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.

About J. David Wicker

J. David Wicker is a founding member of the Law Office of J. David Wicker, PLLC located in Nashville, Tennessee. David focuses his practice on corporate and commercial transactions, middle market and small business matters, commercial real estate, and real estate development.