Minnesota woodland property tax: Sustainable Forests Incentive Act
The Sustainable Forest Incentive Act, passed in 2001, allows annual payments from the Minnesota Department of Revenue (MN DOR) to enrolled owners of forested land as an incentive to practice long-term sustainable forest management.
This is not a property tax classification or rebate; it is an incentive payment. Landowners may use funds any way they wish, but you may think of such payments as an offset to property taxes since the amount of this payment is related to average property taxes on forest land.
Qualifications for SFIA
To enroll, you must meet all of these requirements:
- Own 20 or more contiguous acres of land in Minnesota, of which at least 50 percent is forested.
- An owner may be a private individual, corporation or partnership. Both residents and nonresidents of Minnesota are eligible. There can be only one claimant per parcel of land.
- No delinquent property taxes are owed on the land before enrolling, and taxes are paid on-time while enrolled in the program.
- Land must have an active forest management plan, written within the past ten years, that was prepared by a plan writer approved by the Minnesota Department of Natural Resources (MN DNR).
- You certify that the land is not enrolled in Reinvest in Minnesota (RIM), Conservation Reserve Enhancement Program (CREP), Conservation Reserve Program (CRP), Green Acres, Ag Preserves, or 2c Managed Forest Land.
- You agree to be enrolled in the program for a minimum of eight years. Please note: your land does not drop out at the end of eight years. To withdraw, a request must be made to the Commissioner of Revenue. The withdrawal process takes four years. You may sell acres or the entire parcel at any time during your enrollment, but the new owner must abide by the covenant.
Covenant: If you meet all qualifications, record a covenant with the county recorder’s office (or registrar for registered land) in which your land is located pledging not to develop the land. One covenant can cover all parcels in a county that you wish to enroll even if the parcels are not contiguous. To enroll land in more than one county, record a covenant in each county where your land is located. Before you complete the covenant, exclude any area you might develop in the future. Once recorded, the county will place a covenant recording number on the front page of your covenant. Allow the county recorder two to three months to process your request.
Application: Application forms and instructions are available in the MN DOR’s SFIA Fact Sheet.
If you properly complete and return the certification by August 15 each year, you will receive your annual incentive payment on or before October 1 of the same year.
Each year the MN DOR will determine a statewide payment-per-acre rate using three formulas based on the average property tax for timberland. The formula that provides the largest payment-per-acre will be used. The minimum amount per acre is $7.00, as of April 2008. The actual payment in 2008 was $8.61 per acre.
The total amount each participant will receive is determined by multiplying the payment-per-acre by the number of enrolled acres. This payment is taxable income.
If you owe delinquent taxes on property not enrolled in SFIA or if you owe criminal fines or a debt to a state or county agency, district court, qualifying hospital or public library, state law may require the MN DOR to apply your incentive payment to the amount you owe (including penalty and interest on the taxes).
If you owe delinquent taxes on any enrolled land, your land will be removed immediately from the program.
Violating the Covenant
Minnesota Statutes, section 290C.11(a) provides that if the Commissioner of Revenue determines that land enrolled in SFIA violates conditions for enrollment, the Commissioner shall notify the claimant of his/her intent to remove all enrolled land from the SFIA Program. Upon notification, the claimant has 60 days to administratively appeal the determination. If the Commissioner denies the appeal, the claimant may appeal to tax court.
Landowners must abide by forest management guidelines created by the Minnesota Forest Resources Council. A MN DOR ruling states that in determining whether land enrolled in SFIA violates the Guidelines, the Commissioner (MN DOR) shall consider:
- The cause of the violation.
- The extent of the violation (area of damage).
- Whether the claimant has substantially complied with the forest management plan.
- Whether the claimant has substantially complied with the Guidelines in timber harvest and forest management activities.
- Whether the claimant took measures to avoid the violation.
- If the claimant has violated one or more of the Guidelines concerning harvest practices, whether the claimant has attempted to mitigate the violation.
- Whether the claimant has taken measures to avoid future violations.
- Whether there has been a pattern of violations by the claimant related to any land enrolled in the SFIA Program.
If you violate the covenant by developing or constructing part or all of your enrolled land, all of your land will be removed from the program and you will be assessed a penalty. The penalty is the total payments you received on all of your SFIA land —not just the part in violation—for the previous four years, plus interest. The SFIA covenant remains on the land. You cannot pay a penalty to remove the covenant. You must apply to the MN DOR to remove the covenant and wait four years to be released.
Procedures to End the Covenant
All enrolled land must remain in the program for a minimum of eight years. You may choose to cancel enrollment from the program after four years by filing a written request with the MN DOR. Once filed, the cancellation will take effect January 1 of the fifth calendar year that begins after the Commissioner of the MN DOR receives your termination notice. You will continue to receive incentive payments during the four-year waiting period. You cannot remove just a portion of a parcel. The whole parcel must be removed. Once you withdraw, the land cannot be re-enrolled in the program for at least three years.
Acquiring Enrolled Land
If you buy land enrolled in the SFIA program and want to receive annual incentive payments, you must complete and submit an application Form TH1. If you do not apply for payments, your land still remains in the program so you must abide by the covenant and not develop the land until it is withdrawn from the program.
If you buy enrolled lands and want to withdraw, but still receive incentive payments while waiting to be removed from the program, complete an application Form TH1 and send an intent-to-withdraw to the MN DOR. You will receive payments until the land is released.
If you are buying or recently purchased land already in SFIA, the buyer and seller must determine who is eligible to claim payment for the upcoming year and notify the Commissioner of the MN DOR in writing which person is eligible to claim the payments.
If a landowner dies, the estate’s personal representative has up to one year to notify the MN DOR to either:
- terminate without penalty—if you choose to terminate, the MN DOR will issue a document releasing the land from the covenant, or
- continue enrollment in the SFIA program by submitting a letter of explanation with a new application, Form TH1. If the new application is approved, the land is enrolled in the program without a break.
If you do not notify the MN DOR within one year, enrollment will terminate automatically without penalty.
Changing Land Classification
Your land’s classification can change at the discretion of the county in which the land is located. While your land is enrolled in SFIA, your land classification most likely would be 2b vacant rural land.
Other pages in this series:
Some useful links:
Perspective: Jeff Forester on problems & solutions with MN’s property tax code
MN DOR’s SFIA Fact Sheet
Sustainable Forests Incentive Act: Natural Resource Report (PDF) and SFIA FAQs (18 p. PDF)
More on 2c Managed Forest Land on our blog
MDA Conservation Funding Guide
The Minnesota woodland property tax series is authored by Mike Reichenbach and Mel Baughman.
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