Does Tennessee owe rollback property taxes when it buys greenbelt land using the Wetlands Acquisition Fund?

Subject

Opinion No. 12-51, Greenbelt Rollback Tax Liability on Land Purchased Through the Wetlands Acquisition Fund, May 9, 2012

Plain-English summary

Ed Carter, then Executive Director of the Tennessee Wildlife Resources Agency, asked the AG whether the state has to pay greenbelt rollback property taxes when it buys land using money from the Wetlands Acquisition Fund and converts it to tax-exempt use.

The AG said no, and gave two independent reasons. First, rollback taxes are triggered against the government only when the government has the power of eminent domain and "sought" the transfer. The Wetlands Acquisition Fund is statutorily forbidden from using eminent domain (Tenn. Code Ann. § 67-4-409(g)(1)), so the rollback obligation never attaches. Second, even if rollback would otherwise apply, Tenn. Code Ann. § 11-14-406(b) expressly states that property acquired with Wetlands-Fund money is excluded: "[A]cquisition pursuant to this part of property classified under title 67, chapter 5, part 10 [the Greenbelt Law], shall not constitute a change in the use of the property, and no rollback taxes shall become due solely as a result of such acquisition."

Cities and counties are not left holding the bag. The same statute creates a "compensation fund" within the general fund to reimburse each affected local government for the property tax revenue it loses.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical background and statutory framework

The Greenbelt Law

The Agricultural, Forest, and Open Space Land Act, Tenn. Code Ann. §§ 67-5-1001 to -1050, was enacted in 1976 to encourage landowners under development pressure to keep land in agriculture, forest, or open-space use. Owners who apply for and meet the classification receive a property-tax benefit: the land is assessed based on its current undeveloped use as its "best" use, ignoring any higher value the property might have for development (§ 67-5-1008(a)(1)). The Court of Appeals described the Act in Marion Co. v. State Bd. of Equalization as "an invitation to property owners to voluntarily restrict the use of their property."

Rollback taxes

To prevent landowners from collecting the tax break and then quickly converting the property to a higher use, the Act levies a "rollback tax" when greenbelt status ends. The local tax assessor computes the difference between the present-use assessment and the standard-method assessment for the prior three years (or five years for open-space classification) under § 67-5-1008(d)(1). That difference becomes the rollback tax.

Section 67-5-1008(d)(1)(F), added by 2008 amendment, is the relevant trigger here: rollback is owed if "[t]he land is conveyed or transferred and the conveyance or transfer would render the status of the land exempt." That covers conveyances to government entities that produce tax exemption under § 67-5-203.

Who actually pays the rollback when the buyer is the government

The AG's earlier opinion 10-71 had explained that the government is responsible for rollback taxes under § 67-5-1008(e)(1) only when the government "sought" the transfer and "had the power of eminent domain." That coupling matters here because the Wetlands Acquisition Fund's enabling statute, § 67-4-409(g)(1), expressly forbids the Fund from using condemnation or eminent domain. So even if the conveyance produced tax-exempt status, the rollback tax under § 67-5-1008(e)(1) does not attach to the Fund.

The Wetlands Acquisition Fund

The Fund was created by Tenn. Code Ann. § 67-4-409(g) and is fed by 3.25 cents of the tax in subsection (a) of the same section. It exists "to acquire wetlands and bottomland hardwood forests" under the U.A. Moore Wetlands Acquisition Act (Tenn. Code Ann. § 11-14-401(b)(2)). The statute requires that the Fund acquire only by purchase, not by condemnation.

Tenn. Code Ann. § 11-14-406

Beyond the eminent-domain argument, the legislature also wrote an express carve-out. Section 11-14-406(b) provides:

[A]cquisition pursuant to this part of property classified under title 67, chapter 5, part 10 [the Greenbelt Law], shall not constitute a change in the use of the property, and no rollback taxes shall become due solely as a result of such acquisition.

In other words: the Greenbelt-to-government conversion that would normally trigger rollback under (d)(1)(F) is statutorily deemed not to do so when the buyer used the Wetlands Acquisition Fund.

Local-government compensation

The same statute creates "a special agency account in the general fund to be known as the compensation fund" to "reimburse each affected city and county" for the property tax revenue lost to Fund acquisitions (§ 11-14-406(a)). Local governments are made whole through that fund rather than through rollback collection.

The narrower scope of subsection (e)(1)

Tenn. Code Ann. § 67-5-1008(e)(1) requires an agency with eminent-domain power that involuntarily takes greenbelt land to pay rollback taxes. But that subsection by its terms reaches only agencies with eminent-domain power. The Wetlands Fund has none, so the subsection does not reach it.

Common questions

Our county just lost greenbelt revenue because the state bought wetlands here. Can we send the rollback bill to the state?

According to this opinion, no rollback tax was owed by the state when the purchase used the Wetlands Acquisition Fund. The county would seek compensation through the state's separate compensation fund under § 11-14-406(a). Confirm current procedure with state finance officials, since the underlying statutes may have been amended since 2012.

What if the state had used eminent domain instead of buying the land?

The Wetlands Acquisition Fund cannot use eminent domain by statute. A different state agency that does have eminent-domain power and that took greenbelt land involuntarily would be in a different posture under § 67-5-1008(e)(1) and would generally owe rollback. The opinion addresses only the Fund.

Does the state pay rollback when it buys greenbelt land for a non-wetlands purpose?

The opinion's holding turns on the specific statutory carve-out for the Wetlands Acquisition Fund. Other state acquisitions would be analyzed under the general rules: § 67-5-1008(d)(1)(F) and (e)(1), including the "sought + eminent-domain power" coupling discussed in earlier AG opinion 10-71.

Does the seller of the land owe the rollback when the Fund buys?

The AG opinion specifically says no rollback taxes are owed "solely as a result of such acquisition" by the Fund. The statute treats the acquisition as not constituting a change of use.

What is the Wetlands Acquisition Fund used for?

It is used "to acquire wetlands and bottomland hardwood forests" when "necessary and desirable to ensure the proper management of such wetlands and forests" (§ 11-14-401(b)(2)), and to maintain the property purchased.

Where does the money in the Wetlands Acquisition Fund come from?

The statute earmarks 3.25 cents of the realty transfer or similar tax in § 67-4-409(a) for the Fund, subject to the annual appropriations act. If no appropriation is made in a given year, that share is credited to the general fund.

Citations

• Tenn. Code Ann. § 11-14-401 (U.A. Moore Wetlands Acquisition Act)
• Tenn. Code Ann. § 11-14-406 (compensation fund and rollback exclusion)
• Tenn. Code Ann. § 67-4-409 (taxes feeding the Wetlands Acquisition Fund)
• Tenn. Code Ann. § 67-4-409(g) (Wetlands Acquisition Fund, no-eminent-domain rule)
• Tenn. Code Ann. § 67-5-203 (governmental property tax exemption)
• Tenn. Code Ann. §§ 67-5-1001 to -1050 (Greenbelt Law)
• Tenn. Code Ann. § 67-5-1008(a)(1) (greenbelt assessment based on present use)
• Tenn. Code Ann. § 67-5-1008(d)(1)(F) (rollback trigger on conveyance to exempt status)
• Tenn. Code Ann. § 67-5-1008(e)(1) (eminent-domain agency rollback)
• Marion Co. v. State Bd. of Equalization, 710 S.W.2d 521 (Tenn. Ct. App. 1986)
• Op. Tenn. Att'y Gen. 05-046 (Apr. 12, 2005)
• Op. Tenn. Att'y Gen. 10-71 (May 21, 2010)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2012/op12-051.pdf

Original opinion text

May 9, 2012
Opinion No. 12-51
Greenbelt Rollback Tax Liability on Land Purchased Through the Wetlands Acquisition Fund

QUESTION

Is the State of Tennessee required to pay rollback taxes on greenbelt property it purchases and converts to tax-exempt use when that land is purchased with funds from the Wetlands Acquisition Fund?

OPINION

No. The statutory requirement that the government pay rollback taxes on greenbelt land it acquires through eminent domain and converts to exempt status does not apply when the land is purchased through the Wetlands Acquisition Fund, which does not acquire land through eminent domain. Furthermore, Tenn. Code Ann. § 11-14-406 specifically excludes land acquired by the Wetlands Acquisition Fund from the rollback tax.

ANALYSIS

This request concerns the relationship between the Wetland Acquisition Fund, created by Tenn. Code Ann. § 67-4-409(g), and the assessment of "rollback" property taxes in certain cases where property loses its status as "agricultural, forest, or open space land" under the Agricultural, Forest and Open Space Land Act, codified at Tenn. Code Ann. §§ 67-5-1001 to -1050.

The General Assembly has authorized a process for the State to acquire wetlands and forests to "preserve certain wetlands and bottomland hardwood forests in our state." Tenn. Code Ann. § 11-14-401(b)(1). As part of this process, the Director of the Tennessee Wildlife Resources Agency may use funds from the Wetland Acquisition Fund, created by Tenn. Code Ann. § 67-4-409(g), to "acquire wetlands and bottomland hardwood forests" when the acquisition is "necessary and desirable to ensure the proper management of such wetlands and forests." Tenn. Code Ann. § 11-14-401(b)(2).

Tenn. Code Ann. § 67-4-409(g)(1) defines the creation and purpose of the Wetland Acquisition Fund as follows:

Three and one fourth cents (3.25¢) of the tax levied by subsection (a) [Tenn. Code Ann. § 67-4-409(a)] shall, subject to the annual appropriations act, be credited to a special agency account in the state general fund known as the "1986 wetland acquisition fund." If such an appropriation is not made in the appropriations act, then the amount shall be credited to the general fund. The funds shall not be obligated or expended to acquire any interest in real property through condemnation or the power of eminent domain. Expenditures from the fund shall only be made to implement and effectuate the purposes of title 11, chapter 14, part 4. The fund may be expended to maintain property purchased pursuant to title 11, chapter 14, part 4. Funds deposited in the fund shall not revert at the end of any fiscal year, and all interest accruing on investments and deposits of the fund not otherwise expended shall be returned to and made a part of the fund.

The Agricultural, Forest, and Open Space Land Act was adopted in 1976 for the purpose of encouraging owners of such land in areas pressured by growing urbanization and development to continue to maintain the land in its present undeveloped use. See Tenn. Code Ann. § 67-5-1003. This Act, commonly referred to as the "Greenbelt Law," incentivizes the non-development of qualifying land by providing the owners with a property tax benefit if they apply for classification as greenbelt property and maintain the particular conforming use outlined in the Greenbelt Law. See Tenn. Code Ann. §§ 67-5-1005 to -1008. Under this law, when a parcel of land qualifies for greenbelt status and is so classified by the jurisdiction's tax assessor, the tax assessment for the greenbelt parcel is then calculated upon the premise that its current undeveloped use is its "best" use, and the property's potentially higher value for any other use or purpose is not considered. Tenn. Code Ann. § 67-5-1008(a)(1). As explained by the Tennessee Court of Appeals, "in enacting this legislation, the legislature has issued an invitation to property owners to voluntarily restrict the use of their property for agricultural, forest, or open space purposes." Marion Co. v. State Bd. of Equalization, 710 S.W.2d 521, 523 (Tenn. Ct. App. 1986).

To prevent landowners from taking advantage of the Greenbelt Law to capture temporary property tax savings without truly committing their property to the long-term greenbelt use envisioned by the Act, the General Assembly provided for the levying of rollback taxes under certain circumstances. As explained by this Office in an earlier opinion on a similar issue, when land for which greenbelt status has previously been obtained ceases to meet the requirements of the Greenbelt Law,

the relevant tax assessor is instructed by the statute to compute the difference between the present use value assessment and the standard method of value assessment as described in Tenn. Code Ann. § 67-5-601 et seq. for each of the preceding three years (or five years if the land was classified as open space). Tenn. Code Ann. § 67-5-1008(d)(1). The value of this difference is then to be assessed as the rollback tax on that greenbelt property.

Op. Tenn. Att'y Gen. 05-046, at 2 (Apr. 12, 2005).

There are currently six enumerated circumstances that trigger rollback taxes, Tenn. Code Ann. § 67-5-1008(d)(1)(A) through (F), with only the last circumstance relevant to the question posed in this request. Rollback taxes are to be calculated and the local property tax assessor is required to "notify the trustee that such amount is payable, if . . . (F) The land is conveyed or transferred and the conveyance or transfer would render the status of the land exempt." Tenn. Code Ann. § 67-5-1008(d)(1)(F). As noted by this Office in a prior opinion, the rollback tax trigger outlined in subsection (F), which was added to the code in 2008,

is not tied to the use of the land, but rather requires rollback taxes to be assessed if the greenbelt property is rendered "exempt" from taxes. Thus, pursuant to the 2008 amendment, greenbelt property conveyed to a government entity that maintains the property's greenbelt use would be subject to rollback taxes simply if the conveyance results in the property becoming exempt from property taxes.

Op. Tenn. Att'y Gen. 10-71, at 3 (May 21, 2010).

As a general rule, property owned by a government entity and used exclusively for governmental purposes is exempt from property taxes. Tenn. Code Ann. § 67-5-203. Thus, per Tenn. Code Ann. § 67-5-1008(d)(1)(F), in most circumstances when greenbelt property is conveyed to a government entity it becomes exempt and therefore triggers the assessment of rollback taxes. In short, absent statutory authorization to the contrary, greenbelt property conveyed to the government that takes on exempt status is subject to the assessment of rollback taxes regardless of whether the greenbelt use of that property is continued by the government after the conveyance.

However, as recognized by this office in Op. Tenn. Att'y Gen. 10-71, the government is only responsible for rollback taxes under Tenn. Code Ann. § 67-5-1008(e)(1) if the government "sought" the transfer and "had the power of eminent domain." Op. Tenn. Att'y Gen. 10-71, at 5. Here, the Wetlands Acquisition Fund under its enabling statute is expressly prohibited from acquiring "any interest in real property through condemnation or the power of eminent domain." Tenn. Code Ann. § 67-4-409(g)(1). Thus the Wetlands Acquisition Fund cannot be responsible for the payment of rollback taxes under Tenn. Code Ann. § 67-5-1008(e)(1). See Op. Tenn. Att'y Gen. 10-71, at 5.

Furthermore, the provisions of the Tennessee Code compensating the local government for the loss of these rollback taxes expressly exclude property acquired under the Wildlife Acquisition Fund from the rollback taxes under the Greenbelt Act. Tenn. Code Ann. § 11-14-406(b) expressly states that no rollback taxes are due on property solely because it was acquired by funds from the Wetland Acquisition Fund as described in Tenn. Code Ann. § 67-4-409(g). Tenn. Code Ann. § 11-14-406, which is part of the "U.A. Moore Wetlands Acquisition Act," creates a "special agency account in the general fund to be known as the compensation fund" to be used to "reimburse each affected city and county" for property tax revenue lost to government acquisition of land under the U.A. Moore Wetlands Acquisition Act. Tenn. Code Ann. § 11-14-406(a). The statute expressly states that "[a]cquisition pursuant to this part of property classified under title 67, chapter 5, part 10 [the Greenbelt Law], shall not constitute a change in the use of the property, and no rollback taxes shall become due solely as a result of such acquisition." Tenn. Code Ann. § 11-14-406(b) (emphasis added). Thus, conveyance of greenbelt property to the government through purchase with funds from the Wetland Acquisition Fund does not trigger rollback taxes even though the greenbelt property is converted to tax-exempt status. However, the local government should receive compensation directly from the State compensation fund as outlined in Tenn. Code Ann. § 11-14-406(b). See Op. Tenn. Att'y Gen. 10-71, at 4-6.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

GREGORY O. NIES
Assistant Attorney General

Requested by:
Mr. Ed Carter
Executive Director
Tennessee Wildlife Resources Agency
Ellington Agricultural Center
P.O. Box 40747
Nashville, Tennessee 37204