On October 27th Governor Rendell signed Act 88 of 2010 into law. Act 88 protects landowners who participate in Pennsylvania’s “Clean and Green” program from large roll-back taxes due to the development of a gas well or pipeline on their property.
The Clean and Green program was established in 1974 to encourage Pennsylvania landowners to preserve their agricultural and forest land. To achieve this goal, the law provides an incentive and a disincentive: (1) qualifying landowners receive a preferential property tax assessment value which is based on the agricultural use of the land rather than its commercial fair market value; and, (2) landowners who convert or sell their land or any portion of their land for non-qualified purposes after it is enrolled in the program are required to pay seven years of roll-back taxes (plus interest) on the entire tract.
Roll back taxes can be imposed when an enrolled tract of land is “split-off.” A split-off occurs when a property in Clean and Green is divided into two or more tracts one of which does not meet the program’s use requirements. When a split-off occurs, both the split-off tract and the remaining tract can be subject to roll back taxes. Here is an example.
Farmer Jones owns 400 acres of a tract of land which he has had enrolled in Clean and Green. He sells 20 acres to a developer who builds townhouse residential units (a non-qualified use) on the split-off portion. As a result, Farmer Jones now owes roll-back taxes plus interest for the current year and the prior six years on the entire 400 acres.
Due to the split-off rules, farmers and other landowners enrolled in Clean and Green have faced roll back taxes if a gas well was developed on their property. The enactment of Act 88 of 2010 (also known as Senate Bill 298) fixes this problem. Under Act 88, roll-back taxes are to be levied only on the portion of land which is incapable of being immediately reclaimed for qualified uses.
Here are the details. Under Act 88:
- A roll-back tax can be levied only on the portion of land filed under the well restoration report and land which is incapable of being immediately used for agricultural use, agricultural reserve or forest reserve.
- Land devoted to subsurface transmission or gathering lines are exempt from a roll-back tax.
- Act 88 also allows for the development and use of Tier I alternative energy on any land use category of Clean and Green to be kept under preferential assessment as long as more than half of the energy annually generated is used for agriculture. Examples of Tier I include: solar photovoltaic, solar thermal, wind power, low-impact hydropower, geothermal energy, biologically derived methane gas, fuel cells, biomass energy and coal mine methane.
- The law allows for one permit for small non-coal surface mining on land enrolled in Clean and Green with the area in the permit subject to the roll-back tax.
- Land can be voluntarily removed from preferential assessment upon payment of any due roll-back taxes.
According to Senator Gene Yaw (R-Lycoming), the prime sponsor of the legislation, the new law represents “an effort to encourage the development of the Marcellus Shale,” The legislation also “clarifies how farmland is assessed for alternative energies, such as: wind solar and natural gas, by eliminating the inconsistent interpretation of the state’s Clean and Green law.
Many of Pennsylvania’s now antiquated laws need to be reviewed and updated due to the unanticipated development of our shale gas. The Act 88 amendment of the Clean and Green program is an example of the kind of work needed to be done in the next legislative session. Pennsylvania’s Republican controlled House, Senate and the Corbett Administration will face a number of legislative issues of critical importance to landowners including:
- Gas Severance Taxes
- Forced Pooling
- Eminent Domain Rights for Pipeline Right of Way
- Royalty Income. (Royalty income issues include the need for laws requiring the calibration of gas meters; requiring more complete information on royalty checks such as API #, fractional interest, BTU value; and dealing with division orders).
Over 950 wells were drilled in Pennsylvania from January 1, 2010 to September 1, 2010. The sooner our laws are updated, the better.