August 17, a) tax deferrals pursuant to the provisions of General Law c.59, 5 clauses 18A and 41A;

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1 MASSACHUSETTS COLLECTORS AND TREASURERS SCHOOL August 17, 2011 Course: DEFERRED TAXES Instructors: David E. Condon, Esq. Jena C. Muñoz, Esq. Louison, Costello, Condon & Pfaff LLP 101 Summer Street Boston, MA (617) Description: This course will include an overview of applicable provisions of Massachusetts General Law relative to so-called "deferred taxes", with particular emphasis of the role and responsibilities' of the Tax Collector with respect to said taxes. Our discussion will focus upon the following categories of deferred taxes: a) tax deferrals pursuant to the provisions of General Law c.59, 5 clauses 18A and 41A; b) deferral of water/ sewer charges and betterments; and c) roll back and conveyance taxes imposed pursuant to the Agricultural Land taxation provisions of G.L. c.61a, the Recreational Land taxation provisions of G.L. c.61b, and the withdrawal tax with respect to de-classified Forest Lands pursuant to G.L. c.61. 1

2 TABLE OF CONTENTS I. Introduction... 3 II. Real Estate Tax Deferrals Pursuant to G.L. c.59, 5, Clause 41A and Clause 18A...2 A. Clause 41A Senior Citizen Tax Deferral Description of Clause 41A Tax Deferral Statement of Entry Into Tax Deferral and Recovery Agreement Internal Procedures For Property Tax Deferrals Deferral of Water and Sewer Charges Deferral of Betterments... 8 B. Clause 18A Temporary Financial Hardship Property Tax Deferral Description of Clause 18A Tax Deferral Clause 18A Deferral Process Collection Procedures III. Roll-Back And Conveyance Taxes Pursuant to G.L. c.61a (Agricultural/Horticultural Land) and G.L. c.61b (Recreational Land) A. Agricultural/Horticultural Land Classification Conveyance Tax (c.61a, 12) Roll-Back Tax (G.L. c.61a, 13) Collection Procedures B. Recreational Land Classification Conveyance Tax (G.L. c.61b, 7) Roll-Back Taxes (G.L. c.61b, 8) Collection Procedures IV. De-Classified Forest Land Pursuant to G.L., c Qualification Application Appeals Lien Annual Taxation/Valuation Penalty Tax Abatements..17 V. Exemptions and Abatements Definition of Abatement vs. Exemption Importance of Keeping A Record Collection Procedures

3 I. INTRODUCTION "Deferral" is commonly defined as the act of delaying, postponing or putting off. Under the provisions of Massachusetts General Law which relate to the collection of local taxes, "deferred taxes" are taxes which, due to certain qualifications of an assessed owner or the classification of certain types of real property, are not due and collectible until some point in time beyond the standard time frames established by G.L. c.59 for the payment of real estate taxes. The extended or delayed payment dates for such deferred taxes are based upon public policy initiatives by the General Court either to alleviate the real estate tax burden upon certain qualified elderly residents of the Commonwealth or to encourage the maintenance of the natural conditions and use of certain "endangered" classes of property in the state. In short, deferred taxes provide a means to a specific legislative end. It is difficult to generalize about deferred taxes beyond the above statements because each type of deferred tax is different in nature, and incorporates distinct terms and conditions. The only way to fully understand how the assessment and collection of deferred taxes works is to carefully review and study the authorizing statute for each type of tax. These statutes are, to say the least, somewhat complex. In the first instance, it is the duty of the local assessors to qualify parties for tax deferral status or to formalize the classification and amount of tax assessed with respect to certain types of real estate. These taxes are then committed to the tax collector, in the manner discussed more fully hereafter, to collect at such time as the respective tax becomes due. For each type of deferred tax which will be discussed in this course, I will describe generally the statutory provisions which establish and set forth the conditions for each type of tax and I will then discuss the specific duties and role of the tax collector with respect to each tax. Given the complicated nature of each of these taxes, I strongly urge each of you to take the time to review the statutory provisions referenced in these materials and to review any Informational Guideline Releases (IGR) issued by the Department of Revenue with respect to each type of tax. Only after a comprehensive review of these materials will you be able to understand the nature of these taxes and the procedural requirements with respect thereto. 3

4 I. REAL ESTATE TAX DEFERRALS PURSUANT TO G.L. C.59, 5, CLAUSE 41A AND CLAUSE 18A. A. Clause 41A Senior Citizen Tax Deferral. 1. Description of Clause 41A Tax Deferral Although Section 5 of G.L. c.59 is entitled "Certain Property Exempted", and it does generally exempt various types of property or interests in property from taxation under the provisions of G.L. c.59, Clause 41A and Clause 18A of 5 provide a unique substantive and procedural twist to the comprehensive list of exemptions set out in this section of Chapter 59. Under the provisions of Clause 41A, a person may be entitled to defer the taxes assessed with respect to his/her domicile up to 50% of the owner's share of the full and fair cash value of such real property, if: a. The person is sixty-five years of age or over as of July 1 of the tax year; and b. The person has owned real property in the Commonwealth for five years; the five years do not have to be consecutive; and c. The person has been domiciled in the Commonwealth for the preceding ten years; the ten years must be consecutive, but the taxpayer need not have lived all of those years in the same location in Massachusetts; and d. The person (and spouse, if married) must have gross receipts of $20,000 or less for the prior calendar year, unless the municipality votes to increase the amount of its gross receipts. Previously, the maximum qualifying gross receipt amount was $40,000; however, effective July 1, 2008, the maximum is now the income limit established by G.L. c. 62, 6(k) for the circuit breaker state income tax credit for single seniors who are not heads of households. This limit is adjusted annually by the Commissioner of Revenue based on changes in the cost of living. The new limits for each state tax year are announced in the fall of that calendar year in a Technical Information Release. The new limit may apply to taxes deferred for any fiscal year that begins after the vote becomes effective and until a new vote is taken establishing a different limit. Clause 41A eligibility is based on the gross receipts for the prior calendar year. Therefore, the maximum amount that the community may increase the gross receipts limit for any fiscal year will be the amount established by the Commissioner of Revenue as the applicable income limit for the preceding state tax year. Gross receipts means income from all sources, including wages, salaries, bonuses, commissions, public and private pensions, social security, alimony, child support, lottery winnings, interest and dividend income, capital gains, life insurance proceeds, net income from business or rental property after deduction of related business expenses and losses, public assistance, disability payments, unemployment compensation, workman s 4

5 compensation benefits, regular cash or financial contributions or gifts from family or other persons outside the household, and any other form of income. Ordinary business expenses or losses may be deducted, but not personal or family expenses, when computing gross receipts. The applicant may be the sole owner of the property or own it jointly with a spouse or other natural person. The property may not be owned in whole or in part by a business, governmental or non-profit entity. If the applicant has co-owners, only the applicant must meet the current and durational domiciliary requirements. An applicant who holds a life estate in the property is considered its owner. If the property is held in trust, the applicant must be a trustee who also has a sufficient beneficial interest in the property. Any such person may, on or before December fifteenth of each year to which the tax relates or within three months after the date on which the actual property tax bill is first mailed, whichever is later, apply to the board of assessors for an exemption of all or part of such real property from taxation during that year. The Board of Assessors cannot waive the filing deadline, nor act on a late-filed application. If the board of assessors determines that the applicant qualifies for the exemption under the provisions of Clause 41A, it must grant the exemption, provided that the owner or owners of the real property have executed a tax deferral and recovery agreement (State Tax Form 97-1) with the board of assessors. All co-owners, mortgagees and co-trustees if the property is held in a trust, must sign the agreement for the deferral to take effect. A signed tax recovery and deferral agreement will cover taxes for that fiscal year and any subsequent fiscal years if the taxpayer applies and qualifies for a deferral in those years. A new agreement must be submitted in a later year only if there is a change in the persons with an interest in the property. This tax deferral and recovery agreement incorporates all of the terms and conditions of the tax deferral which are mandated by G.L. c.59, 5, Clause 41A. These terms are stated as follows: a) no sale or transfer of the subject real property may be consummated unless the taxes which would otherwise have been assessed on the exempt portion of the property have been paid, in full, with interest at the rate of eight percent (8%) per annum or such lesser rate as may be determined by the legislative body of the city or town; b) the aggregate amount of such taxes due, plus interest, shall at no time exceed fifty percent (50%) of the owner's proportional share of the full and fair cash value of the property; c) upon the demise of the owner, the heirs at law, assignees or devisees shall have first priority to said real property by paying, in full, the total taxes which would otherwise have been due, plus interest. If, however, the heir at law, assignee or devisee is a surviving spouse who enters into a tax deferral and recovery agreement under this clause, payment of the taxes and interest due shall not be required during the life of such surviving spouse. Any 5

6 additional taxes and interest deferred pursuant to an agreement entered by a surviving spouse shall be added to the taxes and interest which would otherwise have been due, and payment of which has been postponed during the life of such surviving spouse, in determining the fifty percent requirement of paragraph b) above. d) if the taxes due, plus interest, are not paid by the heirs at law, assignees or devisees, or if payment is not postponed during the life of the surviving spouse, such taxes and interest shall be recovered from the estate of the owner; and e) any joint owner or mortgagee holding a mortgage on the subject property must give written prior approval of the tax deferral and recovery agreement. 2. Statement of Entry Into Tax Deferral and Recovery Agreement. Upon execution of a Tax Deferral and Recovery Agreement, the assessors shall "forthwith" record in the registry of deeds a Statement of their action (State Tax Form 97-2), which recorded Statement will constitute a lien upon the land covered by the Agreement for the taxes assessed and interest accrued under Chapter 59. The lien filed pursuant to Clause 41A has priority over subsequent encumbrances except a recorded reverse mortgage that is not a shared appreciation instrument. a) The filing fee for recording the statement is to be paid by the city or town and shall be added to and become part of the taxes due. b) The recorded Statement of the Assessors will have the same force and effect as a valid taking of the subject parcel for non-payment of taxes, except that: (1) interest shall accrue at eight percent (or such lesser rate) until the conveyance of the property or death of the person whose taxes have been deferred, after which time interest shall accrue at the rate provided in G.L. c.60, 62 which is currently sixteen percent; (2) no assignment of the municipality's interest may be made pursuant to G.L. c.60, 52; and (3) no petition under 65 of c.60 to foreclose the lien may be filed before the expiration of six months from the conveyance of the property or the death of the person whose taxes have been deferred. 6

7 3. Internal Procedures For Property Tax Deferrals. The Department of Revenue (DOR) has recommended that deferred taxes be treated, for accounting purposes, in the same manner as taxes included in a tax title account. The analogy is based upon the fact that the Statement of Entry Into Tax Deferral And Recovery Agreement (State Tax Form 97-2) has essentially the same force and effect as an Instrument of Taking. Guidelines: a) Upon receipt of the Tax Deferral and Recovery Agreement and Statement from the assessors, the treasurer shall create a modified tax title account for each parcel with respect to which taxes are deferred. These accounts should be maintained on the standard tax title account forms and should have a prominent notation indicating that they secure taxes deferred under Clause 41A (See DOR IGR No ). b) For subsequent years, the assessors should notify the collector and accountant of the amount of taxes being deferred for each year. The collector should then certify the deferred taxes to the account in the same manner as ordinary taxes are certified to a tax title account, except that there should be no collector's interest included in the amount certified. c) Interest on deferred taxes accrues at eight percent (or such lesser rate) until the sale of the property or death of the owner receiving the deferral. After such a sale or death, the interest rate is sixteen percent (as required by c.60, 62). The eight percent rate is calculated from: (1) October 1 or the date of mailing the first half tax bills and April 1 for second half bills, or (2) in a quarterly billing system, from the due date of all preliminary and actual tax payments. d) The collector's certification should include the relevant dates so that the Treasurer can calculate the interest accruing on account of the deferred taxes. e) Deferred taxes should be accounted for as "Deferred Taxes Receivable". f) Upon the sale of the property by the owner or, in the event of his death, upon the sale or transfer of the property by the heirs, the assessors must give a warrant (Form 97EA-4) to the treasurer 7

8 together with a special commitment (Form 97EA-5), indicating the amount of taxes plus the 8% interest due for each year in which payment was deferred. g) Upon payment of this amount by the taxpayer, his heirs or assigns, the treasurer will file a renunciation of the municipality's lien on the property (Form 97-4) in the registry of deeds. 4. Deferral of Water and Sewer Charges In a city, town or district which accepts the provisions of G.L. c.40, 42J relative to deferral of water charges and G.L. c.83, 16G, relative to sewer charges, the Board responsible for assessing said charges shall, upon the application of the owner of the real property to which the water or sewer charge relates, defer charges for water or sewer services supplied to the property, provided that such owner is receiving an exemption from property taxes under Clause 41A of G.L. c.59, 5 with respect to such property. The application for deferral of water or sewer charges must be filed within the time limit established for the filing of an application for exemption under said Clause 41A. The board imposing such charge shall notify the Board of Assessors of any deferral granted and shall annually thereafter notify the Board of Assessors of any deferred water rates and charges to be added to the tax bill. Deferred water and sewer charges are to be committed by the assessors along with the real estate taxes for each fiscal year and are secured by the Statement of Lien executed and recorded pursuant to Clause 41A. Once a property owner is qualified for deferral of water or sewer charges, no further application need be filed in order to qualify for deferral of such charges in subsequent years. No additional notice of Statement of Lien need be recorded with respect to deferred water or sewer charges, but the amount of such deferred charges must be listed on any Certificate of Liens issued with respect to the subject property. Whenever a person who receives an exemption under Clause 41A ceases to receive such exemption, the Board of Assessors will cease deferring water and sewer charges added to the bill and must notify the board responsible for the assessment of said water or sewer charges of the discontinuance of the owner s tax deferral status. Interest on deferred water and sewer charges accrues at the same rate as interest on taxes deferred under Clause 41A. 5. Deferral of Betterments A city or town which accepts the provisions of G.L. c.80, 13B shall, upon the application of the owner of real property assessed a betterment enter into a deferral and recovery agreement with such owner relative to said betterment, provided that the property owner is eligible for an exemption under Clause 41A of G.L. c.59, 5. A property owner must file an application with the board assessing the betterment within six months after notice of the assessment has been sent out by the collector. The deferral and recovery agreement contains substantially the same terms as the tax deferral and recovery agreement required under Clause 41A. Said betterment deferral and recovery agreement must be recorded in the Registry of Deeds of the county or district in which the city or town is situated, whereupon it will constitute a lien upon the land covered by the agreement. The statement must name the owner or owners of the land and shall include a description of the property. 8

9 B. Clause 18A Temporary Financial Hardship Property Tax Deferral. 1. Description of Clause 18A Tax Deferral. Pursuant to the provisions of General of G.L. c. 59, 5, Clause 18A, Assessors may now grant to taxpayers experiencing financial difficulties a temporary tax deferral. The taxpayer may be of any age and his/her financial hardship may be based upon a number of circumstances, including active military status. Local assessors have discretion in establishing specific criteria to determine whether a taxpayer meets the requisite standard of financial hardship in much the same manner in which they establish criteria for granting a Clause 18 Hardship Exemption to sick or disabled elderly taxpayers. A Clause 18A tax deferral may be granted for a maximum period of three years, whereupon the deferred taxes must be paid. The taxpayer may pay the deferred taxes, plus interest, over a five year period in annual installments with the first payment due two years subsequent to the last year of deferral. The procedural requirements applicable to Clause 18A deferrals are similar to those applicable to Clause 41A Senior Citizen Tax Deferrals. a) Application. A taxpayer must file an application for a Clause 18A Tax Deferral on an approved form with the Board of Assessors for each fiscal year for which a Clause 18A Deferral is sought. (State Tax Form 99). Each annual application must be filed on or before December 15, or three months after the actual tax bill for the fiscal year is mailed, whichever is later. Assessors may not waive the statutory filing deadline, nor may they act upon an untimely application. An applicant aggrieved by the Assessors action on any application for a Hardship Deferral may bring a civil action in the Superior Court or Supreme Judicial Court within sixty days of the Assessors decision. To prevail with such an appeal, the applicant must show that the Assessors decision was unlawful, arbitrary or capricious. b) Deferral Qualifications. An applicant must be a natural person who owns real property as of July 1 preceding the date of application. The applicant may be the sole owner or joint owner with a spouse or others of the subject property. The property may not be owned in whole or in part by a corporation or other business entity. An applicant who holds a life estate in the property is considered an owner. If the property is held in trust, the applicant must be a trustee who also has a beneficial interest in the property. The applicant must occupy the property as his or her domicile on July 1 and must have been domiciled in Massachusetts for the preceding ten years. The ten years must be consecutive, but the taxpayer need not have lived all of those years in the same location in Massachusetts. The applicant must demonstrate a financial hardship, i.e., that he/she currently lacks the financial resources to pay real estate 9

10 taxes because of a change to active military status (not including an initial enlistment), unemployment, illness or other reason, as determined by the Assessors. Assessors may consider various factors in determining whether a taxpayer meets the statutory standard of financial hardship and may request relevant financial records and/or documents to assist with their evaluation of an application. The following factors are typically prime indicators as to an applicant s financial status: (1) Financial resources, including all income of the applicant, the applicant s spouse, other adult household members and any co-owners of the subject property, savings, investments and other assets of the applicant, applicant s spouse, other household members and any co-owners, military or employment status of the applicant and applicant s spouse, unemployment circumstances, the ability of the applicant and applicant s spouse to obtain gainful employment, illness or disability of the applicant, applicant s spouse, family members or other dependents. (2) Supporting documentation may include federal and state income tax returns, savings and checking account statements, social security and pension fund statements, public assistance records, schedules of assets and outstanding bills. 2. Clause 18A Deferral Process. a) Deferral Amount. Assessors may grant a Clause 18A deferral of all, or part, of the tax in any year with the following limitations: The annual deferral of an applicant who owns property jointly with someone other than a spouse is limited to a deferral of the same percentage of the tax as the applicant s ownership interest. The total deferral account, including interest, is limited to fifty percent of the applicant s proportionate share of the full and fair cash value of the property. b) Deferral and Recovery Agreement. In the first year a Clause 18A Deferral is granted, a taxpayer must enter into a Tax Deferral and Recovery Agreement with the Assessors. (State Tax Form 99-1). All co-owners and mortgagees must also sign the agreement in order for it to be effective. This same Agreement will also cover taxes for the next two fiscal years if the taxpayer applies and qualifies for a deferral in either or both of those years. 10

11 c) Deferral Statement. The Assessors must record a Statement (State Tax Form 99-2) that they entered into a Clause 18A Recovery and Deferral Agreement at the Registry of Deeds. This recorded Statement constitutes a lien on the property to secure repayment of the deferred taxes and any accrued interest. This lien has priority over any prior or subsequent encumbrances on the property, except a recorded reversed mortgage that is not a shared appreciation instrument. d) Deferral Notices. The Assessors must issue a deferral Certificate to the taxpayer (State Tax Form 99-3) and notify the collector and accounting officer of the amount deferred for each year a Clause 18A Deferral is granted. In the first year, the Assessors should also notify the Collector and Treasurer of the amount of the fee paid to record the Deferral Statement and provide them with a copy of said Statement and the Deferral and Recovery Agreement. 3. Collection Procedures. Taxes deferred under Clause 18A are accounted for in the same manner as taxes deferred under Clause 41A, i.e., they are treated as if they were a tax title account. In the first year the Clause 18A Deferral is granted, the Treasurer must create a modified tax title account for the parcel in the amount of the deferred taxes. The amount of the fee paid to record the Assessors Statement of Entry into a deferral and recovery agreement is added to those taxes. Deferral accounts should be maintained on regular tax title account forms and be prominently noted that they secure taxes deferred under Clause 18A. Clause 18A deferral accounts (like Clause 41A accounts) should be segregated from ordinary tax title accounts, since the liens are not ripe for foreclosure until the transfer of the property or death of the deferring taxpayer. If the subject property is already in tax title as of the effective date of the tax deferral, the Treasurer should add the deferred taxes to the tax title account, but make the modifications noted herein for the years for which the taxes are deferred. a) Subsequent Year Taxes. If the Assessors grant a deferral for either or both of the next two fiscal years, the Collector must certify the deferred taxes for those years to the account in the same manner as subsequent years taxes are certified to an ordinary tax title account. No collector s interest is included in the amount certified. If, subsequent to a tax deferral, taxes assessed for any other year (i.e., subsequent to next two fiscal years after deferral) are not paid in full, the collector should issue a demand pursuant to G.L. c.60, 16. If these taxes remain unpaid, the collector should then certify the taxes to the deferral account with collector s interest and the demand fee. b) Interest. Unless the taxpayer qualifies for relief under the Federal Soldiers and Sailors Relief Act (50 U.S.C. App. 560), in which case interest charged on taxes owed by taxpayers on active military duty is limited to 6% per annum, the following interest rates will apply: 11

12 Interest on deferred taxes accrues at 8% per annum or such lesser rate as may be determined by the legislative body of the city or town. If the property is transferred or the taxpayer dies before the account is paid, however, interest will, as of the triggering event, accrue at 16% per annum pursuant to G.L. c. 60, 62. The 8% interest rate (or such lesser rate) is calculated from the dates interest accrues on unpaid taxes under the payment system implemented by the community for that fiscal year. (e.g., if a semiannual tax payment system is utilized, from October 1 or the date of mailing of the actual tax bills whichever is later and April 1; and in a community which uses a quarterly payment system, from the due dates of all preliminary and the actual tax payments). If a taxpayer pays any of a given fiscal year s tax before a deferral for that year is granted, the Collector should issue a refund of the taxes paid, with no interest, and interest on deferred taxes should be calculated from the date of the refund to the taxpayer. The Collector s certification to the Treasurer should include all relevant dates to enable the Treasurer to calculate the interest accrued on account of deferred taxes. c) Payment. At the end of the Clause 18A Deferral, the taxpayer becomes liable for payment of all deferred taxes and statutory interest accrued thereon. A taxpayer may pay the amount deferred in five annual installments. The first installment is due two years from the end of the last fiscal year for which the deferral is granted. Each installment shall be in the amount of one-fifth of the principal, i.e., the total taxes deferred, plus accrued interest on the unpaid balance. In the first year, interest is calculated from the date interest accrues on unpaid taxes under the payment system the community used for that fiscal year until the June 30 installment due date. In subsequent years interest on the unpaid balance runs from June 30 to June 30. The Treasurer should send a notice or statement to the taxpayer by June 1 of each year in which an installment is due. In the first year, the statement should show the total taxes deferred, accrued interest on the deferred taxes and the amount of the installment payment due by June 30 of that year. In subsequent years, it should show previous payments made, the unpaid balance and the principal and interest due for that year. A taxpayer may pay the tax deferral, in full, at any time in order to clear title on the property. Interest on the deferred taxes is calculated from the dates interest accrues on the unpaid taxes until the payoff date. If prior installment payments had been made, interest on the unpaid balance should be calculated from June 30 of the year in which the last installment payment was made. Once a deferred tax amount is paid in full, the Treasurer must execute a renunciation of the municipality s lien on the property (State Tax Form 99-4) and record this document at the Registry of Deeds. 12

13 d) Surviving Spouse. If a taxpayer dies, his or her surviving spouse may continue the deferral for any of the years remaining within the three years covered by the deferral so long as the spouse applies and qualifies for the deferral in those years and enters into a new deferral agreement. Any taxes deferred under the new agreement with the spouse, together with interest, will be added to the amount already deferred so long as the fifty percent limit has not been reached. e) Collection and Foreclosure. The Treasurer must calculate the amount due from a taxpayer, or the taxpayer s estate, if there is a conveyance of the property, or if the surviving spouse does not continue the deferral upon death of the taxpayer. After the death of a taxpayer or the sale of the property, the tax title interest rate of 16% shall apply to the outstanding deferred taxes. If said deferred taxes and accrued interest not paid within six months after the death of the taxpayer or sale of the property, the Treasurer may commence tax foreclosure proceedings in the Land Court. 13

14 II. ROLL-BACK AND CONVEYANCE TAXES PURSUANT TO G.L. C.61A (AGRICULTURAL/HORTICULTURAL LAND) AND G.L. C.61B (RECREATIONAL LAND) A. Agricultural/Horticultural Land. 1. Classification. General Laws c.61a sets forth the statutory provisions governing the classification, valuation, and taxation of certain lands in the Commonwealth devoted to agricultural or horticultural uses. This property is valued for real estate tax assessment purposes solely on the basis of its agricultural or horticultural use, not at its full and fair cash value. The purpose of c.61a is to promote the development and conservation of farmland in Massachusetts. a) To qualify for classification as agricultural/horticultural land, property owners must file an application with the Board of Assessors not later than October 1 of the year preceding each tax year for which the special valuation, assessment and taxation are sought. The assessors must allow or disallow such an application within three months of the filing thereof. Failure of the assessors to act within this three-month period shall be deemed an allowance of the application. b) With respect to the first application approved with respect to a parcel of land, the assessors shall record at the registry of deeds a Statement of their action, which will constitute a lien upon the subject land. c) Upon acceptance of G.L. c. 61A, 4A, the tax rate applied to the agricultural/ horticultural use value of classified farmland is the class two, open space tax rate. Residences and land regularly used for family living, as well as buildings located on classified land, are to be assessed at full and fair cash value. 2. Conveyance Tax (c.61a, 12). Any land in agricultural and/or horticultural use which is valued, assessed and taxed under the provisions of c.61a will be subject to a conveyance tax if sold for other use within a period of ten years from the date of its acquisition or the earliest date of its uninterrupted use in agriculture or horticulture by the current owner. This conveyance tax is applicable to the total sale price of the land and shall be in addition to any other taxes imposed by law. The conveyance tax is imposed at the rate of ten percent if the land is sold within the first year of ownership, nine percent if sold in the second year, and so on, down to one percent if sold within the tenth year of ownership. The conveyance tax is due and payable at the time of transfer of the property by deed or other instrument of conveyance, and shall be payable to the Tax Collector. Certain transfers are exempted from the conveyance tax, such as mortgages, transfers to cities 14

15 and towns, transfers as a result of death, etc. (See c.61a, 12 for a complete listing). Changes in use of the subject property from agricultural/horticultural use to another use within the ten year period will be deemed to be an actual conveyance for the purpose of this tax, and will subject the property to the conveyance tax. In the event of such a change in use, the assessors shall determine the fair market value of the property. No conveyance tax will be charged if land is acquired for natural resource purposes by city, town, Commonwealth or non-profit organization, unless the property is sold or converted within 5 years. 3. Roll-Back Tax (G.L. c.61a, 13). The roll-back tax is an alternative penalty imposed under c.61a when property valued, assessed and taxed under that chapter no longer qualifies as actively devoted to agricultural and/or horticultural use. The roll-back tax is imposed in the current tax year in which the property is disqualified and in the four immediately preceding tax years in which the land was valued, assessed and taxed as agricultural/horticultural land. a) The roll-back tax will not be applicable unless the amount thereof exceeds the amount, if any, of the conveyance tax described above. In other words, only the larger of either the conveyance tax or rollback tax will be applicable in any one situation. b) No roll-back tax will apply to land purchased for a public purpose by the city or town in which it lies. c) Unlike the conveyance tax, a roll-back tax shall apply only to the year in which the change of use occurred and the preceding four years in which the land was valued, assessed and taxed pursuant to c.61a. d) The amount of the tax is generally computed as the difference between taxes paid or payable in accordance with Chapter 61A and the taxes paid or payable had the land been valued and assessed without regard to Chapter 61A. As of March 22, 2007, the computation of interest on any roll-back tax assessed is standardized and simplified at the simple interest rate of 5%per year. Note that qualification as Agricultural/Horticultural land for roll-back tax purposes depends on the actual use of the land, and not on the filing of application under section six of c.61a; i.e., the mere failure to file the annual application does not trigger roll-back tax liability. No rollback tax less than ten dollars ($10.00) will be assessed, nor will a rollback tax be imposed on land that qualifies as forest land under Chapter 61 or recreational land under Chapter 61A. 4. Collection Procedures. a) The standard real estate tax warrant, commitment and bill may be used to collect either the conveyance tax or a roll-back tax, provided that such forms are modified to clearly indicate the 15

16 nature, amount and basis of the special penalty tax. b) All the remedies provided in Chapter 60 are available for the collection of a special penalty tax. c) Special penalty tax collections in the form of a conveyance or rollback tax should be considered special tax revenue of the year of receipt. B. Recreational Land. 1. Classification. General Laws c.61b sets forth the provisions for the classification, valuation, and taxation of certain lands in the Commonwealth devoted to recreational uses, i.e., hiking, camping, nature study and observation, boating, golfing, horseback riding, hunting, fishing, skiing, swimming, picnicking, private non-commercial flying, archery and target shooting, commercial horseback riding and equine boarding. The provisions of G.L. c.61b are virtually identical to those described above with respect to agricultural/horticultural land, so they will not be repeated in these materials, unless they differ substantively. Please note, however, that pursuant to G.L. c.61b, 6, the failure of the Assessors to allow or disallow an annual application within three months of the filing thereof results in an automatic disallowance of the application. 2. Conveyance Tax (G.L. c.61b, 7). As with c.61a Agricultural/Horticultural Land, a conveyance tax is imposed under c.61b as one of two alternative penalty taxes. Basically, the conveyance tax is imposed if land classified under Chapter 61B is sold for or changed to another use within a period of ten years after the first year in which the land was first classified under Chapter 61B. The conveyance tax applies to the total sale price of the land and is imposed at the following rate: ten percent if sold within the first five years of classification; and, five percent if sold within the sixth through tenth years of first being so classified. Again, the conveyance tax is only assessed if it exceeds the amount of roll-back taxes which would be applicable. 3. Roll-Back Taxes (G.L. c.61b, 8). The alternative penalty imposed when land classified under c.61b no longer qualifies as recreational land is the roll-back tax. Basically, the roll-back tax allows for the recovery of the real estate tax benefits provided by c.61b within the 10 year period, including the year of the change in use and the four preceding years, in which the land was valued, assessed and taxed under c.61b. Interest on roll-back taxes shall be payable and shall be computed at the rate of five percent. Note that acquisitions of classified parcels for a natural resource purpose by a city or town, the commonwealth or nonprofit conservation organization are exempted from penalty 16

17 taxes, but if the non-profit conservation organization turns the land over for development within 5 years of the acquisition, the tax will then become due. Forest land is not subject to conveyance tax until the land has been transferred to another owner. As of March 22, 2007, classified parcels are subject to betterment assessments only to the extent that the betterment supports the forestry, farm or recreational use of the land. The assessment is suspended while the land is so used, and only becomes due upon a later change in use. Note that qualification as recreational land for roll-back tax purposes depends on the actual use of the land, and not on the filing of the annual application required by c.61b, 3; i.e., mere failure to file the annual application does not trigger roll-back tax liability. 4. Collection Procedures. a) The standard real estate tax warrant, commitment and bill may be used to collect the conveyance or roll-back tax, provided that they are appropriately modified. b) All remedies provided for in Chapter 60 are available to collect these special penalty taxes. c) Conveyance or roll-back taxes should be considered a special tax revenue of the year of receipt. d.) Simple interest accrues at 5% per annum. III. DE-CLASSIFIED FOREST LAND PURSUANT TO G.L. C Qualification. A parcel must consist of at least 10 contiguous acres of land under the same ownership, be devoted to the growth of forest products and be managed under a 10 year management plan approved and certified by the State Forester in order to qualify for and retain classification as forest land under G.L. c. 61. Buildings and other structures located on the property, as well as the land on which a residence is located or regularly used for residential purposes, do not qualify for classification and will continue to be assessed a regular local property tax. 2. Applications. For property to be classified as forest land under G.L. c. 61, the applicant must submit a written application to the State Forester before July 1 of the year before the start of the fiscal year for 17

18 which taxation as classified land is sought. The State Forester will certify whether the property qualifies as forest land and is being managed under an approved 10 year forest management plan. The applicant then must then submit before October 1 of the same year a written application for classification to the Board of Assessors of the city or town in which the property is located. The application must include the State forester s certification and a copy of the approved forest management plan. If the application is approved by the Board of Assessors, the certification of the land as forest land will be effective as of January 1, and taxation of the property under G.L. c. 61 will begin the following July 1, which is the start of the next fiscal year. The parcel will remain classified as forest land provided the applicant files with the Board of Assessors a new certification by the State Forester and an approved forest management plan every 10 years and the land otherwise continues to qualify as forest land under G.L. c Appeals. If the Board of Assessors concludes that any land included in the application for classification, or any land already classified under G.L. c. 61, is not being managed under the approved management plan, is being used in a manner incompatible with forest production, or does not otherwise qualify for classification, it may file an appeal with the State Forester by December 1. Appeals must be made in writing and sent by certified mailto the State forester, with a copy to the applicant sent by certified mail. The State Forester must notify the Assessors and the applicant of his/her decision by March 1 of the following year. The Assessors and the applicant may appeal that decision by notifying the State Forester by April 15. The appeal will be heard by a three person regional panel convened by the State Forester by May 15. The Assessors and the applicant will be notified of the decision within 10 days after the conclusion of the hearing before the panel. The panel s decision can then be appealed to the Superior Court of the Appellate Tax Board within 45 days of receiving notice of the panel s decision. The State Forester may also remove the land from classification is he/she believes it is not being managed according to the approved management plan or does not otherwise qualify for classification. 4. Lien. Once the application for classification is approved, the Board of Assessors will record a statement at the local Registry of Deeds indicating that the land has been classified as forest land under G.L. c. 61. That statement will constitute a lien on the land for all taxes due under G.L. c. 61. The recording fees for this document will be charged to the applicant. 5. Annual Taxation/Valuation. The owner must pay an annual property tax to the city or town in which the classified land is located. The tax will be assessed on the use value of the land for forestry purposes, rather than the fair market value based on the land s highest and best use as would be the case if the land 18

19 were not classified. In determining the value of the classified land, the Board of Assessors will consider the range of forest land use values established by the Farmland Valuation Advisory Committee together with their knowledge, judgment and experience regarding forest land values. The commercial property tax rate for the fiscal year will be applied to the value, unless the city or town has accepted a local option to apply the open space property tax rate. The tax will be due in the same number of installments and at the same time as other local property tax payments are due in the city or town. Interest will be charged on any overdue taxes at the same rate applicable to overdue property taxes. 6. Penalty Tax. The owner of the property must pay one of two alternative penalty taxes whenever any of the land is no longer used for, or maintained in, a use or condition that would qualify the land for classification as forest land under Chapter 61. Roll-Back Tax: The owner of the property must pay a roll-back tax for a 5 year period if the use of the land changes to a non-qualifying use or condition. If the change in use or condition occurs when the land is classified, the tax will be imposed for the current fiscal year and the 4 prior years. If the land is not classified at the time, the tax will be imposed for the 5 prior years. In either case, the tax will be the difference between the amount that could have been paid in annual property taxes on the land if it had been taxed at its fair market value and the amount of the taxes paid on the land under G.L. c. 61 during the same time. The roll-back tax also includes interest at a rate of 5% per year on each year s tax savings. Conveyance Tax: the owner must pay the alternative conveyance tax instead of the rollback tax if the land is sold for or converted to a non-qualifying use within 10 years of the date the owner acquired it, or the earliest date of its uninterrupted forest use by the owner, whichever is earlier, and the conveyance tax is greater than the roll-back tax that is due. The conveyance tax will be equal to the conveyance tax rate applied to the sales price of the land, or if converted, to the fair market value of the land as determined by the assessors. The Conveyance tax rate will be 10% of the land is sold or converted within the first year of ownership, 9% if sold or converted within the second year, and so on with the rate declining each year by one percentage point until it is 1% in the 10 th year of ownership. After this 10 year period has expired, the owner will not be liable for any conveyance taxes, but will remain liable for roll-back taxes if there is a change to a nonqualifying use or condition of the land. In addition, for any land in classification before the fiscal year that began on July 1, 2008, the owner will pay a roll-back tax, not a conveyance tax, upon any change. 8. Abatements. The owner of the classified property may contest his/her annual property tax or any penalty tax assessed pursuant to G.L. c. 61 by applying for an abatement. Applications for abatement must be made in writing on an approved form and must be filed with the assessors within thirty (30) days of the date the owner is notified of the tax. Further appeal may be made to the Appellate Tax Board within 30 days of the date of the assessor s decision or three (3) months from the date the abatement application was filed. 19

20 IV. EXEMPTIONS AND ABATEMENTS. 1. Definition of Abatement vs. Exemption. Collectors frequently use the term "abatement" for all adjustments of taxes allowed by the assessors. However, because interest on refunds is given for abatements but not for exemptions (unless directed by the Appellate Tax Board or by the County Commissioners), it is important to understand the difference. An exemption is a special relief from taxation granted by statute to certain qualifying taxpayers such as veterans, the elderly and the blind. A property tax abatement is a reduction in valuation of the property which results in a reduced tax bill. A motor vehicle excise abatement usually results from the sale or loss of the vehicle, but may also be for overvaluation. No abatement or refund of property tax may be granted or paid in an amount of less than one dollar. 2. Importance of Keeping A Record. It is important that the collector keep a record of the abatements/exemptions in an abatement book, and record the abatement in the commitment book beside the record of the tax. The importance of good record keeping cannot be overemphasized, because abatement reduces the tax liability which has the same effect as cash to the collector. 3. Collection Procedures. a) The collector receives a copy of the abatement (or exemption) certificate from the assessors. (State Tax Form 147). b) The amount of abatement or exemption is credited to the proper account in the commitment book. c) A file or record of abatement certificates is kept by the collector. d) The collector receives a copy of the monthly total of the abatements and exemptions granted from the assessors. This should be reconciled to the abatement certificate. 20

21 QUIZ Deferred Taxes 1. Why are certain real estate taxes referred to as deferred taxes? 2. At least what age must a property owner be as of July 1 of a particular tax year to qualify for a tax deferral under G.L. c.59, 5, Clause 41A? 3. What is the maximum amount of real estate taxes a qualified property owner may defer under the provisions of G.L. c.59, 5, Clause 41A? 4. True or False? A tax deferral and recovery agreement (State Tax Form 97-1) must be executed by a qualified property owner and the municipal Treasurer for a tax deferral to become effective. 5. True or False? A recording of a Statement of entry into tax deferral agreement has the same legal effect on the title to a parcel of real property as the recording of a tax taking instrument. 6. What is the rate of interest which accrues upon deferred taxes until the sale of the property or death of the owner receiving the tax deferral pursuant to Clause 41A? 7. True or False? To qualify for classification as agricultural/horticultural land pursuant to G.L. c.61a, a property owner must only file one application with the Board of Assessors. The agricultural/horticultural land classification will continue year to year, until the subject land is sold or converted to another use. 8. What events will trigger the assessment of a conveyance tax upon land in agricultural and/or horticultural use? 9. True or False? A role back tax will always be applicable to a sale or conversion of agricultural/horticultural land which occurs within the first five years of ownership which disqualifies said land from classification under G.L. c.61a. 10. What is the period of time within which a conveyance tax may be assessed with respect to recreational land under the provisions of G.L. c.61b? 11. How is a conveyance tax calculated under G.L. c. 61B upon the sale or change in use of classified recreational land? 21