Although the nuances of conservation and preservation efforts have changed, North Carolinians and their elected officials have demonstrated a commitment to protecting the lands and historic places of North Carolina for over 50 years, when they amended the North Carolina Constitution in 1972 to protect lands and waters of the State. Various programs have overlaid and incentivized behavior consistent with that commitment, including a conservation tax credit that existed for more than 25 years before repeal. In 2024, a new, two-year tax credit was enacted. From a tax policy perspective, because of the lack of certainty in the mechanics of the credit, the credit does not induce behavior. In this article, I outline the changes in conservation policy in North Carolina over the past 50 years and offer thoughts on improvements to the tax credit program.
1972: The voters amended the North Carolina Constitution to add Art. XIV § 5, which explicitly enshrines conservation and protection of lands and waters in the protection of the Constitution.
1986: From 1986-2013, North Carolina had a nonrefundable tax credit of 25% of the fair market value (“FMV”) of a conservation easement. According to the North Carolina Natural Heritage Program, the tax credit helped protect over 262,000 acres. The tax credit was repealed in 2013. The maximum credit was $250,000 (individuals) and $500,000 (corporations), with the following conservation purposes:
- Public beach access or use
- Public access to public waters or trails
- Fish and wildlife conservation
- Â Forestland or farmland conservation
- Watershed protection
- Conservation of natural or scenic river areas
- Conservation of predominantly natural parkland
- Historic landscape conservation
2000: In 2000, the Million Acre Plan (S.L. 2000-23 §§ 2 & 3) was enacted to support land protection, intending to preserve an additional one million acres of farmland, open space, and conservation lands by December 31, 2009. The program fell short of its goals. More than ten years later, in 2020, North Carolina accomplished the year 2000 goal. According to Charles (Chuck) Roe, the delay was because of reduced public funding for land conservation and the repeal of the conservation tax credit. In 2020, the Million Acre Plan was repealed. S.L. 2020-78 § 8.4(c).
2020: In 2020, the General Assembly issued a statement (NC S.L. 2020-78) supporting conservation and land protection. Funds from the Conservation Grant Fund would be used to help finance projects that: (a) enhance/restore degraded surface waters; (b) protect/ conserve surface waters, including drinking supplies, and contribute toward a network of riparian buffers and greenways for environmental, educational, and recreational benefits; (c) provide buffers around military bases to protect the military mission; and (d) acquire land that represents the ecological diversity of North Carolina, and (e) contribute to the development of a balanced State program of historic properties.
February 12, 2024: In 2024, Governor Cooper issued Executive Order NO. 305 (Feb. 12, 2024) declaring the State’s goal to protect, restore, and enhance natural and working lands that: (a) facilitate carbon sequestration; (b) strengthen ecosystem and community resilience; (c) support biodiversity; (d) provide vital ecosystem functions and services such as clean water and protection from floods; (e) support military training operations; (f) facilitate tourism and enhance the State’s economy; and (g) provide opportunities for hunting, fishing, boating, and other recreational activities. This goal would be measured by (a) conserving a new one million acres, with special focus on wetlands; (b) restoring or reforesting one million new acres of forests and wetlands, and (c) planting one million trees in urban regions.
July 3, 2024: a two-year conservation tax credit (from 2025-2026) was enacted in Session Law 2024-32 § 15. The credit is 25% of the FMV of the donated property, up to $500,000 for corporations and $250,000 for individuals. The aggregate cap for the program is $5,000,000 per year, 65% of which ($3,250,000) is for “qualified donations” (preservation of forestland and farmland). NCGS § 105-153.11(k). The credit is transferable only upon death of holder to heirs. A “qualified donation” is donated in perpetuity to a government (state or local), or a land trust organized and qualified to receive and administer lands for conservation purposes under North Carolina law. Under the new tax credit conservation law, some of the permitted conservation purposes are the same as under the prior law (e.g., preserving forestland or farmland, conserving fish and wildlife and historic landscape). The new law adds new conservation purposes of creating a land buffer for military training and testing, adding a buffer for floodplain protection, and allowing access to public trails.
A landowner becomes eligible for the credit by donating a conservation easement in year one; by January 15th of year two, the landowner applies to the North Carolina Department of Natural and Cultural Resources for a certification of public benefit. Once that certification is obtained (but no later than April 15), the landowner applies to the North Carolina Department of Revenue for the tax credit.
*Â Â Â *Â Â Â *Â Â Â *Â Â Â *
The tax credit program for conservation easements in North Carolina could be improved in several ways.
- Tax credits are intended to induce behavior. A conservation easement is perpetual and cannot be revoked. When an easement must close in year one without knowledge of the availability of the credit until year two, the credit does not induce behavior.
Recommendation: Allow the tax credit so long as the legal requirements are satisfied or require pre-certification before the easement grant. - The federal deduction and State credit have different conservation purposes which are outlined below.
| Fed. Conser. Purpose A |
2013 NC Conser. Purpose B |
2024 Conser. Purpose C |
Analysis D |
| 1. Outdoor recreation by, or education of the general public | 1. Forestland or farmland preservation | 1. Same as repealed law | A.1 (outdoor recreation/ education) not explicitly in State program (but see B.5) |
| 2. Protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem | 2. Fish and wildlife conservation | 2. Same as repealed law | Protection of relatively natural habitat (fish, wildlife, plants) is the same among all three |
| 3. Preservation of open space (including farmland and forest land) provided such preservation is:
A. for the scenic enjoyment of general public and will yield a significant public benefit, orB. under a clearly delineated Federal, State, or local government conservation policy and will yield a significant public benefit. |
3. As a buffer for military training and testing activities | 3. New | The State conservation policy should be sufficient to include every State conservation purpose into the Federal purpose listed in B (clearly delineated conservation policy) so long as the preservation of open space yields a significant public benefit. |
| 4. Preservation of a historically important land area or certified historic structure | 4. Floodplain protection | 4. New | A.4 (preservation of historically important land area or certified historic structure not in state program |
| 5. Historic landscape conservation | 5. Same as repealed law | Potentially B.5 aligns with A.1 (if educational component), A.3.A (scenic enjoyment), A.3.B (State conservation policy) | |
| [None] | 6. Public trails/access to public trails | Potentially C.6 aligns with A.1 and A.3.B. | |
| Public beach access or use | Repealed | ||
| 6. Public access to public waters or trails | 7. Access for public waters is repealed unless it fits within access to public trails | See C.6 | |
| 8. Watershed protection | 8. Repealed unless can fit within meaning of another purpose (e.g., fish and wildlife conservation, floodplain protection) |
- Recommendation: Consider, as a policy matter, if the State wants to incentivize the Federal conservation purposes in A.1 (recreation and education) and A.4 (historic preservation, which aligns to the 2020 statement) through the State program.
- Transferability in very limited circumstances. The State credit is transferable only when the holder dies and passes the credit to his heirs. As the program is currently administered, the program is capped at $5M per year. Making the credit transferrable (1) does not affect the cost of the program as currently administered, and (2) provides economic value to land-rich cash-poor farmers.
Recommendation: Allow the credits to be transferable.
The General Assembly is commended for revising North Carolina’s conservation tax credit, making a demonstrated commitment to fulfilling policy statements over the past five decades. In evaluating the continuation of the tax credit program, consideration should be given to refinements to maximize the impact of the dollars spent on the program, from including pre-approval in the same year as the donation to incentivize behavior, to allowing flexibility of transferability once the dollars are allocated. In addition, alternative funding sources to support greater conservation efforts should be considered for permanent protection of North Carolina’s treasured landscape.
written by Kim Tyson.