In New Jersey, under the Farmland Assessment Act, farmland actively devoted to an agricultural or horticultural use is assessed at its productivity value. This practice generally results in a lower tax burden for farmland owners compared to residential or commercial land owners. In January 2010 New Jersey enacted legislation (S.B. 1538), which among other things clarifies how farmland used for biomass, solar, and wind energy generation should be treated under the Farmland Assessment Act. Ultimately, the law states that the addition of a biomass, solar, or wind energy generating system to land that was assessed and taxed as farmland during the prior tax year does not automatically preclude the land from continuing to qualify for this treatment. Instead, the law sets a series of conditions that must be met in order for the land to continue to be assessed as farmland, as follows:*
- The land must be part operating farm for the current year and have been part of an operating farm during the preceding year.
- The power and heat generated by the system must generally, but not exclusively, be used to serve farm energy needs.
- A conservation plan must be filed with and approved by the conservation district.
- For solar energy systems, the property under the panels must be used to the greatest extent practical for shade crops, pasture, or grazing.
- The ratio land devoted to energy production to land devoted to agricultural operations may not exceed 1:5 acres (i.e., maximum 1 acre devoted to energy production for every 5 acres devoted to agricultural operations).
- Facilities are limited in size to the lesser of 10 acres or 2 megawatts (MW) of generating capacity.
- For biomass generation, the property owner must obtain approval from the New Jersey Department of Agriculture.
Income generated from the sale of heat or power generated by solar, wind, biomass facilities is not considered income for the purposes of meeting eligibility requirements for assessment, valuation, and taxation under the Farmland Assessment Act. However, there is no income requirement for land assessed according to the terms described in the law. Any qualifying generation equipment installed in pinelands remains subject to the Pinelands Protection Act.
For the purposes of this law, the definition of land used for energy production does not include land devoted to the production of biomass fuels used in a biomass energy generation facility. Biomass is defined as "an agricultural crop, crop residue, or agricultural byproduct that is cultivated, harvested, or produced on the farm, or directly obtained from a farm where it was cultivated, harvested, or produced, and which can be used to generate energy in a sustainable manner." Any farmland used for solar, wind, or biomass energy generation that does not meet the criteria defined in the law may not be assessed as land devoted to agricultural or horticultural use under the Farmland Assessment Act.
*It is also important to note that S.B. 1538 prescribes several other criteria for determining whether it is permissible to construct energy generation facilities on preserved farmland. Among these criteria are requirements that energy production facilities not interfere with farm production; be limited in size to that needed to meet no more than 110% of on-site energy needs; and not occupy more than 1% of the total area of the farm, including both preserved and non-preserved portions.