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Present Use Value: The Basics of Agricultural and Forest Use Property Tax

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[Editor’s Note: The following article was co-authored by Rajan Parajuli, PhD, Assistant Professor and Extension Specialist, Forest Economics and Policy,Department of Forestry and Environmental Resources, NC State University]


Owning land in North Carolina is never cost-free, primarily because nearly all real property is taxed by a county or municipal government, unless exempted by a state statute or the North Carolina Constitution.1  Because local governments do not have statutory authority to directly tax incomes, the revenues from property taxes are a primary means by which local governments operate public services such as schools, libraries, waste management, police and fire departments.

Because real property is taxed on its theoretical market value – it’s “highest and best use” value – owning and accessing the acreages required to support medium and larger-scale farm operations would be cost-prohibitive. Income generated by farm or forestry could end up a negative return on investment if the land is taxed at its market value. Likewise, forestry crops are long term, and costs for forest management practices are needed in early years, but the incomes from commercial timber sales will only be realized in the future many years later.  In theory, if a landowner cannot afford to pay taxes on undeveloped real property, they could not afford to keep it in agriculture or forestry production. As a policy solution to reduce this cost to farmers so they can afford to keep farming, North Carolina offers a program to reduce the taxes paid on real property: the Present Use Value (PUV) program. This article provides an overview of the PUV program along with application scenarios.

The Present Use Value (PUV) Program – Appraisals Based on Production

Following a policy to keep lands working in agricultural, horticultural and forestry production, North Carolina state law requires all 100 counties to apply a differential appraisal to these working lands at a value that reflects the use of the land rather than its “highest and best use” value.2   This program is known in North Carolina as Present Use Value (PUV), and it is perhaps the most beneficial tax program for owners of rural property. This program offers up to 90% tax savings for private eligible landowners in NC.3 At its most basic operation, each parcel of land that qualifies for enrollment in PUV must be appraised at a lower value, to which the county’s published tax rate is applied to produce the tax liability. In other words, the tax rate is the same, but it is applied to a lower value.

The technicalities of the law – and its sometimes unique application by each county – can present a challenge for landowners and their advisors, particularly when land is transferred to another or placed in the succession framework of a trust and/or limited liability company.  The program is administered by each county’s tax assessor, and while the state statute sets the requirements for real property qualification, counties are somewhat idiosyncratic in applying the program. For example, a particular county may apply an enrollment deadline, or may process “good cause” appeals for lapsed “continued use” enrollment, that differs from a neighboring county. In addition, over the past decade and particularly in counties surrounding growing metropolitan areas, tax offices have bolstered staff dedicated to monitoring compliance with the program. To guide these tax officers in fair implementation of the PUV program, the North Carolina Department of Revenue (NCDOR) publishes a Present Use Value Program Guide (hereafter the “Program Guide”) to tax assessors to assist in their management of the program, with application of the program to various sample scenarios.4

It is important to remember that PUV is a tax deferral program, meaning that the property is always subject to tax at its highest appraisal, and this amount is always listed on the property tax card kept on file by the county (and often available online). Such deferral anticipates a future date at which the property will not qualify, and the deferred taxes (the differential between high and low) will come due. However, the deferred amount is time limited to three (3) years; so the tax differential is abated for the years prior to the third year before disqualification or voluntary removal from the PUV program. Note that PUV deferral may only apply to the land, as improvements are valued at their true value.

Real Property Qualifications for PUV

As noted, land must qualify for enrollment (and continued enrollment) in PUV, depending on its classification as agricultural, horticultural or forest land.6 In 2010 the NC General Assembly created an effective fourth use category – wildlife use – that operates similar to PUV.5  To determine whether land qualifies for continued enrollment, a tax office must ask four questions: 1) is the parcel owned by a qualified owner; 2) is the parcel under sound management?; 3) is the parcel of requisite size according to its classification?’ and 4) does the parcel produce sufficient income? Only the first three questions apply to land in forestry use classification.

Individual Ownership

The requirement that the tract of land be owned – or traced to the ownership of – an individual person or persons applies to all categories. In the event of co-tenancy, each co-tenant must be an individual person, or if a non-human entity is the record owner, owners and beneficiaries of such entities must be individual people. The ownership requirement must be strictly adhered to when transferring land to other persons or transferring to entities serving as instruments of transfer and succession, such as trusts and limited liability companies. Likewise, dispositions of real property to the outright individual ownership of trust beneficiaries or members of a limited liability company will trigger scrutiny to the county tax office at the time of filing a continued use application (AV-4, see below). Trustees and LLC managers should ensure that property held within their entities presently qualifies prior to distribution, because one cannot transfer unqualified land (though enrolled and undiscovered) for continued use in PUV.

For land to qualify for PUV enrollment in the hands of an individual, it must be that person’s place of residence, or, if not, the land must have been acquired by the individual or relative of the individual a full four (4) years prior to January 1 of the year the land is to be enrolled in PUV (regardless of the county’s listing period for enrollment). For land transferred to an individual by an entity (e.g. trust or LLC), the land must have been enrolled under ownership of a qualified entity (the transferor) and the new individual owner (the transferee) must have been a member or owner of the transferring entity or a beneficiary of the transferring trust.

Sound Management Requirement (for Agriculture and Horticulture)

Another qualification for enrollment is the land must be under sound management.6  A sound management plan is defined as “[a] program of production designed to obtain the greatest net return from the land consistent with its conservation and long-term improvement.” Though “return” is not defined, the statute provides six safe harbors whereby if the landowner can demonstrate one of the following, the land is de facto under sound management:

(1) Enrollment in and compliance with an agency-administered and approved farm management plan;

(2) Compliance with a set of best management practices;

(3) Compliance with a minimum gross income per acre test;

(4) Evidence of net income from the farm operation;

(5) Evidence that farming is the farm operator’s principal source of income; or

(6) Certification by a recognized agricultural or horticultural agency within the county that the land is operated under a sound management program.7

The Program Guide infers that a county compliance officer may choose which test to apply, but if the chosen test cannot be met, the landowner may present satisfaction of another safe harbor, and beyond that may present other evidence. Safe harbor (1) should be readily available if the land is enrolled in a program such as the Environmental Quality Incentives Program (EQIP), which requires management plans according to type of assistance, such as a nutrient management plan, but whether such suffices for the entire tract is unclear. The Program Guide notes that tests 3, 4 and 5 are objective. Although it is not known if any county assessor uses the “minimum gross income per acre” test, the Program Guide suggests that such test parameters should be made public and that a landowner not be allowed to present their own minimum income amount. As for (4), net income simply means profit (which can be shown from a Schedule F), as can (5) principal source of income. As a practical matter, county Cooperative Extension or Soil & Water Conservation District may provide such certification in (6). (Note that the management requirement for forest use is discussed below.)

Size and Management, and Income Requirements

Forestry Use

Forestry Use requires a twenty (20) acre minimum tract with a soundly managed commercial timberland. There is no specific income requirement for forestry use. Once the 20-acre minimum tract qualifies, other smaller tracts may be included as long as they are under the same ownership and current use located in the same county or within 50 miles of the 20-acre parent tract. Additionally, the tract must be managed following a sound, written forest management plan which is kept on file with the county tax office. The owner is expected to implement the practices (or attempt to implement the practices) outlined in that forest management plan, and the assessor should conduct periodic compliance reviews.

The forest management plan must lay out the objectives and management prescriptions to allow an assessor to determine if the tract is being managed soundly for commercial timber production. Those reasonable and prudent management practices must be implemented to produce commercial timber over the stated life of the plan. Consulting foresters as well as foresters at the North Carolina Forest Service can prepare a forest management plan of any property. The management plan must be updated if forests and landowner objectives change, and the modified plan should be sent to the county assessor’s office for review.

Though the PUV statute is silent on the contents of a forest management plan, a written forest management plan should include:

A statement of management and landowner objectives.

Location maps and photographs of forestland.

A forest inventory describing age, size, soil productivity, and condition of each delineated stand and corresponding to a map of forestland in timber production.

Prescribed practices for forest management and stand management recommendations for commercial timber production.

Harvest and regeneration objectives with timelines of expected timber harvests and recommended regeneration methods to be implemented once the final harvest of crop trees is complete.

As noted elsewhere in this article, a landowner may not change classifications for a parcel of land without filing a change of use application (the AV-4). Remember that compliance reviews are octennial, so a tract of land could easily slip out of production and begin volunteer growth. A forestry management plan for the property will not accomplish its enrollment in forestry: the change from agriculture had to have been made at the time the parcel could no longer prove $1000 annual income.

Agriculture and Horticulture

For agricultural use – which generally includes row crops and open grazing pasture (including hay production) – the tract must be a minimum ten (10) acres in agricultural production, defined as the “commercial production or growing of crops, plants, or animals.”8 This classification also includes “aquaculture” operations with a minimum five (5) acre footprint, which includes various facilities according to definition.9 The horticulture classification requires a minimum five (5) acres in commercial horticultural production, defined as the “growing of fruits or vegetables or nursery or floral products.”10

The size of the tract must be no less than required acres in actual agricultural or horticultural production. Infrastructure on the land supporting agricultural operations (such as barns, greenhouses, fencing, and ponds) do not disqualify the tract. However, any building used for residential purposes will disqualify that portion of the tract and will be assessed at its highest value (counties normally carve out an acre surrounding a structure used for residential purposes and tax its highest value along with the structure).11

A parcel meeting the ownership, management and acreage requirements for agriculture and horticulture must generate $1000 gross per year in farm production. Note that this figure represents total receipts regardless of profit. Agricultural income includes government conservation payments (e.g. Conservation Reserve Program), grazing fees for livestock and sale of bees (curiously, income from honey is specifically excluded).12  It is important to note that the amount of cash rent from a parcel is not considered agriculture or horticulture income; however, the farm production income from a farm tenant or lessee is used to satisfy this requirement.

The revenue requirement is based on a three year average. For example, if an enrolled property earns $1000 in year 1 and $2000 in year 2, then zero income in year 3 could still qualify the property. Income must come from commercial production (and sale) of the actual agricultural or horticultural product.

Multiple Parcels

Often, additional parcels are purchased or inherited out of PUV enrollment, and the new owner wishes to qualify these in PUV. There are several issues to consider.

First, if a parcel has been acquired that is not in PUV at the time of transfer, it may be enrolled in PUV immediately (immediately meaning in January following the date it was aquired) if the owner has at least one qualified PUV parcel in the same county (or within 50 miles if in another county).13 However, the new parcel must match the classification of the parcel it is to join; for example, land producing agriculture crops or animals may only be enrolled if the  land currently enrolled in PUV  is also agriculture. PUV land in agriculture use cannot be paired with land in horticulture or forestry use, etc. Even if the new parcel is under the minimum size for the category, it may be paired with the other tract qualified in the same category. Note that one may never reach qualified size by pairing non-adjacent non-size qualifying parcels; at least one parcel must qualify on its own. (It is possible to combine parcels into one tract through application to the county, but this must be completed prior to qualifying for PUV). Consider this example:

Virgil purchased a 9 acre agricultural parcel not enrolled in PUV. Virgil owns a 15 acre parcel in enrolled agriculture PUV elsewhere in the county. He may immediately enroll his 9 acre parcel into PUV though it does not by itself qualify as agricultural use due to its. If the 9 acre tract is actual agricultural production, it qualifies as an expansion of an existing unit (i.e. the 15 acre parcel).14

Also, the inferior size parcel cannot be paired with qualified PUV land unless it is under identical title. Mismatches of title often happen when one spouse owns land by themselves (either they purchased before marriage, or inherited or received it as a gift during marriage), and the new parcel is titled as husband and wife.  Consider this example:

Virgil purchased his 9 acres and paired it with his 15 acre tract prior to his marriage to Ellen. Following their marriage, Ellen and Virgil bought an additional 9 acre working hayfield parcel titled as tenants by the entirety. They cannot pair the hayfield property with the 15 acre tract because the latter is in Virgil’s name alone. To enroll the new 9 acre tract, Virgil will need to deed both his original 9 acres and his 15 acre tract to himself and Ellen to create identical titles to the newly acquired land.

Applying for PUV

Forestry. As noted above, real property classified as forest use must have a forest management plan associated with that tract on file with the tax office. Though the statute is not specific on when the plan must be completed and filed, the NC Department of Revenue in 2010 issued a position memorandum that such plans must be in place prior to January 1 of the year in which application for forest use enrollment is made.15

Agriculture and Horticulture. Application for agricultural or horticulture use may only be made in the fourth year (usually by January 31) following transfer of title to the owner, because the present owner must show records of $1000 per year average over the previous three years. (Enrolled land loses its status when transferred if the new owner does not file a continued use Form AV-4, see below.

Considerations with Farm Tenants and Lessees

Remember that unless contractually agreed otherwise, the landowner is responsible for timely payment of property taxes, not the tenant. Further, as noted above, the tenant’s annual cash rent payment to the landowner is not considered income for the $1000 annual farm revenue requirement. The $1000 is calculated on the tenant’s farm product receipts. It is therefore critical that the landowner – the party responsible for demonstrating qualification – have access to sufficient income records from the farm tenant. If a tenant does not want the landowner to know their income, the tenant could provide such information to the County upon request.

Neither the general statutes or the NCDOR PUV publication offer guidance on what records are sufficient to prove farm income. This is left to the discretion of the county tax assessor. One would assume that a Schedule F showing sufficient receipts. Other acceptable materials likely include receipts prepared by the farmer for sales of product or a Quickbooks ledger.

In regards to obtaining a farm tenant’s record, the landowner should be in the habit of an annual review of the tenancy (even one not under lease) with the tenant, instead of allowing the tenancy to automatically renew under failure to give notice of termination (See article on North Carolina’s Statutory Farm Tenancy). Such passive renewals were customary in the previous generation, and with farm land rarely changing hands, the risk of income verification was low and otherwise not strictly policed.

One measure to ensure annual compliance with a records request is to incorporate failure to do so as a matter of default in a lease. Below is a sample of suggested language:

Tenant to Provide Income Records for PUV. Tenant agrees to provide the Landowner – on an annual basis – to provide farm income statements for the purpose of initial or continued enrollment in the Present Use Value (PUV) program. Tenant shall supply the Landowner with records sufficient to demonstrate Tenant’s gross farm income from the premises. Failure to provide records upon written request within 15 days of the request will be considered a default under the lease.

The owner should be mindful to retrieve such income records on an annual basis, and not trust that several years back records will be available when requested by the county during an octennial compliance review, particularly if the tenant has quit the lease and otherwise unavailable or unwilling to supply records.

Change in Use

A change in use classification must be made by application and approved by the county. As a practical matter, converting land from agriculture to forestry without losing qualification is the easiest to achieve, in that forestry has no income requirement (this assumes the tract is minimum 20 acre and a forest management plan is submitted). However, the landowner must complete the transition in the year prior to filing a change of use application with the county during its regular enrollment period (usually January).

Converting land from forestry is more challenging, in that the land must produce $1000 in income in the year prior to enrollment and for each of the two preceding years prior to enrollment as agricultural land under the statute.16 If land can be cleared early and crops sown and sold in the same year, the NCDOR PUV Manual suggests to tax assessors that they may allow the land to remain enrolled.

Change from Agricultural to Horticultural or vice-versa is not as challenging as both have an income requirement. However, if the conversion from agriculture to horticulture involves acreage devoted solely to fruit tree production, the farmer may be challenged to prove income from that acreage until the trees produce.

As noted earlier, a change in classification is not self-help, in that if the land is to change uses and thus classifications, the Form AV-4 must be filed with the county tax office. Probably the riskiest situation is allowing land enrolled in agricultural (or horticultural) PUV to revert to trees after suspension of farming on the land. The landowner cannot later after a compliance review file a Form AV-4 and convert the land to forestry, this must have been done when farming ceased; from the counties perspective, if the land was in agricultural use and did not produce income, that classification failed.

When planning a land use classification change, it is a good idea to consult the county on their timing of a new use application (the Form AV-4). When approaching the tax office, it is a good idea to make sure that proof of compliance is readily available in the likely event the county reviews your status.

Loss of PUV Status

When a parcel of land loses its PUV enrollment, the financial consequences can be severe, particularly in an urbanizing county where the PUV appraisal has not kept pace with a rising highest and best use appraisal. The PUV appraisal, because it is based on use and subject to market forces connected to production, is disconnected from the appraisal driven by market forces in real estate, which is subject to very different market forces or factors (i.e. land scarcity due to encroaching development). Another situation where a heavy rollback burden can fall on a landowner is in a trust distribution of property, where multiple parcels have a rollback payment attached.

When a tract of land is disqualified, the owner of the property must pay what is known as a “roll back,” which amounts to the sum of three (3) years of the unpaid deferred taxes  plus interest on that differential for each year. The differential is measured between the tax paid (as calculated on the use value appraisal) and the tax payment that would have been made had the land not been enrolled in the program (the market value), plus 3 years interest on each year through the current year (i.e. year 1 = 36 months interest; year 2 = 24 months interest; year 3 = 12 months interest).  The differential tax payments otherwise deferred prior to the 3 year look back are abated for all time.

It is important to remember that sometimes, particularly with the agricultural income requirement, a tract of land can appear to be enrolled but is factually not qualified. Though the landowner may be receiving tax bills showing the differential amount due, and paying the lower tax payment, the tax assessor has not discovered the non-qualification yet.

County tax offices discover non-qualification in several ways, principally through routine audit or when land changes title. By law, the county must annually audit one-eighth of the parcels enrolled in present use value, so there is time (in theory, eight years) for a particular tract to fail qualification before its next audit.17  During the audit, the assessor will ask for verification of revenue for agricultural and horticulture land, or a sound management plan for forestland. When an information request is made during an audit, the landowner has sixty (60) days to comply, and failure to supply requested information results in disqualification; thereafter, the landowner still has another bite at the apple, with another 60 days to supply the information, whereupon if satisfactory, the assessor must reinstate the land to the PUV program.18

A discovery may sooner come when the property changes title, which can occur when property is sold or gifted in whole or subdivided and recorded in the name of the new owner. As noted above it is critically important to know whether a tract of land enrolled in the PUV program qualifies prior to contracting for its purpose or receiving it as a gift, because property that does not qualify in the hands of one owner cannot thereafter immediately qualify in the hands of the new owner. In other words, the property tax card may show that the tax due is the PUV amount, non-qualification may not yet be discovered.

Indeed, a landowner failing to voluntarily report a loss of status is subject to a penalty representing 10% of the total amount of the rollback (the deferred taxes plus interest), applied to each listing period the change goes unreported.19

Appeals and Good Cause

Appeals of adverse property tax decisions related to PUV primarily concern a) failure of qualification after compliance review, or b) filing of a late AV-4 for continued use after transfer. In either instance, the tax assessor is required to provide notice to the property owner that their property has lost enrollment.

If the county tax assessor, upon compliance examination, determines that a tract of land no longer qualifies for PUV, the office must notify the landowner in writing.20 Following receipt of the notice, the landowner has 60 days from the date of the written notice to file his appeal of the assessor’s decision to the county board of equalization.21 If the property owner wins the appeal, the property is reinstated back to its qualification status. If a new disqualification factor emerges during the appeal, the tax assessor must issue a new notice. An appeal from the decision of the board of equalization is made to the NC Department of Revenue’s Property Tax Commission.

The above notification requirement does not apply to loss of enrollment due to the filing of a late application (AV-4) for continued use. Recall that, upon most acquisitions of land enrolled in PUV, the new owner may file an AV-4 certifying continued use in the property’s use classification and taking responsibility for deferred taxes from the previous three years. Failure to file the AV-4 within 60 days of acquisition is grounds for removal from the program.22 Failure to file the form within the 60 days may be rectified upon a showing of “good cause”23 to the board of equalization (or county commissioners if the equalization board is not in session). Note that the tax assessor lacks the authority to accept a late application, and must await the equalization or commissioner board’s decision.

The NC General Statutes do not define “good cause.” What constitutes good cause certainly varies by county, and several cases have dealt with the issue with other exemption categories other than PUV, suggesting that a taxpayer should avoid arguing it was simply unaware there was a deadline when they own other exempt property (likewise, counties should avoid tying decisions to the amount of tax revenue at stake).24

The appeal of an adverse enrollment determination is an administrative process, and the property owner must exhaust all levels of the appeals process, up through the decision of the Property Tax Commission, before a landowner may proceed to circuit court to challenge the tax assessor’s decision. A landowner that misses the statutory deadlines loses their right of court review.


Enrollment in PUV is particularly perilous at the moment enrolled land is transferred. Indeed that is the point of the program: differential taxes are merely deferred until such point they are paid. North Carolina is fortunate to have a program mandated by state statute applying to all 100 counties, other states are not so fortunate.25


1 N.C.G.S. §105-274. “All property, real and personal, within the jurisdiction of the State shall be subject to taxation unless… (1) (e)xcluded from the tax base by a statute of statewide application… or, (2) (e)xempted from taxation by the Constitution…”

2 See generally N.C.G.S. 105-277.2 et. seq.

3 See Benefits of a Woodland Plan (NC Forest Service, August 2014).

4 Available at 2019_PUV_Program_Guide.

5 See N.C.G.S. 105-277.15.

6 N.C.G.S. § 105-277.2(1), (2), and (3)

7 N.C.G.S. § 105-277.3(f)

8 N.C.G.S. § 105-277.3(a)(1). It is important to note that this production reference does not refer – like other statutes when defining “agriculture” – to the definition supplied by N.C.G.S. §106-581.1, which includes “agritourism” and other value-added activity such as processing.

9 As defined in N.C.G.S. §106-758.

10 N.C.G.S. § 105-277.3(a)(2)

11 Parcels of mixed production – including some tree cover less than forestry minimum – present unique qualification challenges. Discussion of those are outside immediate scope of this article, but are covered to some extent in the Program Guide.

12 N.C.G.S. § 105-277.3(a)(1)

13 N.C.G.S. § 105-277.2(7)

14 N.C.G.S. § 105-277.3(b2)(2)

15 Forestry_Mgnt_Plans_2010. In that memorandum, the NCDOR revealed the results of survey indicating about 18 counties required a plan on file by January 1, whereas 34 counties allowed submission ‘as necessary’ and 28 counties required submission by a deadline after January 1 (80 counties responded to survey)

16 2.3_Present-Use_Value.

17 N.C.G.S. §105-296(j).

18 Id.

19 Present Use Value Program.

20 N.C.G.S. § 105-277.4(b1)

21 Id.

22 N.C.G.S. § 105-277.4(a)

23 N.C.G.S. § 105-277.4(a1). The statue is silent as to the deadline for making such a showing.

24 See Chris McLaughlin, “Good Cause” and Late Property Tax Exemption Applications.

25 For example, Virginia counties may but are not required to pass either an agricultural use property tax program, or an Agricultural and Forestal District ordinance (analogous to North Carolina’s Voluntary Agricultural District program). See § 58.1-3231