Land Preservation Credit

2

Virginia Department of Taxation 

Virginia’s Land Preservation Tax Credit 

Presented to:

Conservation Partners LLC

Appraiser Roundtable

Crozet, Virginia

 August 20, 2008

 

Presented By:

 Larry Durbin

 Assistant Tax Commissioner

Virginia Department of Taxation

Donation History DataTax Year # of Credits # of Acres Credit Requests

2000-01 219 30,953 $ 52,608,810 2002 213 34,531 $ 62,067,807 2003 139 28,059 $ 75,358,707 2004 234 49,235 $140,444,145

2005 277 55,914 $155,281,875 2006 445 92,487 $242,316,354*2007 254 59,423 $100,000,000*2008 34 8,521 $ 17,949,252

Grand Total 1,815 359,123 $846,026,950 *Through July 2008

Large Donations (>$1,000,000) Data Tax Year # of Credits # of Acres Credit Requests

2000-01 7 1,634 $ 13,893,700 2002 6 2,910 $ 21,205,126 2003 11 7,173 $ 47,754,407 2004 28 12,478 $ 84,608,471

2005 33 16,648 $ 86,795,747 2006 55 24,564 $122,372,820

*2007 14 5,620 $ 28,255,400 *2008 5 1,460 $ 10,499,477

Grand Total 159 72,487 $415,385,148 *Through July 2008

5

Breakdown of Large Donations Data

Appraised Value # of Credits # of Acres Credit Req’d

$2.0M - $2.4M 35 10,314 $ 38,378,250

$2.5M - $3.6M 57 29,579 $ 83,871,490

$3.7M - $4.9M 22 10,029 $ 44,186,881

$5.0M-$10.0M 22 12,030 $ 78,849,804

>$10.0M 23 10,535 $170,098,723

Total 159 72,487 $415,385,148

6

Breakdown of Large Donations Data cont’d

Tax Year % of Credits % of Acres % of Credit Requested

2000-01 3% 5% 26%

2002 3% 8% 34%

2003 8% 26% 63%

2004 12% 25% 60%

2005 12% 30% 56% 2006 12% 27% 51%

2007 6% 9% 28%

2008 15% 17% 58%

7

Comparative Donation Data Type # Credits # Acres Appraised Value Fair Market/Acre

Large Donation 159 72,487 $ 845,997,735 $ 11,671

Small Donation 1,656 286,636 $ 905,030,795 $ 3,157

Grand Total 1,815 359,123 $1,751,028,530 $ 4,876

8

Comparative Donation Data Type # Credits # Acres Credits Req’d Credit Value/Acre

Large Donation 159 72,487 $ 415,385,148 $ 5,730

Small Donation 1,656 286,636 $ 430,641,802 $ 1,502

Grand Total 1,815 359,123 $ 846,026,950 $ 2,356

9

Transfer History Data Tax Year#of Credits # of Recipients Amt Transferred % of Total

2002 164 1,788 $ 51,121,412 82% 2003 112 1,845 $ 69,375,269 92% 2004 250 3,050 $122,889,373 88% 2005 236 2,371 $134,956,157 87% 2006 393 4,113 $213,349,130 88% *2007 177 1,449 $ 62,465,975 62% *2008 14 70 $ 4,189,991 23%

Grand Total 1,346 14,686 $658,347,307 83% *Through July 2008

10

Statewide LPC CAP

Tax Year CAP AMOUNT

2007 $ 100,000,000 2008 $ 102,287,081

11

LPC Claimed on Returns Data Tax Year # of Returns Amount Claimed

2000-01 460 $ 6,462,9122002 440 $ 5,641,7302003 1,322 $ 32,319,808

2004 3,815 $ 94,901,9622005 5,539 $ 114,343,177

2006 7,511 $ 167,400,8162007 4,851 $ 81,897,219

Grand Total 23,938 $ 502,967,624*Through July 2008

12

Easement Value Ratio DataReduction % Range# of Donations Credit Requested

0-25 339 $ 78,144,200 26-50 880 $326,392,317 51-75 263 $194,116,917 76-100 96 $148,967,006

.

13

Where are donations being made?Number of Donations

Locality # of Donations Acres Credit Value

Fauquier 182 36,083 $104,271,730Albemarle 166 39,932 $108,973,227Loudoun 154 20,230 $143,763,872Rockbridge 106 19,183 $ 19,595,771Rappahannock 79 14,230 $ 22,240,509Clark 58 6,846 $ 16,761,941Augusta 55 9,151 $ 8,642,752

14

Where are donations being made?Dollar Value

Locality # of Donations Acres Credit Value

Loudoun 154 20,230 $143,763,872Albemarle 166 39,932 $108,973,227Fauquier 182 36,083 $ 91,191,650New Kent 2 2,688 $ 24,706,836Rappahannock 79 14,230 $ 22,240,509Spotsylvania 15 2,291 $ 22,024,623Rockbridge 106 19,183 $ 19,595,771Orange 48 12,246 $ 18,621,322Fredericksburg 5 190 $ 17,973,250Bath 36 11,659 $ 17,041,025Clarke 58 6,846 $ 16,761,941

15

Legislative Changes

Changes Effective for 2007 Donations

Credit is 40% of FMV of the donation. $100 million statewide cap on tax credits. Applications in excess of statewide cap are first in

line for the following year.

16

Legislative Changes

Changes Effective for 2007 Donations

If credit is $1 million or more: Application must be filed with DCR and TAX. DCR must verify conservation value within 90

days. If the maximum $100 million cap is reached before

the conservation value is verified by DCR, the credit shall be issued for the following calendar year.

17

Legislative Changes

Changes Effective for 2007 Donations

Charitable organizations can earn and transfer the credit unless they:

Meet the definition of a “holder” as defined in Code Section 510.1-1009 and;

Hold one or more conservation easements.

18

Legislative ChangesChanges Effective for 2007

Donations

Any transfer arising from a sale of a credit or distribution is subject to a fee of 2% of the FMV of the donation up to $10,000 per credit holder.

This equates to 5% of the credit amount transferred.

19

Legislative ChangesCode of Virginia § 58.1-512.1 A

The Department of Taxation shall establish and make publicly available guidelines that incorporate, as applicable (without limitation), requirements under § 170 (h) of the United States Internal Revenue Code of 1986, as amended, and the Uniform Standards of Professional Appraisal Practice (USPAP).

20

Legislative Changes

Code of Virginia § 58.1-512.1 B

For any otherwise qualified donation of a less-than-fee interest under this article, however, no more than 25% of the total credit allowed shall be for reductions in value to any structures and other improvements to land.

21

Legislative ChangesCode of Virginia § 58.1-512.1 C

The fair market value of any property with respect to a qualified donation shall not exceed the value for the highest and best use (i) that is consistent with existing zoning requirements; (ii) for which the property was adaptable and needed or likely to be needed in the reasonably near future in the immediate area in which the property is located.

22

Legislative ChangesCode of Virginia § 58.1-512.1 C

(iii) that considers factors such as, by way of illustration and not limitation, slopes, flood plains, and soil conditions of the property; and (iv) for which existing roads serving the property are sufficient to support commercial or residential development in the event that is the highest and best use proposed for the property.

23

Legislative ChangesOther changes:

Carryover period extended from 5 to 10 years.

Burden of proof is on taxpayer to show that the fair market value and conservation value at the time the qualified donation is consistent with this section and that all requirements of this article have been satisfied.

Any building which serves as a basis for an LPC or a Historic Rehabilitation tax credit cannot serve as the basis for the other tax credit for 5 subsequent years.

24

Consolidated Group

Ruling Number 07-131 “The amount of credit that may be claimed by a taxpayer

shall not exceed….$100,000.” Because the statute imposes the limitation on a per-

taxpayer basis, not a per-return basis, it is clear that when more than one taxpayer is included in a return, then the separate limitations must be applied to each taxpayer.

Each taxpayer must have earned or otherwise acquired credits claimed on the return.

25

Federal Donee

Ruling Number 07-132 Qualified donations shall be eligible for the tax credit

if the donation is made to the Commonwealth of VA, or a charitable organization described in § 501 (c) (3) of the United States Internal Revenue Code of 1986 as amended

Property to be assured in perpetuity. Donor must provide sufficient assurance that the purpose for which the conveyance is made, and the credit granted, will be preserved indefinitely.

26

Credit Requested by Taxpayer

PD 07-172 Under Va. Code §58.1-512 A, a Credit is allowed for certain

donations and, effective for donations made on and after January 1, 2007, the Credit “shall be 40% of the fair market value of the land or interest in land so conveyed.” The Credit is not self executing, however. The taxpayer must apply for the Credit; but this does not mean that the taxpayer must apply for the entire allowable amount.

27

Credit Requested by Taxpayer – Cont.

PD 07-172

The law states, “The taxpayer shall apply for a credit after completing the donation. If the application requests a credit of $1 million or more, then a copy of the application shall also be filed with the Department of Conservation and Recreation by the taxpayer.” Va. Code §58.1-512 D 1. Therefore, the taxpayer must request a Credit amount $1 million or greater in order to be required to file the application with DCR and meet the requirements imposed by the agency.

28

Fees for PTEs

A Pass-Through-Entity (PTE) may elect to pass all of the tax credit through to it’s partners or shareholders or retain the credit and transfer it at the entity level. If the PTE elects to transfer the credit at the entity

level there will be a single $10,000 cap applied to the entity. If an entity elects this approach, they must include a letter (preferably on business letterhead) stating such with their LPC application.

If the PTE elects to pass the credit to it’s members, the $10,000 cap will apply to the PTE and to each member if they transfer their credit.

29

2007 Donations

Credits will be issued by the tax year that the donation is recorded in until the statewide cap is met. Once the cap is met, credits will be issued for the next available year

Credits cannot be transferred until TAX has issued a credit for the donation

TAX cannot guarantee that any LPC-1 application received in December will be processed in time to make a current year transfer

30

EnforcementLitigation:

Ware Creek Preserve, LLC, et al. v. Virginia Dept. of Taxation, et al., Circuit Court of New Kent County, Chancery No. CH05000045-00

Case is still proceeding through pre-trial stages

31

Additional Enforcement

Tax has performed preliminary reviews on many donations and has contracted for independent appraisals on some.

Assessments have been issued and some are being appealed.

32

IRS Activities

IRS has reviewed Tax’s LPC database

IRS has initiated multiple cases in Virginia

33

LPC Review Criteria

Uniform review criteria applied to all donations regardless of size

Multiple review factors included Review factors are weighted to recognize the

degree of variation Process recognizes existence of multiple factors Specific review/selection based on relevant

information.

34

LPC Review Criteria Some easements will be reviewed by in-house

and/or contract appraisers to:

Identify Valuation Issues Verify USPAP Compliance Verify IRC §170(H) Conformity Determine if full appraisal is warranted Review for specific issues Allow specific review/selection based on known

issues

35

LPC Fees

Tax Year DCR TAX

2007* $ 90,000 $1,101,527 2008* $ 20,000 $ 22,500

Grand Total $1,234,027

*Through July 2008