TAXATION ‑- PROPERTY ‑- MINERAL RIGHTS ‑- FOREST LAND ‑- OPEN SPACE, AGRICULTURAL AND FARM LAND
(1) One who owns mineral rights, separate and apart from ownership of the land itself, is not required to join the landowner in applying for classification or designation of the land as forest land, open space, agricultural and farm land, or timber land for property tax purposes.
(2) A notice of continuance of classification or designation is not required to be provided when the owner of such mineral rights transfers that interest to another.
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October 15, 1981
Honorable John Panesko, Jr.
Lewis County Prosecuting Attorney
P. O. Box 918
Chehalis, Washington 98532
Cite as: AGO 1981 No. 15
Attn: Eugene Butler, Chief Civil Deputy
By letter previously acknowledged you requested the opinion of this office on two questions relating to property taxation. We paraphrase those questions as follows:
(1) Must one who owns mineral rights, separate and apart from ownership of the land itself, join with a land owner in applying for classification or designation of land as forest land, open space, agricultural and farm land, or timber land for property tax purposes?
(2) Must a notice of continuance of classification or designation be provided when the owner of such mineral rights transfers that interest to another?
We answer both of these questions in the negative for the reasons set forth in our analysis.
[[Orig. Op. Page 2]]
Your questions assume situations in which a particular individual holds an ownership interest in minerals which is separate and apart from the ownership interest of another individual in the land in which those minerals are contained. Therefore, we must first note certain attributes of an ownership interest in mineral rights and then briefly summarize the system of land classification and designation which the statutes of this state establish for ad valorem property tax purposes. Following that, we will turn to the pertinent provisions of chapters 84.33 and 84.34 RCW which permit the special classification and designation of certain real property for such tax purposes. And finally, with this introductory background in mind, we will address your questions, directly, and explain the basis for our negative answers to both of them.
(a)Separate Ownership of Mineral Rights Permitted:
It is well established that mineral rights may be severed from an interest in the land itself and title thereto vested in a purchaser or other transferee. See, in general, 54 Am. Jur. 2d, Mines and Minerals, §§ 109-110 and, for a Washington case in point,McCoy v. Lowrie, 42 Wn.2d 24, 26, 253 P.2d 415 (1953).1/
It is also clear that both the mineral interests and the interest in the land itself may be assessed, separately, for ad valorem tax purposes. Real property is defined in RCW 84.04.090 to include ". . . the land itself, . . . and all substances in and under the same; . . ." and this office has previously construed the same language in an earlier version of the statutory [[Orig. Op. Page 3]] definition to be a recognition of separately-owned mineral interests as taxable estates in real property. See, AGO 1927-1928, page 943.2/
(b) Current Use Classification of Certain Property Authorized:
Next, let us summarize the two laws which give rise to your questions. Both chapters 84.33 and 84.34 RCW permit the special classification and designation of certain real property for tax purposes.
First, under chapter 84.33 RCW, land primarily devoted to, and used for, the growing and harvesting of timber may be classified as "forest land" for purposes of the assessment of the land itself, exclusive of the timber standing thereon. Once such a classification has occurred the tax value of the land is now statutorily determined. See, chapter 148, Laws of 1981. Accordingly, and depending on location, classified valuations for such land may be considerably less than those which would otherwise apply on the basis of the "highest and best" use of the land. We also note that under this law, county assessors are responsible for determining which lands are eligible for assessment as classified forest land‑-and an owner of land which has not been so classified may seek "designation" of his property as forest land by making application and demonstrating that the specific statutory criteria for that treatment are met.
Secondly, under chapter 84.34 RCW, comparable current use tax treatment is provided for open space land, for farm and agricultural land, and also for timber land which has not otherwise been classified or designated as "forest land" pursuant to chapter 84.33 RCW, supra.
[[Orig. Op. Page 4]]
In essence, both of these laws represent legislative responses to a 1967 amendment to the State Constitution. We have reference to Article VII, § 11 (Amendment 53) which reads as follows:
"Nothing in this Article VII as amended shall prevent the legislature from providing, subject to such conditions as it may enact, that the true and fair value in money (a) of farms, agricultural lands, standing timber and timberlands, and (b) of other open space lands which are used for recreation or for enjoyment of their scenic or natural beauty shall be based on the use to which such property is currently applied, and such values shall be used in computing the assessed valuation of such property in the same manner as the assessed valuation is computed for all property."
The enabling legislation, however, also permits a determination of true and fair value of the subject properties by reference to their existing uses. A property owner must, in turn, make application directly to the county legislative authority for current use classification of open space or timber land. Similarly, applications for designation of forest land or classification of farm and agricultural land are made, initially, to the county assessor‑-with a right of appeal to the county legislative authority if the application is denied by the assessor. And, of course, all applications must be evaluated in terms of statutorily-defined criteria.
Also to be noted, before proceeding further, is the proposition that resulting lower-assessed valuations for those properties classified or designated pursuant to chapters 84.33 and 84.34 RCW continue only for so long as the current qualifying uses are maintained. Both laws contain provisions for termination of the classified or designated status. In addition, removal of property from such status may result in penalties and compensating taxes computed as a function of the difference between actual valuations placed on the property and those valuations which would have obtained if the property had not been classified or designated.
We further note that, until recently, RCW 84.33.140 provided for the removal of forest land from its "designated" status after sale or transfer to a new owner unless, within sixty days, that new owner made his own application for continuation of that status. Likewise, RCW 84.34.108 provided for removal of the [[Orig. Op. Page 5]] classified status of open space, timber, or agricultural and farm land where the new owner, following sale or transfer, failed within the ensuing sixty days to file a "notice of compliance" with the county assessor. As a consequence, many new property owners‑-unaware of these statutory requirements‑-found themselves confronted with substantial, unanticipated taxes for prior years;3/ and relief, through action by the county assessor, or county board of equalization, or through legal recourse against others was generally uncertain. And therefore, in recognition of these problems, the 1980 legislature amended both laws to provide for a different procedure; namely, a notice of forest land classification or designation "continuance," or, in the case of open space, timber, or agricultural and farm land, a similar notice of classification continuance. See, chapter 134, Laws of 1980, which also prohibits the recording of an instrument of transfer until either the notice of continuance has been signed and attached to a real estate excise tax affidavit or compensating taxes have been paid‑-thus seeking to insure that a new owner will be fully cognizant of the tax options affecting the property.
Against this backdrop we now turn, directly, to your questions, repeating them here for ease of reference.
First you have asked:
Must one who owns mineral rights, separate and apart from ownership of the land itself, join with a land owner in applying for classification or designation of land as forest land, open space, agricultural and farm land, or timber land for property tax purposes?
To begin with, there is no express reference in either chapter 84.33 or 84.34 RCW to an owner of mineral interests in real property or to such mineral interests as a separate estate. Consequently, we must look for any other indication in these laws that an owner of a mineral interest who is not the owner of the land itself must join in an application for classified or designated tax status.
[[Orig. Op. Page 6]]
First, we find that RCW 84.33.130 refers to an owner of "land" as the person who is to make application for designation of property as forest land. Similarly, RCW 84.34.030 provides that it is the "owner of agricultural land" or an owner of "open space or timber land" who is to apply for the desired classified current use status. But the only definition of "owner" is set forth in RCW 84.34.020(5) as a party "having the fee interest in land" (emphasis supplied), and neither chapter 84.33 or 84.34 RCW provides a definition of "land."
Further definitions, however, are found in chapter 84.04 RCW which, by virtue of RCW 84.04.010, will govern throughout Title 84, unless otherwise expressly indicated, or unless the context in which those terms are found requires a different construction. One such defined term, as previously noted, is the term "real property" which is defined by RCW 84.04.090, in pertinent part, as follows:
"The term 'real property' for the purposes of taxation shall be held and construed to mean and include the land itself, whether laid out in town lots or otherwise, and all buildings, structures or improvements or other fixtures of whatsoever kind thereon, except improvements upon lands the fee of which is still vested in the United States, or in the state of Washington, and all rights and privileges thereto belonging or in any wise appertaining, except leases of real property and leasehold interests therein for a term less than the life of the holder; and all substances in and under the same; all standing timber growing thereon, except standing timber owned separately from the ownership of the land upon which the same may stand or be growing; and all property which the law defines or the courts may interpret, declare, and hold to be real property under the letter, spirit, intent and meaning of the law for the purposes of taxation. . . ."
Thus, again, a distinction is clearly drawn between "land itself" and "substances in and under the [real property] . . ." And, as we have also noted earlier, both the common law, generally, and a previous opinion of this office have recognized the separate ownership estates in land and mineral interests and the distinction between such real property interests drawn by this statutory provision.
In terms of your question we find nothing in the context of the statutory provisions dealing with classified or designated [[Orig. Op. Page 7]] property which supports a conclusion that the term "land" must be deemed to include mineral rights when such an interest is separately owned. Indeed, we find the statutory inferences to the contrary. For example, RCW 84.33.130 requires the property owner to include in an application for forest land designation certain detailed information concerning such matters as the existence of a forest management plan and its implementation, the existence of subdivisions or platting and a summary of past timber growing and harvesting activity‑-activities which are basically the concern and under the control of the owner of the surface interest in real property.
It should be noted, however, that information must also be submitted, under RCW 84.33.130(j), concerning the subjection of land to
". . . a lease, option or other right which permits [the land] . . . to be used for any purpose other than growing and harvesting timber;"
This requirement would seemingly extend to a separately owned mineral interest accompanied by an easement or covenant to such an interest‑-allowing for the alteration of the surface use of the land for timber purposes in the event of actual mining or development. But this provision at most implies that a potential mining or similar developmental use of the property may provide a possible basis for refusing designated status. It does not imply that the mineral interest owner must join in the application.
When we turn to the application process for classification of land under chapter 84.34 RCW (open space, timber, and agricultural or farm land) we find no similar requirement for information concerning other property interests which might affect the current use of the land. Here, as in chapter 84.33, statutory criteria are framed essentially in terms of the surface uses of land. Open space land is defined as land, the present uses of which include the conservation of scenic resources, the enhancement of recreation opportunities, and the preservation of historic sites. Farm and agricultural land is that devoted primarily to the production of livestock and agricultural commodities. Similarly, timber land is that which is applied primarily to the growth and harvest of forest crops. And again, it is the owner (i.e., the holder of the fee interest in agricultural and farm land, in timber land and in open space land) who is required by RCW 84.34.030 to make application for current use classification.
We also note that the legislative declaration in RCW 84.34.010 expresses the public interest in the preservation of [[Orig. Op. Page 8]] open space land and lands devoted to the production of "food, fiber and forest crops" for as long as possible. When those uses cease provisions are made for the recapture of taxes which have been deferred through the lower, more favorable valuations.
Considered in concert these various provisions of the two laws emphasize that the legislature, acting within the limits permitted by the constitution, sought the immediate tradeoff of tax benefits for a current commitment to existing land use practices. It did not mandatorily withhold such benefits because existing property interests in minerals, separately held, might in the future affect the current uses of the land itself.
Finally, the realities of the appraisal and valuation process itself support a conclusion that only the owner of the land itself need make application for classified or designated land status. As we have seen, separately titled interests in real property may be separately appraised. But both the constitutional and statutory provisions for current use valuation contemplate that it is the land itself which is to be affected by such valuation.4/ And nothing in chapter 84.33 or 84.34 RCW, or elsewhere, as far as we can find, indicates that classification or designation of a parcel of land itself imposes restrictions [[Orig. Op. Page 9]] on the development of separately-owned mineral interests warranting a lower valuation of that estate.5/ No increment of the difference in valuation between the property's qualifying current use and its valuation according to its potential highest and best use is thus logically to be attributable to the separately-valued mineral interest.
In answer to your first question, we therefore find no requirement, express or implied, that the owner of a mineral interest in property who is not the owner of the land itself must participate in the application process under either of the two laws involved, chapters 84.33 or 84.34 RCW. Accordingly, we answer this question in the negative.
Next you have asked:
Must a notice of continuance of classification or designation be provided when the owner of such mineral rights transfers that interest to another?
One might also reasonably infer that such a notice is not required‑-from our conclusion that the owner of a mineral interest is not required to join in the initial application, with the landowner for classified or designated status. Notably, however, the relevant statutory language governing the application process has remained essentially unchanged while the provision for notice of classification continuance was grafted onto the statutes by chapter 134, Laws of 1980,supra. Therefore, in answering your second question, we will consider, specifically, whether anything in that 1980 amendatory act, or its background, requires participation of the owner of mineral rights at the point to which that act is directed.
[[Orig. Op. Page 10]]
As we noted in our introductory discussion, the resulting 1980 amendments to chapters 84.33 and 84.34 RCW provide, in essentially identical language, for the removal of land from classified or designated status upon the occurrence of:
"Sale or transfer of all or a portion of such land to a new owner,unless the new owner has signed a notice of forest land classification continuance. . . . " RCW 84.33.120(4)(e).6/
In interpreting this language we reiterate some of the same observations we made in answering your first question. Just as the process of application for classified or designated property was couched in terms of the land itself or the owner of the land, so too this last-quoted statutory language contains similar references. Once again, therefore, unless the statutory context should require otherwise its reference to the term "land" and its ownership should be taken to mean an estate or ownership interest distinct from a separately held mineral interest‑-which, in turn, is a substance in real property under the definition in RCW 84.04.090,supra. The import of the statutory provision for notice of classification or designation continuance is, of course, a promise for the extension of such status in return for a commitment to devote the property to those current purposes singled out for special treatment. But again, the growing of timber for ultimate harvest, the working of agricultural or farm land, and the maintenance of open space land are uses within the control of the owner of the surface interest in real property. Such owners are thus the focus of these statutes.
We see no contrary inference to be drawn from those statutory references to the sale or transfer of a "portion" of land. Those provisions can be interpreted, for example, to require notice of continuance where there has been a conveyance of a subdivided parcel which was formerly part of a larger tract that previously qualified as classified or designated property.
[[Orig. Op. Page 11]]
Arguably, a requirement of a notice of continuance from the new owner of an underlying mineral interest‑-as a condition for the retention of current use status‑-might advance the purposes of the statutes if such notice could be interpreted as an agreement by such owner to forego, at least temporarily, any development of the mineral interest which would alter the uses of the land itself. Such a requirement, however, might equally subvert the statutory objective by denying current use classification or designation and thus hastening other forms of development where such an owner of a mineral interest refused to compromise his rights in the property.
The 1980 amendment presented more conspicuously to the new owner the alternatives of a notice of continuance or that of payment of compensating taxes and penalties if such continuation should not be elected. These provisions were substituted for the previous requirements of a new application in the case of designated forest land, and, in the event of a transfer of classified land, the filing of a notice of compliance, within sixty days of the date of transfer. Limited as it is, however, the legislative history of the 1980 amendments confirms that the legislature was concerned with providing an alternative mechanism for a continuation of status less likely to trap the unwary transferee.7/
To conclude, against this evidence to the contrary, that the continuation of classified or designated tax status of land is contingent upon the execution of a notice of continuance by a transferee of a separately held mineral interest would be to give a veto power to such person. Presumably, in most cases the owner of the separate estate in land will not be required to join in the conveyance of the underlying mineral interest and may in fact be unaware of the transfer.
We do not read the statutes to give the transferee of such mineral rights, through the mechanism of the notice of continuance, the ability to determine the continuation of the land's status. That interpretation would accord control to the holder of the mineral interest over options which the legislature clearly appears to have left with the land owner. We conclude, therefore, that the continuation of the classified or designated status of [[Orig. Op. Page 12]] land will not require the execution of a notice of continuance by the new transferee of mineral ownership rights in that land.
This completes our consideration of your questions.8/
We trust that the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
LELAND T. JOHNSON
Assistant Attorney General
*** FOOTNOTES ***
1/We also note that RCW 36.34.010 permits counties to sell mineral interests separate and apart from the estate in tax title land. Under certain conditions the state is also authorized to sell and convey independently-reserved rights in mineral interests to the United States. See RCW 79.08.110. This opinion, however, is concerned with ownership interests in minerals in place. Distinctions in such separate estates in minerals and interests such as incorporeal privileges or licenses in minerals are considered in 66 A.L.R.2d 978.
2/No statutory provision expressly mandates the separate assessment of an estate in land and of the separately held mineral interest. Discussions with persons in the Department of Revenue property tax division suggest that separate assessment by the counties is infrequent and often at nominal valuation, quite possibly a reflection of an analysis of sales of land with and without the suspected presence of minerals. Arguably, a land owner may be able to resort to the provisions of RCW 84.56.340 which permits the separate assessment of "parts of real property" to effect that result. See,Gilbreath v. Pacific Coast Coal & Oil Co., 75 Wn.2d 255, 260, 450 P.2d 173 (1969) (Neill, J., concurring).
3/These taxes and penalties are commonly referred to as "roll-backs."
4/See, again, Article VII, § 11 (Amendment 53) as quoted on page 4, above. For classified open space and timber land, the valuation process is described in RCW 84.34.060 as follows:
"In determining the true and fair value of open space land and timber land, which has been classified as such under the provisions of this chapter, the assessor shall consider only the use to which such property and improvements is currently applied and shall not consider potential uses of such property. The assessor shall compute the assessed value of such property by using the same assessment ratio which he applies generally in computing the assessed value of other property:Provided, That the assessed valuation of open space land with no current use shall not be less than that which would result if it were to be assessed for agricultural uses."
Also to be noted is RCW 84.34.065 which requires valuation of farm and agricultural lands in terms of the productive capacity of their crops.
5/Hypothetically, the development of a mineral interest might by covenant or other agreement be restricted while the surrounding land was held in classified or designated status. Such a limitation might justify a lower valuation for the interest but it provides no basis for reading into the statute a requirement that the affected owner of the mineral rights join in the application process.
6/RCW 84.33.140(1)(c) as amended in 1980 refers to a notice of forest land designation continuance for such previously designated land; and RCW 84.34.108 as amended by § 5, chapter 134, Laws of 1980 refers simply to a notice of classification continuance with respect to open space, timber or agricultural and farm land.
7/Journal of the Senate (February 19, 1980), pp. 593-94.
8/In addition to the specific questions to which you have requested an answer, your letter makes passing reference to situations in which there may be current exploitation or development of a separately owned mineral interest in land which has been given classified or designated status. RCW 84.33.140 and RCW 84.34.108 both provide that discontinuation of that use which afforded the basis for classification or designation may be cause for removal of such land from the status accorded. Such situations, however, involve considerations different from those contained in the questions you have presented to us.