere to go but up. But most Democratic candidates are much more openly supportive of land conservation than most Republican candidates, and the outcome will have a huge effect on whether progress is merely incremental or dramatic. Now is a good time to press all candidates, Republican and Democratic, to demonstrate strong support for protecting Maine’s natural areas, whether it is through maintaining our robust exemption and current-use laws, increasing LMF spending, or other avenues.
How the Republican Tax Bill Affects Land Trusts
As you are by no doubt aware, Republicans in Congress passed a major federal tax bill in December. For the most part, this bill will affect land trusts in the same ways that it will affect all nonprofit organizations, and I invite you to read my take on that question in my January Nonprofit Law E-Bulletin. Bottom line: expect somewhat reduced annual giving and planned giving levels as fewer and fewer people itemize their taxes or face the threat of owing any federal estate tax liability. And expect reduced federal funding for all government programs, including land conservation. That said, the bottom won’t fall out and land trusts, who enjoy very loyal donor bases, should continue to proceed with fundraising operations as if nothing is amiss.
In fact, instead of fearing the reduced tax savings from charitable giving, savvy fundraisers and conservation dealmakers might want to focus on the fact that because most people will have lower taxes and thus higher disposable income, they can now afford to give more to their favorite charities. A simplified high-value conservation easement donation example shows how this could work, if you want to follow the numbers with me.
Suppose you have a married couple filing jointly with $1 million in adjusted gross income. In 2017, they donated a conservation easement that was appraised at $2 million. Before any deductions and credits were taken into account, this couple owed about $341,000 in federal income taxes. Due to the easement donation, they could claim a charitable deduction of $500K in 2017 and in each of following three years ($500,000 per year because of the 50% of AGI deduction limitation for conservation easements). But a special rule called the Pease limitation kicked in to reduce their deduction by about $20,000 per year, so let’s call it $480,000 in each of these years. Thus, the easement donation led to federal tax savings of roughly $190,000 in each year from 2017 through 2020, and an overall annual tax owed of about $151,000.
Now let’s see how this calculation works under the new tax law in effect for 2018. Before any deductions and credits are taken, this couple’s tax due is about $309,000, roughly $32,000 less than under the 2017 higher tax rates. Once again, they can claim a charitable deduction of $500,000 in 2018 and in each of following three years. And this time there is no Pease limitation because that provision is suspended through 2025. So the easement donation leads to federal income tax savings of roughly $183,000 per year, a bit less than the $190,000 savings under the 2017 rates. But the couple’s overall tax owed is now about $126,000, well below the $151,000 owed under the 2017 rates. Even though the charitable incentives are slightly reduced under the 2018 rates, the couple is in a much better financial position objectively speaking, and the land trust should not hesitate to point this out.
Notes: I’ve taken several shortcuts in this example, and actual results would vary somewhat. State income tax savings are also not calculated, and they could be significant. Finally, although I’m emphasizing that a land trust project person or an independent legal or tax adviser would want to play up the better financial position of the landowners due to the lower tax laws, by no way should that be seen as endorsement of the tax bill. In my view, tax cuts for wealthy people are the last thing that our economy or our polity needs at this time.
I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation. I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers. At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.
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