A few days ago, an article in The Washington Post highlighted what is an interesting debate in the golf and club industry. Two clubs in Arlington County, Virginia (with which I am quite familiar) are being assessed based on their highest and best use. This concept is typical in most states and golf and club properties often bear the burden of tax assessments based on values that may represent potential use as a development site which can far exceed the value based on continued use as a golf or club facility. The Arlington clubs have sought (and received) legislation from the Virginia General Assembly and State Senate which is awaiting the signature of Governor Ralph Northam. As with most legislation these days, there is considerable debate as to whether the clubs should receive what some characterize as preferential treatment or continue to be assessed based on their development potential.
Golf properties, in most states are assessed based on their highest and best use. Sometimes that can be an alternative use while in other cases zoning, restrictive covenants, location, operating history or market conditions dictate that continued use as a golf or club facility is the highest and best use. However, Virginia’s debate has some precedent. New York, for instance has since the 1988 case of “The New Country Club of Garden City vs. The Board of Assessment Review of Nassau County” dictated that golf and club properties be assessed based on their continued present use. The court raised the legal question as to whether it is right for the club to be taxed at a higher potential use and found that there was sufficient proof that development was not “reasonably probable” in the near future. The court further found that “as a legal matter that valuation of this improved property under a potential use inconsistent with the existing, valuable one is contrary to statutory and other fundamental principles of assessment valuation”. While most other states have not gone so far as to broadly bless valuation based on continued present use, there are several situations where accommodations have been made for golf and club properties. In Pennsylvania, for instance a golf facility can apply for inclusion in the “Clean and Green” Act 515 program, which preserves open space in return for a reduction in taxes. Should the property owner at some point decide to develop the property, penalties are assessed relating to retroactive assessments.
The debate over how golf properties should be taxed will likely never be universally resolved and likely be determined on a market specific basis. On one side are those who wish to preserve open space and hope to create incentives for same. There is sometimes incentive to preserve the clubs’ ability to thrive as an element of quality of life in the community. Others simply seek lower taxes for the businesses involved (the clubs) and some object to what they perceive as the privileged members of country clubs receiving a tax break. One has to balance the advantages of preserving open space, the benefit of having the club be fiscally able to continue operating unburdened by excessive taxes and the issue of fairness. What’s best for one community may not be best for another. What needs to be emphasized, especially in the case of the Arlington clubs is that these clubs provide numerous jobs, and if these were daily-fee, public access golf facilities would provide a publicly available recreational amenity for the community.
No doubt, those who oppose the accommodation realize that should the clubs in the Arlington case receive this benefit the difference in tax revenue would have to be made up by an increase to other properties. What’s fair? What’s best for the community? Is it better for the community if these clubs close someday because of the tax burden? It does happen. One can even go back to the post World War II period when there was a land development boom that forced farm families to sell their properties due to excessive tax burdens.
Golf and club properties are rarely worth as clubs what they might be worth as developments, where such development is permitted and feasible. Golf courses are a very inefficient use of land and lots of golf courses and clubs struggle. Many are closing. With open space often at a premium and quality of life in the community a consideration the intangible value to the community may suggest that golf properties (and possibly others) be assessed based on their continued present use versus an alternative highest and best use. Conversely, if the primary consideration is tax revenue for the community, it is likely they will maintain assessments based on highest and best use.
Another alternative is for the club and taxing authority to either agree to down-zoning and restricting the use, in which case the assessment would have to be based on the restricted use or to place a restrictive covenant or conservation easement on the property which would accomplish the same, but involves a very expensive, arduous and permanent process.
How should golf properties be taxed? That depends on your perspective. If a community wishes to preserve open space and recreational opportunities, golf properties will be assessed based on continued use as golf courses. If they need current tax revenues, they’ll continue with highest and best use. The debate rages on.