Monthly Archives October 2012

Oct 232012

Tennessee’s Greenbelt Law as a Tax Shelter

Pursuant to Tennessee’s Agricultural, Forest and Open Space Land Act of 1976, open land that exists near growing commercial and residential areas may be threatened by urban sprawl and the system of property taxation. This act has come to be known generally as the “Greenbelt Law.” As a result of the Greenbelt Law, open space real property that might otherwise be classified as residential, commercial, or other higher density use and thereby be subject to higher property taxes, may be eligible for classification as one of three different types of land: Agricultural Land, Forest Land, or Open Space Land. The result is a dramatic savings in property taxes — often resulting in an Owner having to pay only pennies on the dollar — designed to encourage production of valuable food, prevent loss of family farms due to higher taxes, and provide relief from urban sprawl and green spaces for enjoyment of people who would not normally have access to such areas.

There are limitations as to what qualifies for greenbelt classification. The law limits the amount of land eligible for enrollment to 1500 acres per Owner per county. Although an “Owner” may be more than one person, an Owner that owns greenbelt property with others, or as part of a corporation, is only credited with his or her proportionate share of the acreage towards the 1500 acre cap. If the use of the property changes, the Owners are then required to pay the taxes that would have been paid on the full unrestricted value of the land (“rollback taxes”). To be clear, rollback taxes are not a penalty. Rollback taxes are only a recapture of the amount of taxes saved by Owners over a certain period of time that the land qualified as Agricultural Land, Forest Land, or Open Space Land. For Agricultural Land and Forest Land, authorities can recoup up to three years in back taxes; for Open Space Land, authorities can recoup up to five years in back taxes. See Tenn. Code Ann. § 67-5-1008(d).

To be effective for the current tax year, Owners of property who are applying for the first time for greenbelt classification must apply on or before March 1. Owners who fail to file by the deadline date will result in the property not qualifying for the current tax year. There is no appeal procedure for late filed applications. However, the denial of a timely filed application is appealable to the county board of equalization. Once the property is classified as Agricultural Land, Forest Land, or Open Space Land, reapplication is not required so long as the ownership as of the assessment date (January 1) remains unchanged.

The Commercial Appeal recently reported on the use of the Greenbelt Law as a tax shelter, citing the estates and hobby farms of individuals such as AutoZone founder J.R. “Pitt” Hyde, Wynonna Judd, former University of Tennessee football coach Phillip Fulmer, and Nashville lawyer E. Warner Bass as examples. See Marc Perrusquia, Grant Smith, Cash crop: Tennessee farmland protection law shelters taxes for rich and famous, Commercial Appeal, October 14, 2012. The article closes with summaries of the recent legal battles over the Greenbelt Law, as well as a review of similar restrictions in other states. In a similar article, the Knoxville News Sentinel recently reported on the massive use of the Greenbelt Law by individuals in Williamson County. See Marc Perrusquia, Trees help shade Tennessee’s wealthy from taxes, News Sentinel, October 18, 2012.

Oct 112012

Agricultural Zoning and the Right to Farm Act: Agritourism equals Agriculture in Tennessee

In a decision issued early this year by the Tennessee Court of Appeals, the court considered a dispute between an individual operating a farm as Maple Lane Farms and a neighboring property that claimed the farm-based activities were mostly commercial, not agricultural. According to the neighbor, the noise from the commercial activities interfered with her sleep and reading. The neighbor testified as follows:

“Q. How has the noise bothered you? What is it about the noise that has bothered you?

A. Well, the music was just very, very, very loud, you know, like I could almost feel the vibrations in my chest, you know, the whole house, and you couldn’t get away from it.

* * *

A. Yes, I could feel a thumping, thump, thump, thump, like it was thumping in my chest. It was extremely loud.”

Since 1985, Maple Lane Farms had been using their parcels to operate the farm as well as other things such as a pumpkin patch and corn maze in the fall. However, in 2000 they founded the Strawberry Jam Festival, a two day music festival held on their property, which lead to activities on the farm such as amplified musical performances, helicopter rides, and excessive ATV use. Shortly thereafter, the neighbors began to complain that the noise, bright lights, traffic and garbage was harming their health, comfort and property values. A neighbor sued the farm owner seeking to stop the activities on the property as a violation of zoning; specifically that these activities did not constitute a farming operation and thus the farm was not exempt from zoning requirements.

Under the Tennessee Right to Farm Act, Tenn. Code Ann. §§ 43-26-101 et seq., a farming operation is presumed neither to be a public or private nuisance. However, it is a rebuttable presumption that such farm operations are not nuisances unless a preponderance of evidence demonstrates that the operations do not conform to accepted agricultural practices. The Act also notes that a major point of it is to protect pre-existing farming activities from nuisance claims by newly arrived neighbors.

In a fairly broad approach to agricultural zoning and the Tennessee Right to Farm Act, the Court of Appeals held that the activities of Maple Lane Farms met the definition of “agritourism” and that these activities existed before the neighbor purchased her property. Shore v. Maple Lane Farms, LLC, No. E2011-00158-COA-R3-CV (Tenn. Ct. App. Apr. 11, 2012).

On August 16, 2012, the Tennessee Supreme Court granted permission for appeal. I would hazard a guess that the Supreme Court will take a more conservative approach here. Regardless, the opinion will prove to be an important one as this is an area of zoning and land use which needs some attention.