The South Carolina Court of Appeals’ recent opinion in Montgomery v. Spartanburg County Assessor provides an interesting discussion of the definition of “fair market value for agricultural purposes” in connection with South Carolina timber property taxation.

In the case, Montgomery owned a tree farm, consisting of land and three buildings – two storage buildings for farm equipment and a mobile home used as an office for the tree operations.

Montgomery and the Assessor agreed that all of the property at issue constituted “agricultural real property”, as used in S.C. Code § 12-43-220(d)(1)(A), for assessment classification purposes. In other words, the parties agreed that all of such property (land and buildings) should be assessed using a 4% assessment ratio.  The issue in this case, however, related not to the 4% assessment ratio but to the valuation method used to value the buildings.

It is worth noting that, in general, all property must be valued for South Carolina property tax purposes “at its true value in money which in all cases is the price which the property would bring following reasonable exposure to the market, where both the seller and the buyer are willing…” S.C. Code § 12-37-930.

S.C. Code § 12-43-220(d)(2)(A) provides that “‘[f]air market value for agricultural purposes’, when applicable to land used for the growth of timber, is defined as the productive earning power based on soil capability…” “Soil capability when applicable to lands used for the growth of timber products means the capability of the soil to produce such timber products of the region considering any natural deterrents to the potential capability of the soil as of the current assessment date.”

The Administrative Law Court had granted summary judgment in favor of Montgomery by finding that Montgomery’s entire farm should be assessed and taxed based solely on its agricultural use value without adding a separate value for the buildings.

The Court of Appeals reversed the ALC. In its opinion, the Court of Appeal stated as follows:

The plain language of section 12-43-220(d)(2)(A) provides the method for valuing only land used for the growth of timber, not structures also located on the property.

By its own terms, section 12-43-220(d)(2)(A) defines fair market value for agricultural purposes for land used for the growth of timber and land used for the growth of other agricultural products. It is noteworthy that the General Assembly did not use the more expansive “real property” as defined section 12-37-10. Instead, the General Assembly limited its valuation method to the “land used for the growth of timber.” § 12-43-220(d)(2)(A). We find the ordinary meaning of “land” within section 12-43-220(d)(2)(A) applies only to the property used to grow timber, not the structures situated on the same property.

The Court of Appeals’ opinion also provides an interesting discussion of the legislative history of the property tax statutes at issue and concludes that such legislative history does not support Montgomery’s argument that the soil capability method should be used to value the buildings on his property.

The Court of Appeals concluded its opinion with the following observation:

Finally, the definition adopted by the ALC would lead to an absurd result. According to Montgomery, the only valuation method applicable to agricultural real property is the soil capability method. As a result, structures on agricultural land would be essentially exempt from tax. Montgomery acknowledged at oral argument that under his interpretation, a valuable home located on a tree farm would not be valued for tax purposes as long as that home is not a legal residence and is used for agricultural purposes. We find the General Assembly did not intend to create such an exemption. Instead, the General Assembly sought to protect farmers from rapidly escalating property tax liabilities by limiting the assessable value of the land. As Montgomery acknowledged at oral argument, to expand the exemption to include structures would allow both tractor sheds and million dollar buildings that are nominally used for agricultural purposes to avoid assessment for property tax purposes. The legislature could not have intended such a result.

A general take away from this case is that a property’s classification as “agricultural real property”, while possibly entitling such property to a 4% assessment ratio, is not, in and of itself, dispositive with respect to the valuation method used for South Carolina property tax purposes.