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  "name_abbreviation": "In re the Consolidated Appeals of Certain Timber Companies from the Denial of Use Value Assessment & Taxation by Certain Counties",
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  "docket_number": "No. 8910PTC875",
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    "judges": [
      "Judges JOHNSON and Orr concur."
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    "parties": [
      "IN THE MATTER OF: The Consolidated Appeals of Certain Timber Companies from the Denial of Use Value Assessment and Taxation by Certain Counties"
    ],
    "opinions": [
      {
        "text": "ARNOLD, Judge.\nAppellants\u2019 property qualifies under all but one criteria of the statute in question for the present use taxation classification. To qualify, forestland owned by corporations must be \u201cpart of a forest unit that is actively engaged in the commercial growing of trees under a sound management program.\u201d N.C. Gen. Stat. \u00a7 105-277.2(2). The forestland must be comprised of tracts twenty acres in size or larger. N.C. Gen. Stat. \u00a7 105-277.3(a)(3). The property must be owned for at least four years by a taxpayer whose principal business is that of a timber company. N.C. Gen. Stat. \u00a7\u00a7 105-277.2(4)b and -277.3(b)(2). The only requirement appellants do not satisfy is one related to the description of the shareholders of the corporation owning the property. The shareholders must all be \u201cnatural persons actively engaged in the business of the corporation or a relative of a shareholder who is actively engaged in the business of the corporation.\u201d N.C. Gen. Stat. \u00a7 105-277.2(4)b. \u201c \u2018Relative\u2019 means:\na. Spouse;\nb. A lineal ancestor;\nc. A lineal descendant;\nd. A brother or sister, including a stepbrother or stepsister;\ne. An adopted or adoptive child, parent, grandchild, or grandparent; or\nf. A spouse of a person listed in paragraphs b. through e.\u201d N.C. Gen. Stat. \u00a7 105-277.2(5a).\nThe ownership requirement excludes publicly owned corporations. Although in many instances corporations eligible under this statute are \u201cfamily\u201d corporations, they need not be \u201cfamily\u201d corporations in the strict sense. Eligible corporations can have numerous shareholders so long as the shareholders qualify by engagement in the business or by relationship to someone who is. Eligible corporations can be large, both in financial size and in the number of shareholders, while excluded corporations can be small both in net worth and in number of shareholders.\nAppellants have failed to carry forward in their briefs any argument that the ruling of the Property Tax Commission was erroneous other than the constitutional attack on the controlling statute forming the basis of the decision. As a result, any objection to the ruling of the Commission based on their application of the statute to the taxpayers has been abandoned. N.C.R. App. P. 28(a). Thus, the only question before us is the constitutionality of the statute.\nThe Property Tax Commission is without authority to rule on the constitutionality of N.C. Gen. Stat. \u00a7 105-277.2 et seq. Johnston v. Gaston County, 71 N.C. App. 707, 323 S.E.2d 381 (1984), cert. denied, 313 N.C. 508, 329 S.E.2d 392 (1985). Instead, such authority is vested in this Court. Id.; see also N.C. Gen. Stat. \u00a7 105-345.2(b)(l).\nAppellants first argue that the classification of property in N.C. Gen. Stat. \u00a7 105-277.2 et seq. violates the powers of the General Assembly as granted under article V, section 2 of the North Carolina Constitution and therefore is not in compliance with article I, section 19 of the state constitution. Appellants\u2019 main attack on the classification system of the statute focuses on alleged violations of their equal protection rights under article I, section 19 of the state constitution and the fourteenth amendment of the United States Constitution. In the second portion of this opinion, those questions will be examined more thoroughly. First, however, we will analyze appellants\u2019 closely related argument concerning article V, section 2 of the state constitution, which states:\n(2) Classification. Only the General Assembly shall have the power to classify property for taxation, which power shall be exercised only on a State-wide basis and shall not be delegated. No class of property shall be taxed except by uniform rule, and every classification shall be made by general law uniformly applicable in every county, city and town, and other unit of local government.\nWhile this constitutional grant of authority establishes the general rule that taxes must be applied uniformly, it \u201cdoes not prohibit reasonable flexibility and variety appropriate to reasonable schemes of State taxation.\u201d In re Appeal of Martin, 286 N.C. 66, 75, 209 S.E.2d 766, 773 (1974). \u201c[A] classification does not violate this provision if it is founded upon a reasonable distinction and bears a substantial relation to the object of the legislation .... It is only those classifications which are arbitrary or capricious which violate Article V, Section 2.\u201d In re Assessment of Taxes Against Village Publishing Corp., 312 N.C. 211, 223-24, 322 S.E.2d 155, 163 (1984), appeal dism., sub nom., 472 U.S. 1001, 86 L.Ed.2d 710 (1985).\nTo find that N.C. Gen. Stat. \u00a7 105-277 et seq. is unconstitutional under article V, section 2 of our state constitution, appellants must show that the definition of \u201cindividually owned\u201d contained in the statute is either arbitrary or capricious. As noted above, the General Assembly has constitutional authority to designate special classes of property for taxation purposes. N.C. Gen. Stat. \u00a7 105-277.2 et seq. designates two main criteria to qualify for the special taxation classification: (1) the land must be used as agricultural, horticultural or forest land, and (2) it must be individually owned. Property with only one of these characteristics is not within the special class designated by the General Assembly. Appellants use the property for the right purpose but do not individually own it. See N.C. Gen. Stat. \u00a7\u00a7 105-277.2(4)b and (5a).\nIn their brief, appellants make the following argument on this point:\nThe result (of the individual ownership requirement) is to draw an arbitrary line between corporations engaged in exactly the same kind of business, owning exactly the same kind of land, and making exactly the same use of the property involved, granting some of these corporations preferential tax treatment for their property and denying such tax treatment to other similarly situated corporations .... This blatantly violates the rule that for taxing purposes \u201call persons similarly circumstanced shall be treated alike,\u201d (citation omitted); and that classification must rest on \u201ca genuine distinction.\u201d (citation omitted). The distinction attempted here, based not on genuine differences between corporations \u2014 there are none \u2014 but on an arbitrary description of the individuals who happen to own the stock in the taxpayer corporation and beyond that on their family relationships, is plainly not a genuine distinction between the corporate taxpayers for ad valorem tax purposes.\nTo determine if the ownership requirement of the statute is constitutional, it is necessary to examine the purpose for including this distinction in the statute. As originally written in 1973, the preferential tax treatment provided by the present use valuation statute was limited to \u201cindividually owned land,\u201d that is, property owned only by natural persons. Property owned by any corporate entity was entirely excluded. N.C. Gen. Stat. \u00a7 105-277.2(4) (Supp. 1973). The purpose of the statute was to ease the tax burden on family farmers or foresters and encourage their continued use of the property rather than succumbing to development pressures. Furthermore, \u201c[t]he law as written in 1973 appears to be an attempt to deprive agribusiness and development corporations of the benefits of present use valuation.\u201d W.R. Company v. Property Tax Comm., 48 N.C. App. 245, 258, 269 S.E.2d 636, 643 (1980), disc. rev. denied, 301 N.C. 727, 276 S.E.2d 287 (1981).\nIn 1975, the General Assembly amended the statute and broadened the definition of \u201c[individually owned\u201d to include some corporate entities, namely \u201cfamily corporations.\u201d N.C. Gen. Stat. \u00a7 105-277.2(4)b (1975 Supp.) \u201cThe amendment was enacted at a time when farm families were advised to incorporate for estate planning purposes.\u201d W.R. Company, at 259, 269 S.E.2d at 644; see also Institute of Government Property Tax Bulletin #44 (20 August 1975).\nOn at least three other occasions, the General Assembly has had opportunities to broaden the qualified ownership class to include public corporation but has chosen not to. For example, a 1979 bill designed to accomplish this purpose was allowed to die in the House Finance Committee. W.R. Company, at 259, 269 S.E.2d at 644. Again in 1983, the House defeated a bill that specifically sought to extend use-value appraisal eligibility to publicly held corporations. This defeat for publicly held timber corporations came despite a specific recommendation to change the law made by the 1983 Property Tax System Study Committee. Instead, the 1985 session of the General Assembly chose to add subsection (5a) to N.C. Gen. Stat. \u00a7 105-277.2, which changed the ownership requirement by expanding the class of relatives who could be shareholders in the family corporations. This was the latest change made in the statute.\nAt least thirty-five other states have similar statutes according special tax treatment to property used in this manner. Appellants contend that North Carolina is the only state that restricts the special tax treatment of the statute based upon the identity of the property owner. However, our research indicates that other states, such as Georgia, South Carolina, Texas and Minnesota, have to varying degrees excluded certain corporate taxpayers from the preferential tax treatment laws. Nonetheless, it is true that. North Carolina\u2019s statute is more restrictive in excluding public corporations than most other ones. Yet, we believe this is because the North Carolina General Assembly has accomplished what the majority of other states have failed to do. In W.R. Company, Judge Vaughn noted the following major criticism of these types of tax statutes:\n[T]he programs are for the most part applicable to all people and all lands statewide resulting in a tax windfall for those not financially pressed by taxes and tax reduction for land which is not the object of development pressures. It is an unfair subsidization of farmers and land speculators who are not in need of a tax shelter.\nId. at 256, 269 S.E.2d at 642. Judge Vaughn then reviewed the specifics of the North Carolina statute and the amendments concerning the ownership requirements made by the General Assembly during the 1970s. After even more legislative refinement during the 1980s, we find his comment concerning the ownership requirement of the statute even more pertinent today: \u201cThe intent of the legislature seems quite clear. Its intent has been to be very restrictive with regard to what corporate entities can receive the benefit of present use valuation. The law is generally restrictive and answers much of the criticism leveled at such tax statutes in other jurisdictions.\u201d Id. at 259, 269 S.E.2d at 644.\nThe definition of individually owned contained in N.C. Gen. Stat. \u00a7\u00a7 105-277.2(4)b and -277.2(5a) is neither arbitrary nor capricious. Rather, after three legislative revisions this statute has been carefully tailored to provide a tax incentive to the family forester while avoiding a tax windfall to those foresters less likely to need such an incentive. The ownership distinction in the statute is reasonable and does not violate art. V, section 2(2) of the North Carolina Constitution.\nIn conjunction with their first argument, appellants claim that the ownership requirement violates the Equal Protection Clause grounded in art. I, \u00a7 19 of the North Carolina Constitution. Appellants also contend that the statute violates their equal protection rights under the fourteenth amendment of the United States Constitution. In regard to these constitutional guarantees, the North Carolina Supreme Court has held that the principle of equal protection, made explicit in the fourteenth amendment to the federal constitution, has been expressly incorporated in art. I, \u00a7 19 of our state constitution, and for all practical purposes is the same under both constitutions. S.S. Kresge Co. v. Davis, 277 N.C. 654, 178 S.E.2d 382 (1971); Hajoca Corp. v. Clayton, 277 N.C. 560, 568, 178 S.E.2d 481, 486 (1971). Therefpre, we will examine the two equal protection questions simultaneously.\nWhen addressing a claim that the Equal Protection Clause has been violated, the courts employ a two-tiered analysis. Regan v. Taxation With Representation, 461 U.S. 540, 76 L.Ed.2d 129 (1983). The highest level of review, or \u201cstrict scrutiny,\u201d applies \u201conly when the classification impermissibly interferes with the exercise of a fundamental right or operates to the peculiar disadvantage of a suspect class.\u201d Massachusetts Board of Retirement v. Murgia, 427 U.S. 307, 312, 49 L.Ed.2d 520, 524 (1976). When strict scrutiny applies, the government must show that the classification created by the statute is \u201cnecessary to promote a compelling government interest.\u201d In Re Assessment of Taxes Against Village Publishing Corp., 312 N.C. 211, 221, 322 S.E.2d 155, 162, appeal dism., sub nom., 472 U.S. 1001, 86 L.Ed.2d 710.\nA lower level of review applies when there is no fundamental right or suspect class involved. \u201cA statutory classification survives this analysis if it bears \u2018some rational relationship to a conceivable legitimate interest of government.\u2019 .... Statutes subjected to this level of scrutiny come before the Court with a presumption of validity.\u201d Id. In the case before us, the statute is an economic regulation. In determining whether a purely economic regulation violates the Equal Protection Clause, the rational basis test is applied. Id.\nMoreover, in cases challenging the constitutionality of tax statutes on equal protection grounds, the United States Supreme Court has always emphasized that States have broad powers to impose and collect taxes. See Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 35 L.Ed.2d 351, reh\u2019r. den., 411 U.S. 910, 36 L.Ed.2d 200 (1973). (The Court held that a state constitutional provision exempting individuals from ad valorem personal property taxes and imposing such taxes only on corporations and other \u201cnon-individuals\u201d does not violate the Equal Protection Clause of the fourteenth amendment.) \u201cWhere taxation is concerned and no specific federal right, apart from equal protection, is imperiled, the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation.\u201d Id. at 359, 35 L.Ed.2d at 354-55. \u201c[I]n taxation, even more than in other fields, legislatures possess the greatest freedom in classification.\u201d Madden v. Kentucky, 309 U.S. 83, 88, 84 L.Ed. 590, 593 (1940).\nFurthermore, under the lower tier, rational basis test, the party challenging the legislation has a tremendous burden in showing that the questioned legislation is unconstitutional. In Lehnhausen, Justice Douglas wrote:\nThere is a presumption of constitutionality which can be overcome \u201conly by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes.\u201d . . . The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it. (citations omitted).\nLehnhausen, 410 U.S. at 364, 35 L.Ed.2d at 358 (emphasis added). Distinctions of degree between classes of taxpayers made by a legislature are presumed to rest on a rational basis \u201cif there is any conceivable state of facts\u201d which would support the legislative decision. Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 509, 81 L.Ed. 1245, 1253 (1937).\nAppellants have not demonstrated that the statute here is unconstitutional because they have failed to \u201cnegative every conceivable basis\u201d that could exist to support this legislation. On the contrary, while N.C. Gen. Stat. \u00a7 105-277.2 et seq. is not perfect, it is clear that the ownership requirements of the statute are rationally related to the ends the General Assembly sought to accomplish. This statute has three primary goals: (1) to provide a tax incentive to family foresters; (2) to preserve the present use of forest land; and (3) to avoid a tax windfall for those not in need of such an incentive. See W.R. Company, at 256-57, 269 S.E.2d at 642. In our view, the narrowly drafted language of N.C. Gen. Stat. \u00a7\u00a7 105-277.2(4)b and -277.2(5a) comes closer to reaching these goals than other legislation of a similar nature in the country.\nAppellants claim that the distinction the statute draws between public and private ownership does not in reality help protect undeveloped forestland. They argue:\nIt is fundamentally inconsistent with these purposes to exclude public corporations which own a substantial amount of timberland in the greenbelts around the cities and towns .... Indeed, because of the substantial amount of land in an undeveloped state and \u201copen and green spaces\u201d owned by Appellant timber companies in North Carolina, and the need to provide a \u201cdeterrent to such development,\u201d the exclusion of such companies from the statute defeats rather than serves the purposes of the statute.\nEven if appellants\u2019 argument here is valid, the proper forum for its assertion is in the legislative chambers of the General Assembly, not in this Court. It is unimportant whether or not the General Assembly\u2019s use of a \u201cpublic-private ownership\u201d distinction to delineate between landowners who are \u201cin need\u201d of a tax incentive and ones who are not in fact frustrates one of the goals of the legislation. For the purposes of this proceeding, as long as it is arguable that the statutory scheme designed by our legislators could work, then we must uphold the challenged statute. The United States Supreme Court has consistently rejected attacks such as the one launched here under the guise of the Equal Protection Clause. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 66 L.Ed.2d 659, reh. denied, 450 U.S. 1027, 68 L.Ed.2d 222 (1981).\nIn Clover Leaf Creamery, several dairies and milk container manufacturers challenged a state statute that banned the retail sale of milk in plastic nonreturnable, nonrefillable containers but permitted such sale in other nonreturnable, nonrefillable containers. The Court held the ban was not violative of the Equal Protection Clause. Id. \u201cWhether in fact the Act will promote more environmentally desirable milk packaging is not the question: the Equal Protection Clause is satisfied by our conclusion that the Minnesota Legislature could rationally have decided that its ban on plastic nonreturnable milk jugs might foster greater use of environmentally desirable alternatives.\u201d Id. at 466, 66 L.Ed.2d at 670 (emphasis in original). Where the evidence before the legislature is \u201cat least debatable,\u201d courts should not substitute their judgments for those of the lawmakers. Id. at 469, 66 L.Ed.2d at 672. Clearly, the ownership distinction drawn by the General Assembly in this statute arguably is related to the legitimate goals of helping foresters preserve undeveloped land, while spreading the tax burden in a fair manner. We hold that the ownership distinctions of N.C. Gen. Stat. \u00a7\u00a7 105-277.2(4)b and -277.2(5a) satisfy the equal protection requirements of the state and federal constitutions.\nAppellants\u2019 final assignment of error pertains to the proper remedy to impose were we to find that the statute here was unconstitutional. Because we uphold the statute against the constitutional attack, we will not examine the arguments related to the remedy.\nAffirmed.\nJudges JOHNSON and Orr concur.",
        "type": "majority",
        "author": "ARNOLD, Judge."
      }
    ],
    "attorneys": [
      "Brooks, Pierce, McLendon, Humphrey & Leonard, by Hubert Humphrey and Jim W. Phillips, Jr., for appellants.",
      "Simpson, Aycock, Beyer & Simpson, by Samuel E. Aycock and Michael Doran; and McMurray, McMurray & Alexander, by John W. Alexander, for appellees."
    ],
    "corrections": "",
    "head_matter": "IN THE MATTER OF: The Consolidated Appeals of Certain Timber Companies from the Denial of Use Value Assessment and Taxation by Certain Counties\nNo. 8910PTC875\n(Filed 15 May 1990)\n1. Constitutional Law \u00a7 20 (NCI3d(\u2014 ad valorem taxation of forestland \u2014distinctions between corporations \u2014classification not unconstitutional\nThe ownership distinctions for ad valorem taxation purposes in N.C.G.S. \u00a7 105-277.2 et seq. between forestland owned by corporations whose shareholders are all natural persons actively engaged in the business of the corporation or related to someone who is, and forestland owned by corporations which do not meet that and other requirements, does not violate article V, section 2(2) of the North Carolina Constitution. The definition of \u201cindividually owned\u201d contained in N.C.G.S. \u00a7 105-277.2(4)b and N.C.G.S. \u00a7 105-277.2(5a) is neither arbitrary nor capricious; rather, after three legislative revisions, this statute has been carefully tailored to provide a tax incentive to the family forester while avoiding a windfall to those foresters less likely to need such an incentive.\nAm Jur 2d, State and Local Taxation \u00a7 185.\n2. Constitutional Law \u00a7 20 (NCI3d)\u2014 taxation of forestland \u2014 classification by corporate type \u2014no violation of equal protection\nThe distinctions in. N.C.G.S. \u00a7 105-277.2 et seq. between forestland owned by corporations whose shareholders are engaged in the business or related to someone who is engaged in the business and forestland owned by corporations who do not meet that and other requirements does not violate the equal protection requirements of the state and federal constitutions. The statute is an economic regulation which must be reviewed under the second tier rational basis standard and the United States Supreme Court has always emphasized that states have broad powers to impose and collect taxes. While N.C.G.S. \u00a7 105-277.2 et seq. is not perfect, it is clear that the ownership requirements of the statute are rationally related to the ends the General Assembly sought to accomplish; as long as it is arguable that the statutory scheme designed by the legislature could work, then the challenged statute must be upheld.\nAm Jur 2d, State and Local Taxation \u00a7 185.\nAPPEAL by petitioners from an order entered on 30 March 1989 by the Property Tax Commission. Heard in the Court of Appeals on 6 March 1990.\nPetitioners applied with various county tax boards in North Carolina for present use valuation of their forestland for ad valorem tax purposes. All applications were denied by the county boards because the timber companies did not \u201cindividually own\u201d their property as defined by N.C. Gen. Stat. \u00a7\u00a7 105-277.2(4)b and -277.2(5a). Petitioners appealed to the Property Tax Commission where all appeals were consolidated in a single-proceeding. The Commission-upheld the denial of petitioners\u2019 applications and refused to reverse the counties\u2019 grant of present use treatment to so-called family corporations. The Commission also refused to rule on petitioners\u2019 constitutional challenge to the statute because such power rested only in the province of the judicial branch. Petitioners appealed.\nAppellants are Boise Cascade Corporation (\u201cBoise Cascade\u201d), Champion International Corporation (\u201cChampion\u201d), Georgia-Pacific Corporation (\u201cGeorgia-Pacific\u201d), and Weyerhaeuser Company (\u201cWeyerhaeuser\u201d). These public corporations own and operate substantial timber operations in North Carolina. In 1986 each company filed applications in several counties seeking present use value assessment and taxation of specific tracts of forestland they own in the respective counties. Boise Cascade filed in Anson, Bladen and Chatham counties. Champion filed in Burke, Franklin and Rutherford counties. Georgia-Pacific filed in Bertie, Brunswick, Hertford and Martin counties. Weyerhaeuser filed in Bertie, Currituck, Martin, Onslow, Pamlico and Washington counties. (These fourteen counties are hereinafter referred to as \u201cthe Counties.\u201d) These applications were denied by the Counties and by their respective county boards of equalization and review.\nThe ad valorem tax statute involved, N.C. Gen. Stat. \u00a7 105-277.2 et seq., provides that forestland owned by certain corporations whose shareholders meet specific descriptions is assessed and taxed on the basis of \u201cpresent use value.\u201d Present use value is based on the capability of the property to produce income in its present use, in this case as forestland, regardless of other available uses for the property that would produce greater income and higher value. Corporations such as appellants, which do not qualify under the statute, are assessed and taxed at the \u201cmarket value\u201d rate, meaning that the land is valued and then taxed at the highest and best use for which the property is capable of being used, whether that be residential, commercial, industrial or otherwise, without regard for the current use of the property. The record is clear that taxing the property at the market value rather than at the present use value has resulted in higher property taxes for appellants.\nBrooks, Pierce, McLendon, Humphrey & Leonard, by Hubert Humphrey and Jim W. Phillips, Jr., for appellants.\nSimpson, Aycock, Beyer & Simpson, by Samuel E. Aycock and Michael Doran; and McMurray, McMurray & Alexander, by John W. Alexander, for appellees."
  },
  "file_name": "0412-01",
  "first_page_order": 440,
  "last_page_order": 450
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