Using Tax Policy for Access
OVERVIEW
Tax-based tools designed to promote and preserve access may be rooted in federal, state, or municipal tax provisions, or a coordinated effort among these authorities. Taxation can be used to encourage public access by:
Taxes can also create impediments to the protection of working waterfront. These include taxes which increase the costs of sustaining commercial water-dependent uses on the waterfront: ever-increasing personal and business income taxes, and property taxes that rise with development population pressure. Specifically, property taxes across the country are typically levied based on market value, which can pose a threat to less immediately profitable marine industries located on high-demand waterfront property. Logically, then, tax-based efforts to improve working waterfront preservation will aim to reduce the income and property tax burdens for water-dependent enterprises. More subtly, though, some of these tax tools, if not implemented and coordinated well with other tax tools, may reduce their overall effectiveness. For example, an overlay of current use taxation, a working waterfront covenant, a water dependent use zone, and tax increment financing on a single parcel or area of waterfront property, may lead one tactic to reduce, or even eliminate, the benefits of the other.
Common questions
How can taxes be used to generate funding for access?
How can tax incentives be used for access?
How can current use taxation be used for working waterfronts and waterfront access?
What impediments to working waterfront preservation exist in state and federal tax law?
What are new tax tools or new ways to apply existing tax tools for access and working waterfronts?
How could a new Working Waterfront Conservancy help address access needs?
where can i find more information?
How can taxes be used to generate funding for access?
Taxes can be used as a means of raising funds that the public can invest in the acquisition of public access through voluntary conveyance/acquisition tools or through eminent domain. A land gains tax, real estate transfer tax, impact fees, or tax increment financing are examples of these strategies, some of which are already used for access and working waterfront purposes, others are potential new tools that would currently require legislative action to enable their use for these purposes.
How can tax incentives be used for access?
Reductions in a landowner’s taxes can be used as an incentive for allowing public access, or to discourage uses that inhibit access. Tax incentives may include income tax deductions, reduced property taxes, reduced estate taxes, avoidance of capital gains taxes, and gained investment interest. They might also include a current use taxation structure for open space, or for working waterfronts that provide access for commercial fishing activities.
How can current use taxation be used for working waterfronts and waterfront access?
A frequent challenge to maintaining waterfront access is the property tax burden of coastal land. The value of real estate for tax purposes is usually determined on the basis of its “highest and best use”–the most profitable, competitive use to which the property can be put. In areas where property values are rising due to development pressures, the associated increase in taxes can result in pressure to sell. To protect crucial land uses, many states have developed preferential tax treatment for certain kinds of property, like farmland, by restricting the basis of property valuation to its current use. Property owners can receive a substantial property tax reduction of land enrolled in a current use taxation program, potentially enabling the owner to keep the land despite development pressures.
Maine has four current use taxation programs: Farmland, Open Space, Tree Growth, and Working Waterfront.. The Working Waterfront current use taxation program came online in 2007. The program was initiated after 72% of Maine voters supported the passage of a constitutional amendment in 2005 to allow working waterfront to be assessed at current, not highest and best, use. Today, owners of working waterfront property may apply to the Maine Revenue Service to receive a reduction from just, or market, value. The amount of reduction available depends on whether the property is used primarily (more than 50%) or predominantly (more than 90%) for working waterfront. Working waterfront land that is permanently protected from a change in use through a deed restriction is eligible for an additional 30% reduction, such as property subject to a working waterfront covenant.
Future changes in land use can lead to disqualification from the program and assessment of financial penalties. For more information on Maine’s Current Land Use Programs, see Maine Revenue Service.
What are new tax tools or new ways to apply existing tax tools for access and working waterfronts?
A number of tax-related programs exist that might be applied to securing access and preserving working waterfronts in Maine, but these would require new legislative or other action to implement.
How could a new Working Waterfront Conservancy help address access needs?
Based on the land trust model
Inspired by the successes of the Working Waterfront Access Protection Program, traditional land trusts and initiatives like the Maine Farmland Trust, working waterfront advocates have proposed the formation of a private, nonprofit Working Waterfront Conservancy. This conservancy would exist as a state-recognized, not-for-profit corporation, exempt from taxes under Section 501(c)(3) of the Internal Revenue Code (IRC). This status is granted to charitable organizations that provide specified public benefits. Like a traditional land trust, a Working Waterfront Conservancy could purchase lands outright for holding, purchase the development rights to properties for holding, or accept donations of either land or restrictive easements.
Working waterfronts likely don’t currently qualify as charitable deductions
Taxpayers who itemize deductions on their federal income tax return may deduct contributions to charities recognized as tax exempt under §501(c)(3) of the Internal Revenue Code, which include land trusts. Qualifying gifts include the transfer of a donor’s entire interest in real property and certain donations of conservation easements. The donation of a conservation easement involves the transfer of a partial interest in property, which is generally not a deductible contribution. However, IRS regulations do allow deductions for qualified conservation contributions, defined as a “contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes.” (See 26 C.F.R. § 1.170A-14).
As defined by the IRS, conservation purposes include public recreation or education; protection of fish, wildlife or plants; conservation of property with demonstrable historic value; or preservation of open space, farmland or forest, so long as it is for the scenic enjoyment of the public and consistent with a clearly delineated government program. In addition, the contribution purpose must be protected in perpetuity. Owners of working waterfront property have historically had a hard time qualifying for these tax benefits as the donation of a working waterfront easement is not for one of these purposes.
where can I find more information?
Working Waterfront Preservation: Opportunities Posed by Tax Policy – Executive Summary (PDF 36 KB) and Strategy Table (PDF 56 KB)
By Kristen Grant, Amanda LaBelle, and Catherine Schmitt, Maine Sea Grant, December 2010
Working Waterfront Tax Strategies (PDF 216 KB)
By Steven R. Gerlach, Esq., Bernstein Shur, Counselors at Law, September, 2010.
CASE Studies
Federal Excise Tax Models
The Dingell-Johnson and Pittman-Robertson Acts demonstrate how excise taxes on outdoor equipment can be channeled into state conservation programs, offering a potential model for creating dedicated federal or state funding streams to support working waterfront conservation and coastal access.
Maine Voluntary Municipal Farm Support Program
This state-level model illustrates how municipalities can voluntarily offset property taxes for qualifying farmland in exchange for agricultural conservation easements, and—with its emphasis on local criteria, tax mechanisms, and conservation agreements—could offer a useful template for similar programs aimed at protecting working waterfront properties.
Real Estate Transfer Taxes and Land Banks
The Nantucket Land Bank demonstrates how dedicating real estate transfer tax revenues to a public land acquisition program can successfully protect coastal and open-space resources – offering a potential model for Maine to fund coastal access and working waterfront preservation, though implementation would require careful consideration of political, legal, and market dynamics.
Tremont Bond Financing
Bond financing – such as the Town of Tremont’s voter-approved purchase of working waterfront land using a local bank loan – offers a politically feasible tool in Maine for supporting coastal access and land banking when increases to the real estate transfer tax are unlikely to succeed.
Working Waterfront Access Protection Program (WWAPP)
WWAPP provides matching funds to enable fisheries businesses, cooperatives, municipalities, and other qualified parties to permanently secure working waterfront properties—through property acquisition or legally binding covenants—so that these sites remain available and affordable for commercial fishing and aquaculture uses in Maine.