Tree Growth and Farm & Open Space
(from Maine Townsman, February 1991)
by Joseph Wathen, MMA Staff Attorney

Land classified as "forest land" and land classified as "farm or open space" are the two exceptions to the rule set forth in Article 9, Section 8 of the Maine Constitution that all taxes on real estate be assessed equally according to the "just value" or "fair market value" of the property.

Instead, land in these classifications is assessed and taxed according to its "current use," which is usually lower than its fair market value.

It is done so to provide a tax incentive to landowners: to preserve these areas from development.

Historically, most litigation and legislation has revolved around the tree growth law; in recent years, however, the open space law has received more attention. As more taxpayers seek the benefits of open space classification, assessors are pressed to define the limits of the law. There is little guidance in the statute, and less in the case-law.

In 1990, both laws were amended; these amendments were designed to tighten up the eligibility requirements. That is, a taxpayer can no longer obtain a tax benefit merely by letting the trees grow, or by maintaining an unspoiled view of the lake.

Now, land classified as tree growth must be managed for that purpose, and open space must be restricted or preserved to provide a "public benefit."

This article discusses the current status of these two tax laws: the Open Space Tax Law and the Tree Growth Tax Law.

Tree Growth

This law is found at 36 M.R.S.A. Sections 571-584-A. Property which qualifies as "forest land" is assessed according to its productivity value rather than its fair market value. This law now requires active forest management according to a plan in order to qualify as "forest land." Forest land is defined in Section 573.

Eligibility. To be eligible for tree growth classification, a parcel of land must contain at least 10 acres and be used primarily for the growth of trees to be harvested for commercial use. In addition, the property must be managed in accordance with a "forest management and harvest plan." Note that the tax classification is called "tree growth," but land in this classification is called "forest land;" these terms are often confused.

A landowner seeking tree growth classification must apply to the local assessor on or before April 1 of the taxable year. This application consists of the schedule described in Section 579, and a statement pursuant to Section 574-B that a forest management and harvest plan has been prepared. For land not classified as tree growth on September 30, 1989, this plan must be prepared before the application is made. For lands classified as tree growth on September 30, 1989, the landowner has until April 1, 1999 to prepare the plan. The local assessor need not review or approve the plan.

Ineligibility. In some cases, forest land is leased out for recreational use. Parcels of 100 acres or more will not be eligible for tree growth classification if the value of the lease (per acre) exceeds the value of the growth which can be extracted on a sustained basis (per acre). Sections 574-A and 576 explain how this determination is made.

Withdrawal of classification. Withdrawal from tree growth classification can occur by a change in use, a reduction in size of the parcel, failure to comply with the plan, or at the option of the landowner. Each is described briefly below.

Change in Use - Section 579 requires that the landowner report to the assessor when the land is no longer used primarily for the growth of trees for commercial use. If the landowner fails to report such a change and the assessor determines that the land no longer qualifies, the assessor shall withdraw the classification and impose a 25% penalty over and above the standard penalty outlined in Section 581.

Reduction in size - Parcels of less than 10 acres resulting from a transfer of forest land must be withdrawn from that classification. For example, if a landowner has a 15-acre of forest land but sells 6 acres, both the 9-acre and 6-acre parcels must be withdrawn.

Failure to Comply with Plan - The assessor shall withdraw land from tree growth classification if the land is not being managed in compliance with the plan required under Section 574-B. Every 10 years the landowner must submit to the assessor a statement from a licensed professional forester that the land is being managed according to plan.

Optional Withdrawal - The landowner may voluntarily request that land be withdrawn from tree growth classification. In the case of a portion of the parcel, a plan showing the area withdrawn shall be filed with the assessor, and the resulting portions shall be treated as separate parcels.

Penalty. The calculation of the penalty for withdrawal is outlined in Section 581. An additional penalty of 25% for failing to report a change in use is authorized by Section 579. A penalty will not be imposed if the withdrawal is the result of an eminent domain taking, or if the land is reclassified as farm or open space land.

Sometimes, a prior owner may have taken action which results in withdrawal, but the assessor does not learn of this until after the property has changed hands. In those situations, the new owner can be held responsible for the penalty, although the new owner may seek recovery from the prior owner. Penalties are treated as additional property taxes and may be collected using the statutory tax lien which runs with the land regardless of who holds title.

Assessment of Tax and Tax Rate. The State Tax Assessor establishes the value per acre of the various "forest types" of forest land. The local assessors adjust the State 100% valuation by the municipality's certified ratio.

The tax rate (mill rate) for forest land is the same as that applied to other property in the municipality.

Reimbursement. The municipality loses tax revenue when land is assessed and taxed as forest land rather than as undeveloped acreage. Section 578 provides that the State shall reimburse the municipality for 90% of this revenue loss. The calculation of this reimbursement is rather complicated, so it is critical to read Section 578 closely.

For further information on the technical details of the Tree Growth Tax Law, see Property Tax Bulletin No. 19 published by the State Bureau of Taxation, or contact that Bureau at State House Station 24, Augusta, ME 04333 (tel. 289-2011).

For information about forest management and harvest plans, contact the Maine Forest Service, State House Station 22, Augusta, ME 04333 (tel. 289-2791).

Farm & Open Space

As property values rose in the 1960s, so did the tax burden on landowners. Increasingly, landowners were forced to sell or develop their farms and fields. The Legislature responded to this trend in 1971 with the "farm and open space land law." This law is now found at 36 M.R.S.A. Sections 1101-1121. The purpose of the law is to encourage the preservation of farmland and open space by allowing a lower valuation for tax purposes than is applied to other real property. Farmland and open space are treated separately in the law, and will be discussed separately here as well.

This law was amended in 1990 to give assessors more guidance in how to determine and value "open space." The amendments have received mixed reviews, and many assessors feel that the law is even more difficult to apply. This is discussed below, but first a look at the "farmland" portion of the law is in order.


Qualification. Three criteria must be met before land will qualify as farmland under Section 1102: the parcel must contain at least 5 contiguous acres, it must be used for agricultural or farming activities, and these activities must produce the income specified in that Section.

In addition to the foregoing factors, Section 1109 states that the assessor may consider other factors, such as productivity of the land and actual acreage used for farming, in determining whether a parcel qualifies as farmland. Also, the landowner is required to file annually by April 1 a statement of the gross income realized from the farmland in the previous year (Section 1109(5)). The landowner is not required to apply for this classification each year, but the income statement is an annual requirement. Failure to file this statement is grounds for withdrawal from classification.

Valuation and Tax Rate. The local assessor must establish a valuation per acre of farmland. Factors to consider include soil types, farm rentals, and commodity values, as well as the other considerations stated in Section 1105. These values cannot reflect value attributable to road or shore frontage, nor can they reflect the development value of the land. The Department of Agriculture and the Bureau of Taxation have prepared guidelines to assist local assessors in the valuation of various types of farmland - crop land, orchard land, pasture land, and horticultural land. The assessor must record both the value of the land as farmland, and its value if it had not qualified as farmland.

The farmland valuation must be adjusted by whatever ratio or percentage of just value (the State valuation) is applied to other property in town. The mill rate for farmland is the same as that applied to other property in the community.

Withdrawal of Classification; Penalty. The assessor may withdraw the farmland classification upon a finding that there has been a change in use or in requisite size of the property, or if the income requirement is not met. The landowner may voluntarily request withdrawal, as well. In either case, there is a recapture penalty as described in Section 1112. There is no penalty if the change in use is the result of an eminent domain proceeding, or if the land is reclassified as tree growth or open space land.

Reimbursement. There is no reimbursement to the town for tax revenues lost as a result of land being classified as farmland.

Open Space Land

Two major problems with the open space law are its broad definition and its vague guidelines for valuation. Unlike forest land or farmland which produces marketable, quantifiable goods, there is no easy way to attach a value to a scenic view, or a path through marshland. These problems still exist despite recent amendments to the law.

Definition and Qualification. The term "open space land" is defined in Section 1102(6). Until last year, land would qualify if it fit into any one of four categories: that it conserve scenic resources, that it enhance public recreation, that it promote game management, or that it preserve wildlife or wildlife habitat.

The law was amended in 1990 (P.L.1989 Chap. 548, eff. 3/30/90) to include a requirement that a "public benefit" also be derived from the preservation or restriction of such land. The same four general categories exist, but now there must be a public benefit as well.

Section 1109 lists fourteen factors which the assessor shall consider in determining whether a public benefit exists. These factors were derived from U.S. Treasury regulations (26 CFR Sec. 1.170A-14) concerning the public benefit of conservation easements. The list of factors is not exclusive; that is, the assessor may consider other circumstances and facts pertinent to the land.

The easy case is where the land is already designated under Title 12 or in the town's zoning ordinance as a preserve, sanctuary or open space. The more difficult case is open land which has a legal restriction (such as a conservation easement) on its use or development, but the public benefit is unclear. The most difficult case is open land which fits within one of the four categories, but has no written or recorded restrictions against development and has no clear public benefit.

Section 1109(3) was also amended to provide that those portions of open space land improved by buildings or other "substantial improvements" cannot be included in the application for open space classification. The size of the parcel to be excluded must be either the State minimum lot size (now 20,000 sq. ft.) or local minimum lot size, whichever is larger.

The other recent amendment affecting open space eligibility is found in Section 1115. Now, if open space land is divided, the resulting parcels will not qualify if they no longer provide a public benefit. Unfortunately, there is no clear and simple test to determine when a parcel no longer qualifies. The assessor must make a judgment based on the factors used for initial qualification. This is difficult where there are no specific guidelines to apply, such as minimum acreage, recorded easements, or the like.

Can the municipality impose its own requirements for the "public benefit" test? No. The assessor may look at factors beyond those listed in Section 1109, but he cannot impose threshold requirements. For example, the assessor cannot require a minimum of ten acres to qualify. Likewise, the assessor cannot require an applicant to record a perpetual easement to preserve the property. The applicant's case is stronger if such an easement exists, but State law does not require it.

A town may devise its own review system for determining the eligibility and quality of open space. In Falmouth, for example, the Conservation Commission has developed an "open space evaluation procedure" which uses a point system and six general areas of review. This procedure is discussed further in the accompanying article.

Do these amendments make the law easier to apply? Most assessors think not. Many feel that the extensive list of factors makes more work, not less. Others feel that the public may perceive open space to be a tax loophole, and there is no way at the local level to prevent abuse.

Application and Transition Year. A landowner is required to file an application before April 1 for land which is being initially proposed for open space classification. Landowners whose land was taxed as open space as of April 1, 1990 must reapply before April 1, 1991 to establish that the public benefit exists. If there is no public benefit, the land must be withdrawn from open space. There is no penalty for this withdrawal unless the landowner was notified by the town before Jan. 1, 1991 to re-apply, but failed to do so. In that situation, the standard penalty mentioned in Section 1112 applies.

There is no annual obligation on the landowner to apply for open space status, but Section 1109(5) does require an owner to notify the assessor of any change in use or classification of the land.

Valuation and Assessment. The other major problem with the open space law is its vague valuation guidelines. Section 1105 requires the local assessor to establish the 100% valuation per acre based on the current use value of open space used for open space purposes. No one has a clear idea or formula to determine this, although Section 1106 states that "current use" is the sale price per acre that land would command in the marketplace if required to remain eligible as open space. The State Tax Assessor is to prepare open space valuation guidelines according to Section 1106, but these will not be available for at least a year. Part of the problem in creating guidelines, according to the Property Tax Division, is that very few people buy land which is permanently restricted in use to provide a public benefit, so there are few or no comparables. Also, there is a great variation in the quality of open spaces, and there is no reliable method for assigning value on the basis of quality. For example, 20 acres of permanently restricted fields on deep-water shorefront may be deemed "better" than a permanently restricted 20-acre peat bog, yet both qualify as open space. There is no stumpage, bushel price or other factor available to value these lands on the basis of quality.

Once value of open space has been determined, the assessor must adjust it by the current valuation ratio. The mill rate for open space is the same as for other property in town.

Withdrawal of Classification. Open space classification may be withdrawn at the option of the landowner, or by the assessor if he determines that the use of the land has changed. For example, if the land no longer fits one of the four categories listed in Section 1102(6) or no longer provides a public benefit, it should be withdrawn.

Penalty. Section 1112 provides for a recapture penalty. For open space, the penalty is calculated according to the tree growth penalty formula (36 M.R.S.A. 581). An additional penalty of 25% may be imposed under Section 1109 if the landowner failed to notify the assessor of the change in use which led to withdrawal. As noted above, there is no penalty in the "transition year" -1991 - if the landowner (of previously classified land) applies in time but fails to establish a public benefit. Also, there is no penalty if the withdrawal results from an eminent domain proceeding, or if the land is reclassified as farmland or tree growth.

Reimbursement. There is no reimbursement to the municipality for revenue lost as a result of land taxed as open space.

Does a municipality get any financial benefit for land in open space? Certain communities may benefit over the long haul from substantial open space lands. For example, a "bedroom community" whose undeveloped land is likely to be developed as residential lots may be better off over time if the land is not developed at all. This is due to the fact that the tax value of residential property is rarely enough to offset the costs associated with an increased population - school funding, police and fire services, and the like. This may not be apparent in the short term, however.

Another way in which the town may benefit is in the State revenue-sharing formula. For example, the more property which is in open space, the less overall value the town will have according to the State valuation, so the more money the town should receive from the State formula. The trick here is determining at what point the revenue loss (from taxes) is offset by increased State funding.

The only point on which everyone agrees regarding open space is that the law needs further amendment and clarification. Proposals include lowering the total amount of land which can be so classified (it is now 15,000 acres per person), or allowing communities to limit the overall percentage of land in open space. Undoubtedly, this law will get its share of judicial and legislative scrutiny in the future.


Open Space Evaluation
by David Sawyer, Assessor, Falmouth

Under the Maine Constitution, lands devoted to farming, tree growth and open space are eligible for tax breaks because their "current use" is perceived as being a public benefit.

Open space designation, however, has been a particularly perplexing problem over the last decade in southern Maine where ever-increasing development pressures are both decreasing the amount of open space and increasing land values.

As a result, many towns have begun efforts to preserve what open space remains by protecting and acquiring it.  But it has not been easy because of the difficulties presented in interpreting the law.

This article looks at the efforts of one of those towns - Falmouth - to promote, protect and preserve its open space and the procedures it developed to do so.

Before looking at what Falmouth has done, it should be noted that prior to its recent overhaul, Maine's Farm and Open Space law was vague and provided little guidance to communities in determining whether or not the open space land met the legal requirements. The statute simply stated that a parcel of land had to "conserve scenic resources, enhance public recreation, promote game management, or preserve wildlife."

The problem with the statute was rooted in the words "open space" and public benefit." Because the definition of open space was so vague, in most cases anyone simply declaring their land as open space would get approval. The other problem was determining what in fact constituted a "public benefit."

To address the problems inherent in the old law, a set of 14 factors was developed to be used in determining whether a parcel of land met the test of public benefit. However, as in any solution to a problem, more problems arise. Now the assessors are faced with the problem of interpreting the 14 factors.

Hopefully that is not the case in Falmouth, where the town's Conservation Commission has come up with procedures to deal with the ambiguities inherent in both the old and new version of the open space law and to support the goals of its own Open Space Plan, which the town passed in 1990.

What is now in place in Falmouth is an "Open Space Evaluation Form" that spells out a point system for determining whether the town should acquire a particular parcel of land; in other words would it be of "public benefit?"

In making the evaluation, there are six categories to consider (community character, natural resources, recreation areas and facilities, public access, trail system, and landscape buffers) and a passing score of 100.

For example, under the natural resource category an undeveloped field and meadow is worth 10 points per acre, while active farmland is only worth five points per acre. Under the public access category, access to ocean or lake that combines parking as well as foot trails is worth 50 points, while pedestrian access only is worth 25 points.

What is also in place is a five-step "Open Space Evaluation Procedure" that includes an inventory of natural, cultural and visual resources, a public benefit evaluation of the property, the identification of management concerns and liabilities, a decision on the public benefit, and lastly a recommendation to the assessor.

To date, Falmouth has not yet had an opportunity to test the procedure. However, the value of having the procedure in place before someone walks in with an open space application cannot be undervalued. It is advantageous to both the town and the taxpayer as well as to the assessor who now has a basis for making and defending a decision.

It should be noted that the contribution of the conservation commission is critical. By tapping into its energy and expertise, the assessor can make a much more reasonable and equitable decision.

Another advantage of this process is that it brings the landowner into contact with the conservation commission. Through that contact, the landowner will learn of other tax options open to him or her, such as conservation easements, and land trust arrangements.

And lastly, it is valuable to the town because it not only helps promote one of its stated objectives in the town plan, it also fosters communication and cooperation between municipal departments.

Copies of Falmouth's Open Space Evaluation Form and Open Space Evaluation Procedure are available by contacting the Assessors Office, Town of Falmouth, 271 Falmouth Road, Falmouth, ME 04105.