What is the basis for this?  What changed?
As part of routine programmatic review, the Farmland Program and the Department of Treasury found that a number of landowners were claiming the tax credits but the State of Michigan was not a co-owner on the permanent easement.  Additionally, the consent agreements were not the appropriate method for relinquishment of the development rights agreement.  The Departments jointly worked on a solution that included both addressing these issues going forward and a proposal to address these PDRs.

What is the problem with the consent agreements?
In an attempt to fulfill the public policy direction set by the Legislature to support protection of farmland through PDRs, the program utilized “consent agreements” which were filed with the registers of deeds and waived the State’s interests in the name of supporting permanent protection and also allowed the landowners to continue to be considered to be in the PA 116 program.  Landowners who had been in the PA 116 program continued to claim tax credits after moving to these locally driven permanent easements.  The issue is that the consent agreement is not an effective tool because it did not involve all parties.  If the State of Michigan had been included in the permanent easement, the PA 116 agreement would have been automatically terminated with no recapture.  Essentially, the consent agreements resulted in the State continuing to provide tax credits for a leased right that had been purchased by others. 

What is the legal basis for this?
Key Legal Provisions:

• MCL 324.36109(1): “An owner of farmland and related buildings subject to 1 or more development rights agreements under section 36104 or agricultural conservation easements or purchases of development rights under section 36111b or 36206 who is required or eligible to file a return as an individual or a claimant under the state income tax act may claim a credit against state income tax liability . . . “ MCL - Section 324.36109 - Michigan Legislature
• MCL 324.36206 (5)” An agricultural conservation easement acquired under this part shall be held jointly by the state and the local unit of government in which the land subject to the agricultural conservation easement is located. . . .” and (7) “Section 36109 provides for tax credits for an owner of farmland subject to an agricultural conservation easement under this section.”  MCL - Section 324.36206 - Michigan Legislature

Is there a legislative fix for this?
The Legislature determined that the State of Michigan and its taxpayers should have an interest in a permanent easement in order for landowners to claim a tax credit.  The consent agreements were an attempt to try to make the overarching legislative intent to work, but have been found to not be an effective solution.  The Legislature has modified multiple provisions of the farmland and open space program’s statutory provisions over the years and may do so again.  If the Legislature determines that it is good public policy to provide tax credits for encumbered land that has no connection with or oversight by the State of Michigan, it could send that kind of legislation to the Governor’s desk.

This issue was identified in 2023. Why has it taken so long to take action?
This is a complex issue that has the attention of staff at all levels of MDARD. The department is currently working with landowners and other impacted parties and has identified a workable solution, with a reasonable timeline for landowner resolution.

Is MDARD prepared to be asked to co-hold every locally held conservation easement in the state so that the land can be eligible for tax credits, even if not currently enrolled?
Yes, but only if the landowner wishes to be eligible for the Farmland Tax Credit or preserve that right for future owners.

Has MDARD considered another form of third-party rights as opposed to co-holding these easements?
The law requires that MDARD and local unit of government to jointly hold an agricultural conservation easement.

Can local programs get a list of active PA116 agreements in their service area, so that they can compare the list to their list of easements (agricultural or otherwise) and make sure there aren't any other overlaps between easements and PA116 that we are not currently aware of?
Yes.  Please contact us if you have questions about the list or there are any issues to resolve.

What does being a co-owner mean for MDARD (rights and responsibilities)?
Being a co-owner means the State of Michigan is invested in the long-term agricultural use of the farmland, and that MDARD has both the right and responsibility to ensure that the easement is upheld.  As a co-owner on agricultural conservation easements with the local entity we will jointly have to work through how we most efficiently and effectively manage these rights and responsibilities.  MDARD expects that this would be similar to the local easements acquired with Agricultural Preservation Fund Board grant funding, where the local entities are best positioned to monitor and track compliance.

What about the costs for this work?
For some of these easements, there will be no costs.  If the landowners do not wish to claim credits, the land is not eligible for the tax credits, or if a co-owner does not agree to the change, nothing will happen and going forward, the landowners would not claim tax credits.  For those who wish to amend the easement to continue to receive tax credits, the landowners and co-owners will have to work out who does the work to draft the amendments and obtain the signatures.  MDARD has agreed to pay for the recording fees for the amended easements.

What landowners will be affected by this?
Landowners are eligible for the farmland tax credit under 324.36109 (as referenced in Treasury Revenue Administrative Bulletin 2021-26), when the land is encumbered by a farmland development rights agreement granted to MDARD OR a perpetual agricultural conservation easement purchased by MDARD (as grantee) OR a perpetual easement locally purchased and jointly held by MDARD.  The same parcel of land cannot be encumbered by more than one of these documents of conveyance at the same time without violating the statute and without creating a potential cloud on title ownership for the development rights to the parcel.

What is USDA-NRCS’s role?
USDA-NRCS funded portions of some of these purchased development rights, and is a co-owner.  MDARD has had multiple discussions with USDA-NRCS and worked to find a path forward that will accommodate adding the State of Michigan as a co-owner.

Will MDARD use the same process for non-federally funded easements?
Yes, a similar process will be used when Natural Resources Conservation Service was not involved in the acquisition of agricultural conservation easements.

Will MDARD be taking the lead on initiating this amendment process with landowners directly and explaining to them why it is occurring, or will the conservancies be expected to take that responsibility?
It is MDARD’s goal to work cooperatively with land conservancies and landowners. MDARD has contacted landowners to share information on the proposed amendment process and encouraged them to work with their land conservancy on next steps.

Can NRCS extend the June 30 deadline?
NRCS will process the amendments and workflow requests as they arrive knowing that after June 30th additional documents will arrive. The original timeline was intended to facilitate and implement a solution quickly for landowners.

How long will the NRCS review take?
NRCS was able to expedite review time for amendments received by June 30, 2025. Submissions received after that date fall into the routine review process which is estimated to take around 45 days.

Does NRCS require any proof of capacity from the State or MDARD to accept co-holding responsibilities?
No. NRCS will need the MDARD attestation letter completed as part of the amendment process indicating MDARD acknowledgement and acceptance of the easement terms. MDARD is able to meet those terms.

Has MDARD or NRCS confirmed that these proposed amendments would not confer impermissible private benefit as defined by federal tax law?
NRCS and MDARD have worked together and agreed upon the process. MDARD cannot provide either tax or legal advice to individual landowners or to land conservancies. However, it should be noted that the original transactions / agreements in most if not all cases provided a private benefit to the landowner as either compensation or tax benefits for donations. Adding an additional co-holder, especially the State of Michigan, is viewed as an added protection. Should a preservation program cease to exist, MDARD would then be responsible for enforcing the terms of the easement, therefore strengthening the public’s interest.

How should landowners proceed if they filed an appeal with Treasury?
Landowners should discuss the filing of appeals with their legal and tax advisors.

Can this be paused until the Notice of Refund Adjustments appeals are complete?
No. For landowners to receive the farmland tax credit, the State must be identified as a co-grantee. MDARD is not part of the appeal process.

Are there other similar tax benefits that do not require an easement or an amendment to an existing permanent agreement?
All of the programs require an agreement with the State in order to receive the tax credit.

To remain eligible for the farmland tax credit, "a portion of the development rights are donated to the State", what does this mean?
The statute allows MDARD to accept “contributions of all or a portion of the development rights to 1 or more parcels of land”. It does not indicate a required percentage or formula to calculate any portion of the development rights.

Some local easements on land that is currently agricultural use do not require future agricultural use. How will this work?
The landowner will have to be part of this discussion. We are not asking for or requiring a change in the provisions of the easement, other than to add the State of Michigan as a co-owner.Eligibility for the tax credits lies with agricultural production, so if in the future the land isn’t being used for agriculture, it wouldn’t be eligible for tax credits. If that’s the plan for the parcel, then nothing needs to be done. Additionally, parcels that are not eligible under agricultural use requirements could pursue open space easements under MCL 324.36105 and 324.36106.

Will MDARD enforce the terms of an easement if the local entity ceases to exist? Or if the land that is no longer agricultural in nature?
Yes. As a co-owner, MDARD would share in the responsibilities to enforce easements and would enforce the permitted and restricted uses for agricultural conservation easements. Easements on property that are not for agricultural use are not eligible for the program.

Local easements do not necessarily prescribe agriculture, so in the future if land is no longer used for agriculture, will the landowners still be eligible for tax credit because MDARD is co-owner?
No. Eligibility for the tax credit requires agricultural use. Annual monitoring will determine whether the property is still in agricultural use. If the property is no longer in agricultural use, MDARD would notify Treasury.

Who will pay for enforcement and potential litigation to enforce easements?
The co-owners will have to discuss these kinds of issues and evaluate who is best positioned to lead and how other co-owners support or are involved in resolving these kinds of issues. Currently, without being a co-owner, MDARD would not be able to be involved in these kinds of enforcement matters.

What if in the future the easement needs to be amended? How would it work, and who pays for that work?
Like in this process, all of the co-owners would have to agree on amendments or modifications. The co-owners would have to discuss whether cost-sharing is appropriate or whether one of the parties leads the effort.

Will MDARD accept being emailed the annual monitoring reports once per year, as is the current practice with USDA-NRCS?
Yes. Preventing redundancy is best for everyone. If local programs have thoughts on how to make this work more efficiently, MDARD is interested in discussing to find effective solutions.

If the easement is permanent and the PA 116 agreement is termed, could the easements be amended in the future to remove MDARD?
First, going forward there will not be PA 116 agreements on land under a permanent easement, and this effort is working to resolve those circumstances where a termed agreement and a permanent easement are currently both in place. Future owners of the encumbered land may wish to take the tax credit and MDARD will want to see ag-use land continuing to be eligible for the farmland tax credit. Once the State of Michigan is added as a co-owner, all of the rights holders would have to agree to future amendments.

How do we move forward?
MDARD is working with NRCS on a path forward for those parcels that were supported by NRCS funds, and a parallel process for those outside of NRCS funding. We will be hosting a meeting with NRCS to provide guidance and answer questions specific to NRCS involvement. MDARD has reviewed each easement and will work with the preservation programs and landowners to provide guidance and answer questions.

Is the state planning to co-hold all future Ag easements to allow future landowner eligibility?
MDARD is willing to co-hold future Ag easement when the landowner wishes to remain eligible for the farmland tax credit. If they do not wish to claim the farmland tax credit, then MDARD does not need to co-hold the easement.

Has the state identified funds to meet perpetual co-holding responsibilities?
MDARD’s Farmland and Open Spaces Preservation program funding comes from the restricted Agricultural Preservation Fund. The program is currently engaged in monitoring easements and reviewing monitoring reports as necessary and will continue to evaluate program resources to meet program goals and statute requirements.

Will MDARD staff be collaborating extensively with local programs to develop and refine any proposed legislative amendments? Or will the local programs be left on their own to suggest legislative solutions that are not vetted by MDARD staff?
MDARD has worked collaboratively to create a workable solution that will assist farmers now. However, if the Legislature introduces a bill, we will review as we do all agricultural-related legislation and consider an alternative viable solution.