GEORGIA TIMBERLAND A CASE FOR EXISTING USE PROPERTY TAX

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GEORGIA TIMBERLAND - A CASE FOR EXISTING USE TAX APPRAISALS

GEORGIA TIMBERLAND

A CASE FOR EXISTING USE PROPERTY TAX APPRAISALS

By Steve Fentriss

The appraisal of timberland is perhaps one of the most challenging tasks currently facing ad valorem appraisal practitioners in the state of Georgia. One simply has to read a few case law decisions to observe the conflict created by statutory language requiring tax assessors to consider both the “existing use” of property as well as “any other factors deemed pertinent in arriving at fair market value”¹. From an appraiser’s perspective, the phrase “any other factors” would require consideration of a property’s most profitable or “highest and best use”. Obviously, significant differences in appraisal results and tax liability can depend on property type and use definition ascribed. So how has the legal system reconciled this apparent contradiction of instructions?

To begin with, there is generally no issue when “existing use” and “highest and best use” are the same, such as in the case of most single family homes or agricultural use properties located in a true rural setting. But how should timberland and agricultural use property be appraised for tax purposes, when situated in developing commercial, industrial or residential corridors, where “highest and best use” prices are substantially higher than what income from existing agricultural or timberland production will support?

A fundamental premise is found in Ayers v. Douglas County Board of Tax Assessors, 162 Ga. App. 224, 291 SE2d 84, 1982, where it was determined that tax assessors acted properly by considering comparable sales that appeared to consider the “existing use” of the subject property. Thus – and according to this example - if appraisals rely upon comparable sales having the same “existing use” there is no apparent conflict with the law.

Seemingly contrary language is found in other cases such as in Chilivis v. Backus, 236 Ga. 88, 222 SE2d 371, 1976, where it was proclaimed that the “actual use” of property is one determinative factor in finding “fair market value” but not the exclusive factor, i.e., tax assessors are not restricted to considering only actual “present use”. On the other hand, “highest and best use” is called a factor only if it would reflect the amount that would be realized from a cash sale of the property. Speaking rhetorically of course, and given the opportunity, wouldn’t prudent owners of timberland or agricultural use property naturally be expected to sell for more profitable commercial, industrial or development prices? Absolutely yes! Therefore, why shouldn’t those properties be appraised at their “highest and best use” values for ad valorem tax purposes? Other cases may help to put these questions into proper perspective.

At issue in Cobb County Board of Tax Assessors v. Sibley, 244 Ga. 404, 260 SE2 313, 1979, were agricultural and timberland appraisals, formulated totally on “highest and best use” prices paid for development, speculative development and special use land. With “fair market value” as the standard, the disputed appraisals were ruled illegal because they failed to consider the “existing use” of crop land, pasture land and timberland.

Conversely, in Hawkins v. Grady County Board Of Tax Assessors, 180 Ga. App. 834, 350 SE2d 790, 1986, the appraisal of a large timberland tract was deemed proper when based on comparable sales of property used strictly for continued agricultural and non-urban or non-speculative uses. Moreover, and pursuant to this case, there is no requirement that comparable sales be identical to the subject property.

But are tax appraisals valid when constructed using both “existing use” and “highest and best use” sales? According to the decision in Inland Container v. Paulding County Board of Tax Assessors, 220 Ga. App. 878, 470 SE2d 702, 1996, the answer is apparently in the affirmative.

To expound, the Inland matter involved a challenge to the appraisal of some 13,000 timberland acres. A distinction in this case was that some of the large tract sales used in valuation tables had sold for development or speculative purposes but most were purchased by owner-users or for continuation of the same use. Intriguing and apparently successful however, was an appraiser’s assertion that values were determined under “highest and best use” while the land was classified according to “existing use”. Nonetheless, inclusion and reliance on some large tract sales that were not of a commercial, industrial, development or speculative nature, was sufficient to show that “existing use” had in fact been considered. Noteworthy is mention that a correct judgment for any reason will be affirmed and that it is insufficient to simply show that the methodology used by the tax assessors may be flawed.

While the Inland case seems to allow some weighting of transitional “highest and best use” prices in formulating “existing use” agricultural and timberland appraisals, other cases have bearing and should be discussed.

In Dotson v. Henry County Board of Tax Assessors, 155 Ga. App. 557, 271 SE2d 691, 1980, appraisals made according to “highest and best use” were determined to be much more speculative than valuation according to “existing use”. Although involving a disputed farm appraisal, there is commonality with Inland because of situs in an area changing from agricultural to speculative, subdivision and commercial uses.

Findings in Dotson also declare tax appraisals erroneous that tilt “market value” in favor of an assumed “highest and best use”. In the same genre, the classic definition of “market value” was interpreted as being modified by specific criteria including zoning, “existing use” and deed restrictions. Moreover, and in the context of “existing use, it was concluded that value is defined in terms of “present use” instead of “value in exchange”. Lastly, and perhaps the topic of a future paper, it is mentioned that an income capitalization approach should perhaps at least be considered where the “existing use” of property is income producing.

Additional guidance on the weighting of “highest and best use” sales in tax appraisals comes from Sibley v. Cobb County Board of Tax Assessors: and vice versa, 171 Ga. App. 65, 318, SE2d 643, 1984, wherein “highest and best use” is referred to as a speculative factor. Similar to Dotson, virtually all sales used to appraise a transitional environed agricultural use property were transacted for different and more profitable uses. Although pointed out that “highest and best use” may be considered where appropriate, it was ultimately decided that sales utilized to set the appraisal had little comparative value to rural land presently used for agricultural purposes. Equally significant was a declaration that appraisals are improperly elevated when weight given to “highest and best use” is disproportionate to weight given “existing use”. By the same token, property taxation via improperly elevated appraisals is likened to confiscation and exceeding legitimate authority if an owner desires to pursue his chosen livelihood but is forced to sell his land as a consequence of the higher taxes.

While the aforementioned examples tend to affirm an assessor’s duty to consider the “highest and best use” of property, it is probable that the courts will invalidate appraisals perceived as rising above “existing use” value. Succinctly put, judicial precedence appears to have favored “existing use” appraisals over “highest and best use” appraisals. Two additional cases serve to support this conclusion and are worth mentioning.

In Evans v. Board of Tax Assessors of Henry County, 168 Ga. App. 792, 310 SE2d 562, 1983, the Board of Assessors valuation was disregarded when, among other things, the chairman conceded to having no knowledge of the subject property’s “existing use”. Moreover, in Georgia-Pacific Corporation v. Talbott County Board of Tax Assessors, 526 SE2d 914, 241, Ga. App. 444, 1999, it was determined that “market value” appraisals of (existing use) conservation use properties could be considered for comparability purposes to similarly situated corporate timberland tracts ineligible for special programs because of ownership prohibitions.

Specific to timberland, however, a discussion about “existing use” appraisals would be incomplete without addressing the value of growing trees.

As background, a major change in timber taxation occurred when the 1991 Georgia General Assembly enacted legislation to exempt standing timber from ad valorem taxation until either sold or harvested. Tax digests throughout the state were impacted because revenues generated annually from the value of standing trees were now deferred. Appraisal practices were affected because land now had to be valued as bare, and special expertise and/or additional effort was required to estimate and separate timber value from timberland sales so that land schedules could be properly developed.

The change of law, compounded by timberland re-appraisals in progress, and a Board of Assessors decision to assign no value to trees under 6 inches in diameter, resulted in an appellate case known as Leverett v. Jasper County Board Of Tax Assessors, 233 Ga. App. 470, 504 SE2d 559, 1998. Several precedents emerged from this case.

First of all, it was decided that timber does not have to be merchantable to have economic value. Secondly, land values were determined to be inflated and “existing use” criteria ignored because of assessor failure to subtract the value of trees from sales comparables and timberland appraisals. And lastly, uniformity standards were found to have been violated when different types of woodland and cleared property had been valued at the same effective rates.

Clearly, appraisers and the court system have recognized the potential for vast economic differences between “existing use” and “highest and best use” valuations. Timely, perhaps, is a new Georgia Department of Revenue rule mandating county property tax appraisers to familiarize themselves with overall market trends within their area of the state and to collect and analyze sales data from other jurisdictions in the event of insufficient sales of a given property type within their county, especially large acreage tracts ².

It is reiterated that problems can and do arise when “market value” and “use value” differ, such as in the instance of continued agricultural and timberland uses, in urban or transitional settings, when most if not all comparable sales have transacted upon the expectation of more profitable use. In these areas it can reasonably be concluded that assessors will be forced to develop income approach appraisals or rely on distant and lower priced rural sales affected by similar economic (use) limitations.

With regard to ad valorem appraisals on agricultural and timberland use properties, the definition of “market value”, as imposed by the legal system, has apparently evolved to mean “market value of the existing use”. Coincidentally, a rule of law known as ejusdem generis ³ seems applicable and juxtapose, whereby the general criteria of “any other factors”, such as specified in O.C.G.A. § 48-5-2 (3) (B) (iv), is related to and perhaps constrained by the three preceding specific criteria. Stated differently, consideration of “any other factors” – including “highest and best use” – appears to be limited to the confines of “existing zoning”, “existing use” and “existing covenants or deed restrictions dedicating the property to a particular use.” Given apparent case law agreement, it is difficult to understand how agricultural and timberland use properties in the State of Georgia could be appraised for ad valorem tax purposes by any other use standard than “existing use”.

¹Official Code of Georgia § 48-5-2 (3) (B)

²Rules of Department of Revenue Property Tax Division - Appraisal Procedures Manual

§ 560-11-10-.09 (2) (d) 1. (ii)

³The author was first exposed to this rule from a paper By W. Wheeler Bryan, Esq.,

titled “The Valuation of Timberland in Georgia, September 15, 2005

Steve Fentriss has held management positions in several Tax Assessor/Property Appraisal offices in Georgia and Florida and holds State-Certified General Appraiser licenses in both states. He can be contacted at sf&[email protected] . Appreciation is extended to Dennis Taylor of Plum Creek Timber and Dr. David Newman of the University of Georgia, for critiquing and proof reading this manuscript.

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