TO: Board of Supervisors of Fauquier County

 

FR: Paul S. McCulla, County Attorney

 

RE: Legal Underpinnings of the County’s Purchase of Development Rights Program

 

DATE: February 5, 2004

 

 

LEGAL UNDERPINNINGS OF THE COUNTY’S

PURCHASE OF DEVELOPMENT RIGHTS PROGRAM

 

 

            The County’s Purchase of Development Rights Program operates by the imposing a Conservation Easement on properties from which the development rights have been purchased.  The purchase may include all or some of the development rights.  Where all development rights have been purchased the easement prohibits all subdivision of the property along with restricting the type of use to agricultural uses.  Where only some of the development rights have been purchased the easement permits subdivision of the property up to the number of development rights retained.  While the program is entitled a “Purchase” program nothing prohibits the County from receiving rights through a voluntary donation by the landowner.

 

A. Authority to Operate Program.

            Statutory authorization for localities to implement Purchase of Development Rights Programs is found in Virginia Code Sections 10.1-1700 et seq (“Open Space Land Act”) and 15.2-2400 et seq (“Service Districts”).  Under the Open Space Land Act counties that are urban in nature or are in the process of urbanizing, as defined by the Act, are authorized to acquire land in fee or easement for use as open space.  Any interest acquired in property under the program must not be for less than five years.  The County’s purchase of development rights program to acquire easements reserving property for farming uses is expressly authorized under Virginia Code Section 10.1-1703 of the Open Space Land Act.  It is important to note that the Open Space Land Act requires that property easements purchased for open space “conform to the official comprehensive plan for the areas in which the property is located.  The Act also prohibits the acquisition of these easements by the County through its power of eminent domain.  In addition to the authority found under the Open Space Land Act the General Assembly has, through its adoption of Virginia Code Section 15.2-2400, authorized counties to acquire by purchase, gift, donation, grant or otherwise easements, or fee simple title, in real property to preserve land in accordance with the Open Space Land Act.

 

            B. Authority to Fund Program.

Section 10.1-1072 of the Code of Virginia permits counties to fund its program by:

·        appropriating local funds;

·        borrowing funds;

·        accepting grants;

·         issuing general obligation bonds; and

·        levying taxes and assessments.

 

In addition to Section 10.1-1072 authorization to impose a tax and use the proceeds to fund the program is found in Virginia Code Section 15.2-2403.  The significance of this authorization is that counties are permitted to designate specific geographic areas as service districts and then to tax properties located within the service district in order to fund the authorized purpose, in this case the purchase of open space easements.  As a result, in addition to using general fund monies for purchasing development rights, the Board has been authorized to establish a service district and to impose a tax on real or personal property located in the service district to fund the PRD program.  Unlike general fund monies, taxes raised through a service district tax are by law required by law to be used for that purpose alone.

 

C. Tax Benefits to Landowner of Program.

            Both the Unites States Congress and the Virginia General Assembly have adopted laws intended to help encourage landowners to give conservation easements.  By enactment of Internal Revenue Code Section 170(h) Congress authorized owners of real property who donated, in full or in part, qualifying conservation easements the right to take a charitable income tax deduction on their federal return.  While the County’s program does not include some of the components required under IRC Section 170(h) to obtain the charitable deduction, such as an appraisal of the property, a landowner who gives or sells at below market value is not prohibited from obtaining themselves the evidence required under IRC Section 170(h) to make the gift tax deductible.  In addition to the Charitable Tax Deduction, Congress has also adopted as incentives to give conservation easements Internal Revenue Code provisions that (i) require the fair market value of land subjected to a qualifying easement to be reduced for estate tax purposes; and (ii) grant an Estate Tax Exclusion under IRC Section 2031(c).

 

            In conjunction with the federal incentives the Virginia General Assembly has provided two incentives intended to encourage the giving of conservation (known in Virginia as “Open Space”) easements.  The Virginia Lad Preservation Tax Credit Act, Va. Code Sections 58.1-510 through 58.1-513, permits owners of land who have given qualifying easements to take credits against income taxes owed.  In addition, Virginia Code Section 10.1-1011 requires that where a perpetual easement is granted under the Open Space Land Act the taxable value of the land subjected to the easement must be reduced to reflect effect of the easement on the loss of use to the owner.