Incentives Watch: Land Conservation Tax Credit Amended in Colorado to Improve Application Review Process

Colorado’s Land Conservation Appreciation Week was June 3-9, 2013. Land conservation is of particular importance to Coloradans, and the state offers a tax credit designed to encourage the donation of conservation easements.

Taxpayers that donate a perpetual conservation easement encumbering real property to a governmental entity or a charitable organization may claim a tax credit, equal to 50 percent of the value of the donated easement, in Colorado. The credit is limited to donations that qualify as a qualified conservation contribution pursuant to I.R.C. § 170(h).

Colorado ranks first in the Southwest in terms of the number of acres conserved from 2005 to 2010, and ranks third place in the United States overall, according to the Land Trust Alliance’s 2010 National Land Trust Census.

Colorado recently enacted changes, via S.B. 221, to its conservation easement tax credit program. For conservation easement donations on or after Jan. 1, 2014, landowners seeking a tax credit must apply for a certificate from the Division of Real Estate. The division must then review and make recommendations regarding each application, including a determination as to the credibility of the appraisal. An appeal process is also provided in the legislation.

Marcia Waters, Division Director at the Division of Real Estate, recently answered some questions below regarding the tax credit.

Bloomberg BNA: What does the future hold for the tax credit program?

Waters: The goal of [S.B. 221] was to move the transaction review to the beginning of the process so that taxpayers would not have their tax credits denied at a later date due to a transactional issue. If the Division of Real Estate identifies issues with a particular transaction, the taxpayer will have an opportunity to remedy the deficiencies prior to seeking a tax credit.

Bloomberg BNA: The Colorado Office of the State Auditor issued a performance audit on the conservation easement tax credit program in September 2012, and concluded that “more changes need to be made to strengthen the administration of Colorado's conservation easement tax credit to ensure that tax credits being claimed and used by taxpayers are valid.”  How has the audit impacted the way the Division of Real Estate handles appraisals under the conservation easement tax credit program?

Waters: As a result of the audit, we have been reviewing all easement appraisals that involve a state tax credit. We have one employee that performs these appraisal reviews, and due to our responsibility to provide consultation to the Department of Revenue (DOR), we were not able to review all of the appraisal submissions along with all of the appraisals that DOR wanted consultation on. To assist with the workload, we are designing an appraisal checklist that will assist the employee with managing the number of appraisals submitted to the Division of Real Estate, along with ensuring that each appraisal is reviewed uniformly.

Bloomberg BNA: The audit made several findings, including that, although the cost of the credit can be easily measured, “measuring the benefits the public has received in return is more difficult and limited because of a lack of available data.”  Are there any steps the Division of Real Estate can take to make the benefits to the public more quantifiable?

Waters: I don't know if the Division will be able to quantify the public benefits of conservation. We obviously are able to record the amount of land protected and the designated conservation purpose, but other information that may shed light on public benefit is protected for tax purposes.

In addition to Colorado, various land and water conservation tax credits and incentives are offered in Arkansas, Connecticut, Delaware, Georgia, Illinois, Iowa, Massachusetts, Mississippi, New Mexico, New York, North Carolina, Oregon, South Carolina, Virginia, and Wisconsin.

For more information about the various conservation easement income tax credits, check out Bloomberg BNA’s Credits and Incentives Portfolios.

In other developments . . .

Florida recently enacted legislation that creates a three-year rotating review schedule for state credits and incentives related to economic development, to ensure the programs are providing effective results, according to a Bloomberg BNA Weekly State Tax Reportarticle by State Tax Law Editor Rebecca Helmes.

By: Kathleen Caggiano

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