Office of Sen. Mike JohnstonColorado General Assembly | 200 E. Colfax Avenue | Denver, CO 80203 | 303.866.4864

FACT SHEET MEMORANDUMSB 13-221

Conservation Easement Tax Credit Certification ApplicationSen. King, Rep. Ryden

Staff Name: Gideon Irving

What the Bill Does: A conservation easement is a power invested in a qualified private land conservation organization or government to constrain the exercise of development rights otherwise held by a landowner so as to achieve certain conservation purposes. It is an interest in real property established by agreement between a landowner and land trust or unit of government that is applicable to both present and future owners of the land. An easement’s purposes might include maintaining and improving water quality, the growth of healthy forest, or a wildlife habitat.1

Under current statute, a landowner can claim a state income tax credit of up to $375,000 (counted as 50 percent of the value of the donated land) for donating part or all of a perpetual conservation easement to a qualified organization. Landowners are allowed to transfer part or all of the tax credit to another taxpayer. The Division of Real Estate (division) must issue a tax credit certificate before the tax credit can be used, claimed, or transferred. The executive director of the Department of Revenue (department) has the authority, in consultation with the Conservation Easement Oversight Commission (commission), to review and accept or reject the values, amounts, and validity of conservation easements and their tax credits after a landowner or transferee files a tax return with the department. There is a $305 fee for a conservation easement tax credit certificate application.2

This bill requires a landowner to submit an application for a conservation easement tax credit to the division of real estate and have certain aspects of the conservation easement donation reviewed by the division staff, director and the Conservation Easement Oversight Commission before the tax credit certificate is issued. A landowner may request an advisory opinion from the director and the commission before submitting an application and may also appeal the denial of an application. This bill also repeals the Conservation Easement Appraisals Fund and fee, and creates a fee and the corresponding Conservation Easement Tax Credit Certificate Review Fund for the purposes of this new application process. This bill additionally sets provisions for governing the authority and responsibilities of the division, the department, and the commission.

Colorado Context:

1 http://en.wikipedia.org/wiki/Conservation_easement2 http://www.colorado.gov/cs/Satellite/DORA-DRE/CBON/DORA/1251623544943

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There are 1,916 conservation easements in Colorado totaling 801,720 acres.3 For tax years beginning on or after January 1, 2000, Colorado has granted state tax credits [39-22-522(2), C.R.S.], in addition to federal tax deductions, for the donation of conservation easements.4 The state has capped the dollar amount of conservation easement tax credits available in a given year, pursuant to HB11-13005. In tax years beginning during calendar years 2011 and 2012, the state issued its maximum dollar amount of credits, $22 million. For tax years beginning during calendar year 2013 the maximum amount of total credits available is $34 million.6

National Context:In addition to the federal tax deduction, 15 states including Colorado provide a state income tax credit to incentivize land protection through conservation easements.7 Georgia requires an application and approval before receiving a state tax credit, but offers pre-certification applications. This application is subject to review and acceptance or denial by the Georgia Department of Natural Resources, and to appeal by the applicant upon denial, but does not require a qualified appraisal.8 Georgia issues an annual report on the Conservation Tax Credit Program.9 In Massachusetts, for taxpayers to qualify for a tax credit, they must have their land appraised by a qualified appraiser and submit a summary of the appraisal along with their tax return, at which point the Commissioner of Revenue is responsible for adopting regulations concerning the tax credits.10 In New York, taxpayers file a form outlining the easement with their tax return in order to receive their tax credit.11 In Virginia the taxpayer must complete and submit a form to the Virginia Dept. of Taxation (TAX) and the Dept. of Conservation and Recreation.12 The form must include an appraisal by a qualified appraiser.13 TAX must establish and acknowledge the credit before it can be claimed or transferred.14

Bill Provisions: Give power to the Board of Real Estate Appraisers to establish education and experience

requirements for conservation easement appraisers. Repeal the Conservation Easement Appraisals Fund and fee, transfer all moneys into the newly

created Conservation Easement Tax Credit Certificate Review Fund, and create new fee therein. Prior to the repeal of the Certification of Conservation Easement Holders certification program

in 2018 [C.R.S. 12-61-720], the certification requirement shall be reviewed.

3 http://www.conservationeasement.us/reports/easements?report_state=Colorado&report_type=All4 Office of the State Auditor of Colorado. Conservation Easement Tax Credit: Performance Audit. September 2012. http://www.leg.state.co.us/OSA/coauditor1.nsf/All/5F733A628FCF979A87257A94007374E8/$FILE/2171%20ConserEasemTaxCredit%20092612%20KM.pdf.5 Id.6 Id.7 Id.8http://glcp.georgia.gov/sites/glcp.georgia.gov/files/related_files/site_page/DNR%20Tax%20Credit%20Rules%20391-1-6.pdf9 http://glcp.georgia.gov/application-materials-donations-recorded-2006-201210 http://www.landtrustalliance.org/policy/documents/ma-tax-credit-law11 http://www.landtrustalliance.org/about/regional-programs/ne/documents/CETC%20FAQ-Aug%202009.pdf12 http://www.tax.virginia.gov/site.cfm?alias=TaxCredit#Land_Preservation_Tax_Credit13 http://www.policylibrary.tax.virginia.gov/OTP/Policy.nsf/Main?OpenFrameSet&Frame=MainFrame&Src=/OTP/Policy.nsf/df8f027f3fea473a8525697a00730e76/11299c431fc51ebf852569db0069d5f3?OpenDocument&AutoFramed14 http://www.tax.virginia.gov/site.cfm?alias=TaxCredit#Land_Preservation_Tax_Credit

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Slightly alter four of the six member slots of the Conservation Easement Oversight Commission, most notably replacing a historic land trust with an individual qualified and competent to analyze the conservation purposes of conservation easements.

The commission shall provide optional preliminary advisory opinions for tax credit applications. The commission may delegate authority to the director of the Department of Revenue to act on

their behalf. The commission is no longer required to meet quarterly but shall advise the director regarding

the qualifications of an application. The division shall receive tax credit applications from and issue certificates to landowners. The division shall establish and administer a process by which a landowner seeking to claim an

income tax credit for any conservation easement must apply for a tax credit certificate. Appraisals for conservation easement tax credit claims must come from qualified appraisers. The commission shall have the authority to determine if a conservation easement donation is a

qualified conservation contribution as defined by federal law. Description of the complete criteria of the tax credit certificate application. A landowner submitting an application or a request for a preliminary advisory opinion shall pay a

fee as prescribed by the division. The state treasurer shall deposit the fees into the newly created Conservation Easement Tax

Credit Certificate Review Fund. The general assembly shall annually appropriate moneys in the fund to the division for the purposes of implementing and administering the application process.

The division shall report annually to the general assembly concerning the amount of any fees. Time periods and responsibilities are defined for: notifying a landowner of application

deficiencies, the landowner addressing said deficiencies, and the director and commission making final decisions. Deadlines may be extended upon mutual agreement of the landowner, commission, and director.

Criteria for which the director or the commission may deny an application. If the director reasonably believes an appraisal is not credible, the director with consultation of

the commission has the authority to request a second or revised appraisal at the landowner’s expense.

If no deficiencies are found in an application, the director and the commission shall issue a tax credit certificate within 120 days of receiving the application.

If an application is denied, the applicant shall be notified in writing of the potential deficiencies that were the basis for the denial.

Applicants may appeal a denial within 30 days or the denial is final. The decisions of the director and the commission are subject to judicial review. In conducting settlement discussions with a landowner, the director and the commission have

the authority to compromise on any identified deficiencies, including the tax credit dollar amount. Records and reasoning of any compromise will be kept on file.

The division shall create an annual comprehensive report that will be available to the public regarding conservation easement tax credit applications. Criteria of the report are listed.

The director or the commission may request additional information from the landowner to assist in reaching a final decision on an application.

The division has further rule-making authority for this application process. Notwithstanding the provisions of the “Colorado Open Records Act” the division, director, and

commission shall deny the right of public inspection to any information obtained as part of an individual’s application or optional preliminary advisory opinion.

Amend sections of the Colorado Revised Statutes affected by this bill so that they expire before January 1, 2014 and replace them with the newly created statutes.

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Fiscal Impact:A fiscal note has not yet been released for this bill.

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