Changes to Michigan’s Qualified Forest Property program
An opportunity for private forestland owners.
This article was originally published by the Michigan Forest Association, Summer 2013 issue. It has been reproduced with permission of the author.
Major changes to Michigan’s private forestland policy occurred with the passage of Public Acts 42 through 50, signed by Governor Snyder on June 5-6, 2013. These acts included amendments to the requirements, provisions and administration of the Qualified Forest Property Program (QFP), which was established in 2006 to provide a reduction in property taxes for private forestland. These acts also expand the role of the Michigan Department of Agriculture Rural Development (MDARD) and the Conservation Districts in provision of assistance to private forestland owners, including administration of QFP.
QFP was enacted in 2006 to reduce the property taxes of owners of forested property that met certain conditions. Important qualifications were that the property was at least 20 acres, was capable of producing forest products and had no buildings. Lands enrolled in QF are exempt from the local school operating millage, usually 18 mills and enrolled land that continues in QFP can be exempt from the uncapping of taxable value when transferred. Since its enactment approximately 80,000 acres have been enrolled in the program, which is only a fraction of the approximately 7.2 million of private forestland in Michigan that is in parcels of at least 20 acres. Two aspects of QFP, the high withdrawal penalty (recapture tax) and the stipulation that the property cannot contain any structures are thought to be the major reasons for such a low enrollment. Public Act 49 of 2013 changed the calculation of the withdrawal tax and PA 42 of 2013 allowed forestland on which there are buildings to be enrolled.
There are two benefits from QF enrollment available to forest landowners. The first is an exemption from the school operating tax, which is usually 18 mills, and the second is an exemption from an uncapping, or “pop-up” of taxable value when the property is transferred. The first benefit is executed through the Qualified Forest School Tax Affidavit (QF STA) and the second is through the Qualified Forest Taxable Value Affidavit (QF TVA). A landowner can choose to execute one or both of the affidavits, depending upon his or her circumstances. For example, a purchaser of forest property may choose to execute only the School Tax Affidavit if he or she is not concerned with a pop-up in taxable value which would occur upon the transfer of the property from the previous owner. This would be the usual case for a landowner purchasing forestland that will be enrolled in QFP for the first time. Alternatively, since a forestland owner’s property that is the site of their permanent residence is already exempt from the school operating millage the landowner may want to file only a Taxable Value Affidavit if they are being transfered forestland that is already in QFP. These two provisions operate in much the same way as do the provisions for Qualified Agriculture land in Michigan.
Owners of productive forest property of at least 20 acres may apply for the QF STA and the QF TVA by applying to MDARD on the appropriate forms and including an approved forest management plan and a $50 fee. The application is reviewed by MDARD, which sends a copy to the Conservation District to confirm that the land meets the qualifications of the program. If MDARD approves the application it sends a QF STA or QF TVA to the landowner who signs it, records it with the county register of deeds and sends a signed copy to MDARD.
To meet QFP qualifications the property must be productive forest which is defined as that being able to produce forest products of at least 20 cubic feet per acre per year, which is about ¼ of a cord of wood per year. Parcels of more than 20 acres but less than 40 acres must be at least 80 percent stocked in productive forest. Properties of 40 acres or more must be at least 50% stocked in productive forest. Unlike the Commercial Forest Program, public access for hunting and fishing is not required for enrolled property. Buildings are now allowed on the property, but they are not exempt from the school operating millage or the pop-up ‘deferral’. The buildings’ taxable value and millage rate will appear on a separate line on the owner’s property tax statement. There is a limit of 640 acres that a landowner may enroll in one local tax unit.
Owners of QFP forestland must follow the management plan that was submitted with the QFP application. The plan must include “1) a legal description and parcel identification number of the property, 2) a statement of the owners forest management objectives, 3) a map, diagram or aerial photograph … of the forested and unforested areas of the property, including the location of any buildings, 4) a description of forest practice (sic) including harvesting, thinning and reforestation that will be undertaken and … the period of time before each is completed, 5) a description of the soil conservation practices and 6) a description of activities that may be undertaken for the management of forest resources other than trees. “ (PA 42 of 2013). The landowner must perform the forest practices stipulated in the plan within three years of that scheduled by the plan. Landowners must also notify MDARD when a forest practice, including harvest, occurs.
The plan must be written by a qualified forester which includes State of Michigan Registered Foresters, Society of American Foresters Certified Foresters, a Forest Stewardship Plan writer or a USDA registered forest management plan technical service provider. The Conservation Districts will make a list of qualified foresters available on request and will post a landowner’s request for the services of a forester on its website. MDARD will also maintain a master list of all qualified foresters in the State which will be available to landowners. If the landowner has not located a qualified forester within 30 days of posting the request then the conservation district forester may write the forest management plan.
Landowners who are transferred (e.g. purchasing) property that is enrolled in QF can choose to keep the property in the program and have the school tax affidavit (QF STA) transferred to them. To prevent an uncapping of the taxable value the new landowner must also file a qualified forest taxable value affidavit (QF TVA) with the county register of deeds. This affidavit is provided by MDARD and includes a legal description, the name of the new property owner, a statement that the property qualifies for the exemption and that the new owner will continue to manage the property according to the forest management plan on file. If the QF TVA is not filed when the property is transferred, the property is withdrawn from QFP, the taxable value of the property is uncapped and any applicable recapture taxes are assessed.
Between June 1 and November 30, 2013 owners of lands which were enrolled in QFP before January 1, 2013 must choose to keep the property in QFP or remove the property from the program. To keep the property in QFP the landowner must file a new QF TVA (if needed) and a new QF STA with MDARD before November 30, 2013. During this six month period the $50 fee is not charged. Landowners may also opt not to execute new affidavits during this period and the existing affidavits will be rescinded, withdrawing the property from QFP but without the recapture tax being charged.
To withdraw property from QFP after November 30, 2013, the landowner files an application with MDARD and pays a recapture tax. If there had been a harvest on the property since enrollment the recapture tax is calculated as: (the school operating millage minus a two mill fee) x (the property’s taxable value) x (number of years enrolled in QFP not to exceed seven years).
If there had been no harvest of forest products during enrollment the calculation above is doubled.
To withdraw QFP properties which had a transfer ownership and for which a QF TVA was filed stating that the property would stay in QFP with the transfer, there is an additional repayment which is a function of how many years the property has been in the program and what the taxable value of the property would have been if it was not enrolled with the transfer of ownership (PA 49 of 2013 Sec 4(d)).
PA 45 of 2013 created the Private Forestland Enhancement Fund (PFEF). A fee equivalent to two mills per year is paid into the fund every year by QF property owners and, beginning in January 1, 2014, QFP recapture taxes are deposited into the fund. The PFEF is to be used by MDARD to provide assistance to private forestland owners including programs to “encourage the judicious management of forestlands’, administering cost-share and incentive programs, educational, demonstration and technical assistance programs.
Landowners should contact their local Conservation District or MDARD for additional information on applying for QFP exemption. MDARD can also supply a list of consulting foresters with whom landowners may wish to discuss QFP enrollment.