2 Virginia Department of Taxation Conservation Partners LLC Virginia’s Land Preservation Tax CreditPresented to:Conservation Partners LLCAppraiser RoundtableCrozet, Virginia August 20, 2008Presented By: Larry Durbin Assistant Tax Commissioner
3 Donation History Data 2000-01 219 30,953 $ 52,608,810 Tax Year # of Credits # of Acres Credit Requests, $ 52,608,810, $ 62,067,807, $ 75,358,707, $140,444,145, $155,281,875, $242,316,354* , $100,000,000* , $ 17,949,252Grand Total , , $846,026,950*Through July 2008
4 Large Donations (>$1,000,000) Data Tax Year # of Credits # of Acres Credit Requests, $ 13,893,700, $ 21,205,126, $ 47,754,407, $ 84,608,471, $ 86,795,747, $122,372,820* , $ 28,255,400* , $ 10,499,477Grand Total , $415,385,148*Through July 2008
5 Breakdown of Large Donations Data Appraised Value # of Credits # of Acres Credit Req’d$2.0M - $2.4M ,314 $ 38,378,250$2.5M - $3.6M , $ 83,871,490$3.7M - $4.9M , $ 44,186,881$5.0M-$10.0M ,030 $ 78,849,804>$10.0M ,535 $170,098,723Total ,487 $415,385,148
6 Breakdown of Large Donations Data cont’d Tax Year % of Credits % of Acres % of Credit Requested% % %% % %% % %% % %% % %% % %% % %% % %
7 Comparative Donation Data Type # Credits # Acres Appraised Value Fair Market/AcreLarge Donation , $ 845,997, $ ,671Small Donation , , $ 905,030, $ ,157Grand Total , , $1,751,028, $ ,876
9 Transfer History Data 2005 236 2,371 $134,956,157 87% Tax Year #of Credits # of Recipients Amt Transferred % of Total, $ 51,121, %, $ 69,375, %, $122,889, %, $134,956, %, $213,349, %* , $ 62,465, %* $ 4,189, %Grand Total 1, , $658,347, %*Through July 2008
10 Statewide LPC CAPTax Year CAP AMOUNT$ 100,000,000$ 102,287,081
11 LPC Claimed on Returns Data Tax Year # of Returns Amount Claimed$ ,462,912$ ,641,730, $ 32,319,808, $ 94,901,962, $ 114,343,177, $ 167,400,816, $ 81,897,219Grand Total , $ 502,967,624*Through July 2008
12 Easement Value Ratio Data Reduction % Range # of Donations Credit Requested$ 78,144,200$326,392,317$194,116,917$148,967,006.
13 Where are donations being made? Number of Donations Locality # of Donations Acres Credit ValueFauquier ,083 $104,271,730Albemarle ,932 $108,973,227Loudoun ,230 $143,763,872Rockbridge ,183 $ 19,595,771Rappahannock ,230 $ 22,240,509Clark ,846 $ 16,761,941Augusta ,151 $ 8,642,752
14 Where are donations being made? Dollar Value Locality # of Donations Acres Credit ValueLoudoun ,230 $143,763,872Albemarle ,932 $108,973,227Fauquier ,083 $ 91,191,650New Kent ,688 $ 24,706,836Rappahannock ,230 $ 22,240,509Spotsylvania ,291 $ 22,024,623Rockbridge ,183 $ 19,595,771Orange ,246 $ 18,621,322Fredericksburg $ 17,973,250Bath ,659 $ 17,041,025Clarke ,846 $ 16,761,941
15 Legislative Changes Changes Effective for 2007 Donations Credit is 40% of FMV of the donation.$100 million statewide cap on tax credits.Applications in excess of statewide cap are first in line for the following year.
16 Legislative Changes Changes Effective for 2007 Donations If credit is $1 million or more:Application must be filed with DCR and TAX.DCR must verify conservation value within 90 days.If the maximum $100 million cap is reached before the conservation value is verified by DCR, the credit shall be issued for the following calendar year.
17 Legislative Changes Changes Effective for 2007 Donations Charitable organizations can earn and transfer the credit unless they:Meet the definition of a “holder” as defined in Code Section and;Hold one or more conservation easements.
18 Legislative Changes Changes Effective for 2007 Donations Any transfer arising from a sale of a credit or distribution is subject to a fee of 2% of the FMV of the donation up to $10,000 per credit holder.This equates to 5% of the credit amount transferred.
19 Legislative Changes Code of Virginia § 58.1-512.1 A The Department of Taxation shall establish and make publicly available guidelines that incorporate, as applicable (without limitation), requirements under § 170 (h) of the United States Internal Revenue Code of 1986, as amended, and the Uniform Standards of Professional Appraisal Practice (USPAP).
20 Legislative Changes Code of Virginia § 58.1-512.1 B For any otherwise qualified donation of a less-than-fee interest under this article, however, no more than 25% of the total credit allowed shall be for reductions in value to any structures and other improvements to land.
21 Legislative Changes Code of Virginia § 58.1-512.1 C The fair market value of any property with respect to a qualified donation shall not exceed the value for the highest and best use (i) that is consistent with existing zoning requirements; (ii) for which the property was adaptable and needed or likely to be needed in the reasonably near future in the immediate area in which the property is located.
22 Legislative Changes Code of Virginia § 58.1-512.1 C (iii) that considers factors such as, by way of illustration and not limitation, slopes, flood plains, and soil conditions of the property; and (iv) for which existing roads serving the property are sufficient to support commercial or residential development in the event that is the highest and best use proposed for the property.
23 Legislative Changes Other changes: Carryover period extended from 5 to 10 years.Burden of proof is on taxpayer to show that the fair market value and conservation value at the time the qualified donation is consistent with this section and that all requirements of this article have been satisfied.Any building which serves as a basis for an LPC or a Historic Rehabilitation tax credit cannot serve as the basis for the other tax credit for 5 subsequent years.
24 Consolidated Group Ruling Number 07-131 “The amount of credit that may be claimed by a taxpayer shall not exceed….$100,000.”Because the statute imposes the limitation on a per- taxpayer basis, not a per-return basis, it is clear that when more than one taxpayer is included in a return, then the separate limitations must be applied to each taxpayer.Each taxpayer must have earned or otherwise acquired credits claimed on the return.
25 Federal Donee Ruling Number 07-132 Qualified donations shall be eligible for the tax credit if the donation is made to the Commonwealth of VA, or a charitable organization described in § 501 (c) (3) of the United States Internal Revenue Code of 1986 as amendedProperty to be assured in perpetuity. Donor must provide sufficient assurance that the purpose for which the conveyance is made, and the credit granted, will be preserved indefinitely.
26 Credit Requested by Taxpayer PDUnder Va. Code § A, a Credit is allowed for certain donations and, effective for donations made on and after January 1, 2007, the Credit “shall be 40% of the fair market value of the land or interest in land so conveyed.” The Credit is not self executing, however. The taxpayer must apply for the Credit; but this does not mean that the taxpayer must apply for the entire allowable amount.
27 Credit Requested by Taxpayer – Cont. PDThe law states, “The taxpayer shall apply for a credit after completing the donation. If the application requests a credit of $1 million or more, then a copy of the application shall also be filed with the Department of Conservation and Recreation by the taxpayer.” Va. Code § D 1. Therefore, the taxpayer must request a Credit amount $1 million or greater in order to be required to file the application with DCR and meet the requirements imposed by the agency.
28 Fees for PTEsA Pass-Through-Entity (PTE) may elect to pass all of the tax credit through to it’s partners or shareholders or retain the credit and transfer it at the entity level.If the PTE elects to transfer the credit at the entity level there will be a single $10,000 cap applied to the entity. If an entity elects this approach, they must include a letter (preferably on business letterhead) stating such with their LPC application.If the PTE elects to pass the credit to it’s members, the $10,000 cap will apply to the PTE and to each member if they transfer their credit.
29 2007 DonationsCredits will be issued by the tax year that the donation is recorded in until the statewide cap is met. Once the cap is met, credits will be issued for the next available yearCredits cannot be transferred until TAX has issued a credit for the donationTAX cannot guarantee that any LPC-1 application received in December will be processed in time to make a current year transfer
30 Enforcement Litigation: Ware Creek Preserve, LLC, et al. v. Virginia Dept. of Taxation, et al., Circuit Court of New Kent County, Chancery No. CHCase is still proceeding through pre-trial stages
31 Additional Enforcement Tax has performed preliminary reviews on many donations and has contracted for independent appraisals on some.Assessments have been issued and some are being appealed.
32 IRS Activities IRS has reviewed Tax’s LPC database IRS has initiated multiple cases in Virginia
33 LPC Review CriteriaUniform review criteria applied to all donations regardless of sizeMultiple review factors includedReview factors are weighted to recognize the degree of variationProcess recognizes existence of multiple factorsSpecific review/selection based on relevant information.
34 LPC Review CriteriaSome easements will be reviewed by in-house and/or contract appraisers to:Identify Valuation IssuesVerify USPAP ComplianceVerify IRC §170(H) ConformityDetermine if full appraisal is warrantedReview for specific issuesAllow specific review/selection based on known issues
35 LPC Fees 2008* $ 20,000 $ 22,500 Grand Total $1,234,027 Tax Year DCR TAX2007* $ , $1,101,5272008* $ ,000 $ ,500Grand Total $1,234,027*Through July 2008