FO-5632-GO
Revised 2000
To Order
Property Tax Guide
for Forest Landowners
Melvin J. Baughman
This publication will help Minnesota’s rural landowners, especially forest landowners, understand our state’s property tax system. Rural lands can be classified in different categories, each with a different tax rate. This publication briefly describes the ad valorem tax system, including its Native Prairie Tax Exemption Program, Wetland Tax Exemption Program, Minnesota Agricultural Land Preservation Program, Metropolitan Agricultural Preserves Program, and Minnesota Agricultural Property Tax Law (Green Acres Law), and the Tree Growth Tax Law. Use this publication to evaluate whether your land is appropriately classified, based on your land use and objectives. Not all programs are available statewide. If you have further questions about any of these tax systems or programs, including whether they are offered in your county, contact your county assessor.
1. Ad Valorem Tax System
2. Minnesota Tree Growth Tax Law
3. Comparison of 2b Timberland Classification and Tree Growth Tax Law
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Ad Valorem Tax System
The ad valorem property tax system covers most land in Minnesota (Minnesota Statutes Section 273.13). Ad valorem means according to value. The tax payable is based on the property’s estimated market value, its property class rate, and the local tax rate:
Estimated Market Value x Class Rate x Local Tax Rate = Tax Payable
(The above formula is a simplified version of calculations that may involve credits and additions between state and county governments.)
Estimated Market Value
Estimated market value for each parcel of land (including land, buildings, and trees) is determined by the county assessor as of January 2 each year. It is based on recent sales of similar property. That market value is used to calculate taxes payable in the following calendar year (e.g., estimated market value in 1999 is used to calculate taxes payable in 2000). Your property’s estimated market value is shown on your property tax statement. If you believe this estimate is not correct, you may appeal to the assessor by providing evidence of sales of similar, nearby property.
Classification and Rate
The class rate is a percentage of the market value. This rate is established by state law for each property type. Table 1 shows rates for property types into which forest and agricultural land typically may be classified by the assessor. For example, 2b Timberland has a class rate of 1.20 percent for taxes payable in 2000.
Table 1. Selected class rates by property type.
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Class Property Type Class Rate (%) Payable 2000
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2a Agricultural Homestead
House, garage, one acre:
1st $76,000 1.00
over $76,000 1.65
Remainder of farm:
1st $115,000 0.35
$115,000 - $600,000 0.80
over $600,000 1.20
2b Timberland and Non-Homestead
Agricultural Land: 1.20
4c(1) Seasonal Recreational Residential Non-Commercial
1st $76,000 1.20
over $76,000 1.65
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As a general rule, properties managed for more than one distinct use (such as a commercial business located on a farm) are divided into parts for tax purposes. Each part is classified according to its primary use. This is known as a split classification.
Forest land that is not part of a farm may be classified 2b Timberland. Timberland is defined as: (a) real estate, rural in character and used exclusively for growing trees for timber, lumber, and wood and wood products, or (b) real estate that is not improved with a structure and is used exclusively for growing trees for timber, lumber, and wood and wood products if the owner has participated or is participating in a cost-sharing program for tree planting or timber stand improvement on that particular property, administered or coordinated by the Minnesota commissioner of natural resources. Forest land that is part of a farm commonly is classified 2a Agricultural Homestead or 2b Non-Homestead Agricultural Land. State law explicitly includes timberlands within the definition of agricultural land, provided that the property as a whole is used primarily for agricultural purposes [Minnesota Statutes Section 273.13, Subdivision 23(b)].
Class 4c(1) Seasonal Recreational Residential Non-Commercial property includes land and buildings devoted to temporary and seasonal residential occupancy for non-commercial recreation purposes. If forest land has a cabin or water frontage, or appears to be used for recreational purposes, or is in an area of the county where recreational use of forest land is quite common, the assessor may assign it to Class 4c(1). Land in this class that is valued at less than $76,000 has a class rate of 1.20 percent, the same as 2b Timberland and Non-Homestead Agricultural Land; land in this class valued over $76,000 carries a 1.65 percent class rate.
Other classifications into which forest land might be placed include Residential Homestead and Seasonal Recreational Residential Commercial. There are other classifications in the ad valorem system, but forest land is less likely to be placed in them.
While county assessors use Minnesota Department of Revenue guidelines when classifying land, similar appearing properties may be classified differently by different assessors, depending on their judgments as to the primary use of each property and their interpretations of class definitions. For example, to qualify your forest land under 2b Timberland, an assessor may require evidence that you are managing timberland exclusively for wood and wood products; otherwise the land may be classified as 4c(1) Seasonal Recreational Residential Non-Commercial. A woodland management plan and evidence of past management (tree planting, harvesting, thinning, etc.) will serve as evidence of timber management. If you do not agree with the classification assigned to your land, discuss it with your county assessor.
Local Tax Rate
The local tax rate is determined by the county auditor, who divides the dollar amount of the property tax levy for each taxing jurisdiction by the total taxable valuation (market value x class rate) of the jurisdiction. The local tax rate that applies to a particular parcel is the sum of tax rates of all taxing districts in which the parcel is located. This local tax rate may be modified by credits or additions provided in state law.
Sample Tax Calculation
For an example of calculating the tax payable, assume that a parcel of forest land had a market value of $300 per acre in 1999 and a 2b Timberland class rate of 1.20 percent, and the local tax rate was 90.41 percent:
$300 x 0.0120 x 0.9041 = $3.25 per acre tax payable in 2000.
Native Prairie Tax Exemption Program
Native prairie land may be exempted from property taxes [Minnesota Statutes Section 272.02, Subdivision 1(11)] if it is dominated throughout by native prairie vegetation; not severely altered by plowing, heavy grazing, seeding to non-native grasses and legumes, or spraying with large amounts of herbicides; not in use as pasture (haying is allowed); at least five acres (smaller tracts may qualify if they provide important rare species habitat or other significant prairie features); and located in an eligible county (all counties except Lake of the Woods, Koochiching, Itasca, St. Louis, Lake, Carlton, and Pine).
To apply, (1) fill out the Native Prairie Tax Exemption application, available from your county tax assessor, Minnesota Department of Natural Resources (DNR), or other conservation agency; (2) obtain two USDA Farm Service Agency aerial photos of the entire tract being applied for exemption and outline in red the prairie acreage; and (3) mail the application and photos to your county tax assessor.
The county assessor will forward your application to the local DNR area wildlife manager, who will evaluate the prairie and determine whether it qualifies. Once the prairie is enrolled, your exemption will automatically be renewed each year. You must notify the county assessor in writing if you change the use or condition of the property such that it no longer meets the above criteria. If you sell the property, the exemption carries over to the new owner so long as the prairie is preserved.
Wetland Tax Exemption Program
The following wetland types are exempted from property taxes [Minnesota Statutes Section 272.02, Subdivision 1(10)]: (a) public waters wetlands (all Type 3, 4, and 5 wetlands as defined in U.S. Fish and Wildlife Service Circular No. 39 that are not public waters, but are 10 or more acres in unincorporated areas or 21/2 acres in incorporated areas); (b) lands mostly under water that produce little if any income and have no use except for wildlife or water conservation purposes; and (c) land in a wetland preservation area (carries a restrictive covenant to protect soil and water and prevent development). Not eligible for this tax exemption are woody swamps containing shrubs or trees, wet meadows, meandered water, streams, rivers, and floodplains or river bottoms. No landowner application is required for this tax exemption. Contact your county tax assessor to see if your wetland qualifies.
Minnesota Agricultural Land Preservation Program
Landowners can receive $1.50 per acre per year property tax credit and other benefits for agreeing to preserve their farm and forest land for long-term agricultural use. Before this can happen, the county must adopt (and have approved by the Minnesota Department of Agriculture): (a) an agricultural land preservation plan that designates portions of a county for long-term agricultural use and other portions for growth around urbanized areas, and (b) land use regulations (e.g., zoning and subdivision regulations) that restrict uses to agriculture and forestry, and require low nonfarm residential densities in areas designated for long-term agricultural use. Once a county’s plan and regulations have been adopted and approved, a landowner in an agricultural zone may voluntarily place an agricultural preserve covenant on the land, restricting land use to agriculture and forestry. The county may charge an application fee of no more than $50 and the landowner must agree to follow sound soil conservation practices. A covenant runs with the land, even if it is sold. The landowner or local government may terminate the covenant, but that process takes eight years.
Under an agricultural preserve covenant (Minnesota Statutes Sections 40A.12-13 and 273.119):
The landowner receives $1.50 per acre per year property tax credit.
Local governments cannot enact ordinances or regulations that restrict or regulate normal agricultural practices.
Enrolled farmland within a township cannot be annexed to a municipality unless the landowner or county has initiated termination of the covenant, or the township would not be able to provide normal governmental function and services, or the farmland is completely surrounded by the city.
Eminent domain proceedings are limited and subject to public and administrative review.
Public sanitary sewer systems, water systems, and drainage systems are prohibited and land may not be assessed for public projects built in the vicinity unless the project is necessary to serve land primarily in agricultural use or the landowner chooses to use and benefit from the project.
This program currently is available in Waseca, Winona, and Wright counties. For more information, contact your county tax assessor or the Minnesota Department of Agriculture.
Metropolitan Agricultural Preserves Program
This program is similar to the Minnesota Agricultural Land Preservation Program described above, except that it applies only to counties in the Twin Cities Metropolitan Area (Minnesota Statutes Chapter 473H). A participating township, city, or county government must designate portions of its jurisdiction for long-term agricultural use and approve zoning regulations that allow no more than one residential unit per 40 acres. Landowners within a designated agricultural zone may obtain application forms for agricultural preserve status from their local government or the Metropolitan Council. A minimum of 40 acres is required, with these exceptions (if the exceptions have been approved by the local authority):
Noncontiguous parcels of at least 10 acres and totaling 40 or more acres may qualify if they are farmed as a unit.
A 35-acre parcel may qualify if the land is a single quarter/quarter section and the reduction in acreage is due to a public road right-of-way or a variation in the section survey.
A 20-acre parcel may qualify if the land is adjacent to eligible land on not less than two sides; if the land is predominantly Class I, II, III, or irrigated IV according to the Natural Resources Conservation Service; if the local government considers the land to be an essential part of the agricultural region; and if the parcel was a parcel of record prior to January 1, 1980, and was an agricultural preserve prior to becoming a separate parcel.
Once approved, a landowner’s restrictive covenant to preserve agricultural land will run with the land even if it is sold. A covenant may be terminated, but the process takes eight years.
A landowner receives these benefits:
Farmland enrolled in the program is classified and assessed for tax purposes according to its agricultural value, rather than its market value.
The farmland’s tax rate is equal to 105 percent of the previous year’s statewide average tax rate for townships outside the Twin Cities Metropolitan Area. If the local tax rate is higher, the difference is paid in the form of a tax credit by the county or state conservation fund. Participants are guaranteed a minimum tax credit of $1.50 per acre per year.
Enrolled farmland cannot be assessed for public improvement projects such as sanitary sewers, storm water sewers, water systems, roads, and other public improvements built on or in the vicinity of agricultural preserves.
Local governments cannot enact or enforce ordinances or regulations that restrict normal farm practices.
Enrolled farmland within a township cannot be annexed to a municipality unless the landowner has requested to withdraw from the program, or the farmland is completely surrounded by the city.
Enrolled farmland has some protection from eminent domain proceedings.
Minnesota Agricultural Property Tax Law (Green Acres Law)
This law provides for agricultural land to be assessed (and subsequently taxed) for its agricultural value and not for any added value attributable to its urban development potential (Minnesota Statutes Section 273.111). Special assessments for public sewer, water, streets, etc., are deferred for as long as the property qualifies under the program.
To qualify there must be at least 10 acres of land and it must meet these ownership criteria: be the owner’s homestead or the homestead of the owner’s surviving spouse, child, or sibling; or have been in the possession of the applicant or the applicant’s parent, spouse, or sibling for seven years; or be the homestead of a shareholder in a family farm corporation; or be in the possession of a nursery or greenhouse. The property must be used for agricultural purposes and at least one-third of the owner’s total family income must be derived from agriculture, or the total production income, including rental from the property, must be $300 plus $10 per tillable acre. The owner’s slough, wasteland, and woodland contiguous to the agricultural land also qualifies for this agricultural assessment.
When the land no longer meets this law’s criteria, a rollback tax is levied equal to the amount by which the preferential assessment reduced the tax due on the property over the previous three years. The landowner also must pay any deferred assessments for public works projects, plus interest, for the entire period enrolled. If the land is sold, the new owner may apply within 30 days to continue application of this law to the property. If the application is approved, no back taxes will be due.
Minnesota Tree Growth Tax Law
When land is placed under Minnesota’s Tree Growth Tax Law (Minnesota Statutes Section 270.31-270.39), property taxes are based on the value of annual timber growth on the property. Individual counties may choose whether to adopt this law. Ten counties have forest land enrolled under the Tree Growth Tax Law: Becker, Carlton, Cass, Crow Wing, Hubbard, Itasca, Koochiching, Morrison, St. Louis, and Wadena.
Qualification and Application Procedures
Any owner of at least five acres of forest land in a county that has adopted this law may submit an application to the county board. The application, in triplicate, must include:
a legal description(s) of the property;
a map showing the location and boundaries of each forest type on the property and a list of the dominant tree species and number of acres in each forest type (see Forest Classifications and Tax Rates below);
a statement concerning the owner’s intention to reforest any temporarily nonproductive land; and
a signed and sworn statement by the applicant that "while the land is under the tree growth tax law it will be used exclusively for the growing of continuous forest crops in accordance with sustained yield practices and will be open to use by the public for hunting and fishing except within one-fourth mile of a permanent dwelling or during periods of high fire hazard as determined by the Commissioner of Natural Resources."
Most counties have additional qualifications. Contact your county auditor for an application form and further details.
Forest Classifications and Tax Rates
All lands placed under the Tree Growth Tax Law are categorized under one of three forest classifications, each with its own tax rate.
Commercial Forest Types
A forest type is a stand of trees composed of species that commonly occur together. It is identified and named for those tree species that make up 50 percent or more of the sawlog volume in sawlog stands, of cordwood in pole-timber stands, or of the number of trees in seedling and sapling stands. Commercial forest lands contain at least three cords of standard pulpwood or sawlogs per acre or 500 stems of commercial tree species per acre. Forest types recognized under the Tree Growth Tax Law include:
Aspen-Birch - a stand in which a mixture of trembling aspen, bigtooth aspen, and paper birch predominates.
Upland Hardwood - a stand in which northern hardwood species (sugar maple, red maple, yellow birch, basswood, and oak) predominate.
Lowland Hardwood - a stand on poorly drained land in which bottomland hardwood species (ash, elm, and balm of Gilead [balsam poplar]) predominate.
Spruce-Fir - a mixed hardwood and coniferous stand with white spruce and balsam fir the most common species.
Swamp Spruce - a stand in which swamp conifers predominate with black spruce the most common.
Other Swamp Conifers - a stand in which conifers predominate, with tamarack (eastern larch) or white-cedar the most common.
Stagnant Spruce Swamp - a stand in which spruce predominates, but that will not produce standard pulpwood in 100 years, although it will produce Christmas trees of commercial value.
Jack Pine - a stand in which pine species predominate, with jack pine the most common.
Norway and White Pine - a stand in which pine species predominate, with Norway (red pine) or white pine the most common.
The tax on commercial forest types is 30 percent of the value of estimated average annual tree growth for a forest type. Growth rates for each forest type are set every 10 years by the county board of commissioners based on forest surveys by the Minnesota Department of Natural Resources and U.S. Forest Service North Central Research Station. The stumpage value of each forest type, expressed in dollars per cord, is recalculated in even-numbered years. Stumpage value of a forest type is based on the proportion of each species that commonly occurs in a type and the average timber sale receipts for each species on state land in the county over the previous two years. If fewer than 500 cords of a species have been sold during the previous two years, the commissioner of the DNR sets the stumpage value for that species according to the DNR base stumpage price for that species on its land.
For example, assume that in a particular county, the average annual growth rate for the jack pine forest type is 0.436 cords per acre, the stumpage value for this forest type is $28.80 per cord, and the tax rate for all forest types under Tree Growth is 30 percent:
0.436 cords per acre x $28.80 per cord x 0.30 = $3.77 Tree Growth tax per acre on jack pine.
Temporarily Nonproductive Forest Type
These lands are capable of producing a commercial forest type, but presently do not contain a sufficient timber volume to be classified as a commercial forest type.
Temporarily nonproductive forest types are taxed at a flat rate of $0.05 per acre per year, providing the owner agrees to reforest within 10 years. If the landowner does not reforest within 10 years, the land is taxed thereafter at $0.15 per acre per year.
A $0.50 tax credit is authorized for each acre of land planted and maintained with a minimum of 500 trees of commercial species. The owner may apply this credit against taxes on other lands within the same governmental subdivision on which the planting is made. The credit can be used annually until the plantation is 10 years old and the land is reclassified as a commercial forest type. For example, by planting 20 acres the owner will have a $10.00 credit per year (20 acres x $0.50/acre) for up to 10 years. Before enrolling land under the Tree Growth Tax Law, several counties require landowners to sign an agreement relinquishing their right to this tax credit.
Permanently Nonproductive Land
This type includes land that is unsuitable for growing commercial forest types, such as muskeg, marsh, and rock outcrops. Such land is taxed at a flat rate of $0.05 per acre per year.
Land Used for Administration, Public Recreation, or Buildings
Land enrolled under the Tree Growth Tax Law that is used for administrative or management purposes (e.g., roads and work sites) or for free public recreation is classified the same as adjoining lands under the Tree Growth Tax Law. Cabins and temporary buildings are taxed as personal property.
Withdrawal
When land is enrolled under the Tree Growth Tax Law, the agreement between the landowner and the county board of commissioners is a covenant that runs with the land and is recorded by the county recorder at the landowner’s expense. The owner may withdraw land from the Tree Growth Tax Law at any time. However, the land then will be subject to back taxes and penalties based on the difference between taxes paid under Tree Growth and what would have been paid under the ad valorem tax system for the period the land had been enrolled under Tree Growth, but not exceeding 10 years.
If at any time the county board deems lands enrolled under the Tree Growth Tax Law to be more valuable for purposes other than timber production, such lands may be removed from the Tree Growth Tax Law by joint agreement of the county board and the landowner. In the event of a disagreement, such lands may be removed by the county board upon the recommendation of a three-member committee - one member each appointed by the county board, the landowner, and the Minnesota commissioner of revenue.
Comparison of 2b Timberland Classification and Tree Growth Tax Law
Whether the 2b Timberland class or Tree Growth Tax Law is more appropriate for a given landowner’s forest land depends on the tax payable under each system, management requirements, attitudes toward public access, and conditions for withdrawing land from a particular classification.
Table 2 shows the average tax per acre on forest land under the 2b Timberland class and the Tree Growth Tax Law. The statewide average tax on 2b Timberland is $3.53 per acre (payable 1998). This tax is higher than the average Tree Growth Tax (payable 2000) for all forest types except Norway and white pine, which is $8.62 per acre. Landowners should compare the ad valorem tax on their land with the Tree Growth Tax rates for their forest types to determine which system offers the lower tax.
Table 2. 2b Timberland and Tree Growth Tax per acre by county
Tree Growth Tax ($/Acre) By Forest Type, Payable 2000 *
County Average 2b Timberland Tax ($/Acre), Payable 1998 Average Tree Growth Tax ($/Acre), Payable 1999 Aspen- Birch Upland Hardwood Lowland Hardwood Spruce- Fir Swamp Spruce Other Swamp Conifers Stagnant Spruce Swamp Jack Pine Norway and White Pine
Becker 3.73 5.43 2.06 2.12 0.47 0.88 0.55 0.34 0.30 3.77 14.55
Carlton 3.63 2.08 1.83 0.86 0.30 1.33 0.72 0.27 0.30 2.38 9.08
Cass 3.53 3.08 2.07 1.85 0.32 1.44 0.71 0.48 0.30 2.71 7.68
Crow Wing 5.03 3.32 2.64 2.67 0.46 1.13 0.71 0.30 0.30 4.00 7.06
Hubbard 4.81 5.03 3.04 1.16 0.34 1.02 0.49 0.44 0.30 5.09 7.93
Itasca 4.20 2.07 2.91 1.62 2.06 1.26 0.94 0.29 0.30 5.04 10.47
Koochiching 2.06 2.01 2.59 2.08 0.51 1.12 0.98 0.49 0.30 2.60 6.11
Morrison 4.52 3.05 1.95 2.56 0.36 1.52 0.78 0.38 0.30 2.47 5.67
St. Louis 2.57 1.64 1.62 0.46 1.27 0.91 0.87 0.50 0.30 1.88 9.70
Wadena 5.75 2.64 2.60 2.93 0.33 1.40 0.71 0.25 0.30 3.40 7.94
State Average * 3.53 2.18 2.33 1.83 0.64 1.20 0.75 0.37 0.30 3.33 8.62
*Tree Growth Tax on Temporarily Nonproductive forest land is $0.05 per acre for up to 10 years and $0.15 per acre after 10 years if not reforested. Tree Growth Tax on Permanently Nonproductive forest land is $0.05 per acre.
*State averages for 2b Timberland Tax and Tree Growth Tax are based on the number of acres enrolled in all counties. State average Tree Growth Tax by forest type is an average of figures in the column and is not weighted according to the acres in each forest type.
Acknowledgments
Funding for this publication was provided by:
University of Minnesota Extension Service (the Renewable Resources Extension [RREA] program of the University of Minnesota Extension Service and the U.S. Department of Agriculture—Cooperative States Research, Education and Extension Service)
Minnesota Department of Natural Resources Forest Stewardship Program in cooperation with the USDA Forest Service, State and Private Forestry.
Author - Melvin J. Baughman is an Extension Specialist—Forest Resources and Professor in the University of Minnesota’s Department of Forest Resources, College of Natural Resources
Product Manager - Gail M. Tischler
Graphics - John A. Molstad
Editor - Mary K. Hoff
Produced by Communication and Educational Technology Services, University of Minnesota Extension Service.
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