Land use: farmland and open space; legal arrangements eligible for tax credits; expand, the official text

Act
No. 73

Public
Acts of 2025

Approved
by the Governor

December
23, 2025

Filed
with the Secretary of State

December
23, 2025

EFFECTIVE
DATE:  December 23, 2025

state of michigan

103rd Legislature

Regular session of 2025

Introduced by Senators Victory, Singh, Daley, Lauwers,
Shink and Cherry

ENROLLED SENATE BILL No. 690

AN ACT to amend 1994 PA 451,
entitled “An act to protect the environment and natural resources of the state;
to codify, revise, consolidate, and classify laws relating to the environment
and natural resources of the state; to regulate the discharge of certain
substances into the environment; to regulate the use of certain lands, waters,
and other natural resources of the state; to protect the people’s right to hunt
and fish; to prescribe the powers and duties of certain state and local
agencies and officials; to provide for certain charges, fees, assessments, and
donations; to provide certain appropriations; to prescribe penalties and
provide remedies; and to repeal acts and parts of acts,” by amending section
36109 (MCL 324.36109), as amended by 2016 PA 265.

The People of the State of
Michigan enact:

Sec.
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 subpart 11 of part 21,
section 36101(a), 36111b, or 36206, or sections 506 to 509 of the Michigan
zoning enabling act, 2006 PA 110, MCL 125.3506 to 125.3509, 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. The
credit may be claimed for the amount by which the property taxes on the land
and structures used in the farming operation, including the homestead,
restricted by the development rights agreements, agricultural conservation
easements, or purchases of development rights exceed 3.5% of all income
received by all persons of a household in a tax year while members of a
household, excluding a deduction if taken under section 613 of the internal
revenue code of 1986, 26 USC 613. For the purposes of this section, all of the
following apply:

(a) A partner in a partnership is considered an owner of
farmland and related buildings owned by the partnership and covered by a
development rights agreement, agricultural conservation easement, or purchase
of development rights. A partner is considered to pay a proportion of the
property taxes on that property equal to the partner’s share of ownership of
capital or distributive share of ordinary income as reported by the partnership
to the Internal Revenue Service or, if the partnership is not required to
report that information to the Internal Revenue Service, as provided in the
partnership agreement or, if there is no written partnership agreement, a statement
signed by all the partners. A partner claiming a credit under this section
based upon the partnership agreement or a statement shall file a copy of the
agreement or statement with his or her income tax return. If the agreement or
statement is not filed, the department of treasury shall deny the credit. All
partners in a partnership claiming the credit allowed under this section shall
compute the credit using the same basis for the apportionment of the property
taxes.

(b) A shareholder of a corporation that has filed a proper
election under subchapter S of chapter 1 of subtitle A of the internal
revenue code of 1986, 26 USC 1361 to 1379, is considered an owner of farmland
and related buildings covered by a development rights agreement that are owned
by the corporation. A shareholder is considered to pay a proportion of the property
taxes on that property equal to the shareholder’s percentage of stock ownership
for the tax year as reported by the corporation to the Internal Revenue
Service. Except as provided in subsection (8), this subdivision applies to tax
years beginning after 1987.

(c) Except as otherwise provided in this subdivision, an
individual in possession of property for life under a life estate with
remainder to another person or holding property under a life lease is
considered the owner of that property if it is farmland and related buildings
covered by a development rights agreement. Beginning January 1, 1986, if
an individual in possession of property for life under a life estate with
remainder to another person or holding property under a life lease enters into
a written agreement with the person holding the remainder interest in that land
and the written agreement apportions the property taxes in the same manner as
revenue and expenses, the life lease or life estate holder and the person
holding the remainder interest may claim the credit under this act as it is
apportioned to them under the written agreement upon filing a copy of the
written agreement with the return.

(d) If a trust holds farmland and related buildings covered
by a development rights agreement and an individual is treated under subpart E
of subchapter J of chapter 1 of subtitle A of the internal revenue code of
1986, 26 USC 671 to 679, as the owner of that portion of the trust that
includes the farmland and related buildings, that individual is considered the
owner of that property.

(e) An individual who is the sole beneficiary of a trust that
is the result of the death of that individual’s spouse is considered the owner
of farmland and related buildings covered by a development rights agreement and
held by the trust if the trust conforms to all of the following:

(i) One hundred percent of the trust income
is distributed to the beneficiary in the tax year in which the trust receives
the income.

(ii) The trust terms do not provide that any
portion of the trust is to be paid, set aside, or otherwise used in a manner
that would qualify for the deduction allowed by section 642(c) of the internal
revenue code of 1986, 26 USC 642.

(f) A member in a limited liability company is considered an
owner of farmland and related buildings covered by a development rights
agreement that are owned by the limited liability company. A member is
considered to pay a proportion of the property taxes on that property equal to
the member’s share of ownership or distributive share of ordinary income as
reported by the limited liability company to the Internal Revenue Service.

(2) 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 subpart 11 of
part 21, section  36101(a), 36111b, or 36206, or sections 506 to 509 of
the Michigan zoning enabling act, 2006 PA 110, MCL 125.3506 to
125.3509, to whom subsection (1) does not apply may claim a credit under the
Michigan business tax act, 2007 PA 36, MCL 208.1101 to 208.1519, for the amount
by which the property taxes on the land and structures used in farming
operations restricted by the development rights agreements, agricultural
conservation easements, or purchases of development rights exceed 3.5% of the
owner’s business income tax base, as defined in section 201 of the Michigan
business tax act, 2007 PA 36, MCL 208.1201, plus compensation to shareholders
not included in adjusted business income or the business income tax base,
excluding any deductions if taken under section 613 of the internal revenue
code of 1986, 26 USC 613. A participant is not eligible to claim a credit and
refund against the Michigan business tax act, 2007 PA 36, MCL 208.1101 to
208.1519, unless the participant demonstrates that the participant’s
agricultural gross receipts of the farming operation exceed 5 times the
property taxes on the land for each of 3 out of the 5 tax years immediately
preceding the year in which the credit is claimed. This eligibility requirement
does not apply to those participants who executed farmland development rights
agreements under this part before January 1, 1978. A participant may compare,
during the contract period, the average of the most recent 3 years of
agricultural gross receipts to property taxes in the first year that the
participant entered the program under the present contract in calculating the
gross receipts qualification. Once an election is made by the participant to
compute the benefit in this manner, all future calculations shall be made in
the same manner.

(3) If the farmland and related buildings covered by a
development rights agreement under section 36104 or an agricultural
conservation easement or purchase of development rights under subpart 11 of
part 21, section 36101(a), 36111b, or 36206, or sections 506 to 509 of the
Michigan zoning enabling act, 2006 PA 110, MCL 125.3506 to 125.3509, are
owned by more than 1 owner, each owner is allowed to claim a credit under this
section based upon that owner’s share of the property tax payable on the
farmland and related buildings. The department of treasury shall consider the
property tax equally apportioned among the owners unless a written agreement
signed by all the owners is filed with the return, which agreement apportions
the property taxes in the same manner as all other items of revenue and
expense. If the property taxes are considered equally apportioned, a husband
and wife shall be considered 1 owner, and a person with respect to whom a
deduction under section 151 of the internal revenue code of 1986, 26 USC 151,
is allowable to another owner of the property shall not be considered an owner.

(4) A beneficiary of an estate or trust to which subsection
(1) does not apply is entitled to the same percentage of the credit provided in
this section as that person’s percentage of all other distributions by the
estate or trust.

(5) If the allowable amount of the credit claimed exceeds the
state income tax or the state business tax otherwise due for the tax year or if
there is no state income tax or the state business tax due for the tax year,
the amount of the claim not used as an offset against the state income tax or
the state business tax, after examination and review, shall be approved for
payment to the claimant pursuant to 1941 PA 122, MCL 205.1 to 205.31. The total
credit allowable under this part and chapter 9 of the income tax act of 1967,
1967 PA 281, MCL 206.501 to 206.532, or the Michigan business tax act, 2007 PA
36, MCL 208.1101 to 208.1519, shall not exceed the total property tax due and
payable by the claimant in that year. The amount the credit exceeds the property
tax due and payable shall be deducted from the credit claimed under this part.

(6) For purposes of audit, review, determination, appeals,
hearings, notices, assessments, and administration relating to the credit
program provided by this section, the state income tax act, or the Michigan
business tax act, 2007 PA 36, MCL 208.1101 to 208.1519, applies according to
which tax the credit is claimed against. If an individual is allowed to claim a
credit under subsection (1) based upon property owned or held by a partnership,
S corporation, or trust, the department of treasury may require that the
individual furnish it with a copy of a tax return, or portion of a tax return,
and supporting schedules that the partnership, S corporation, or trust files
under the internal revenue code.

(7) The department of treasury shall account separately for
payments under this part and not combine them with other credit programs. A
payment made to a claimant for a credit claimed under this part shall be issued
by 1 or more warrants made out to the county treasurer in each county in which
the claimant’s property is located and the claimant, unless the claimant
specifies on the return that a copy of the receipt showing payment of the
property taxes that became a lien in the year for which the credit is claimed,
or that became a lien in the year before the year for which the credit is
claimed, is attached to the income tax or business tax return filed by the
claimant. If the claimant specifies that a copy of the receipt is attached to
the return, the payment shall be made directly to the claimant. A warrant made
out to a claimant and a county treasurer shall be used first to pay delinquent
property taxes, interest, penalties, and fees on property restricted by the
development rights agreement. If the warrant exceeds the amount of delinquent
taxes, interest, penalties, and fees, the county treasurer shall remit the
excess to the claimant. If a claimant falsely specifies that the receipt
showing payment of the property taxes is attached to the return and if the
property taxes on the land subject to that development rights agreement were
not paid before the return was filed, all future payments to that claimant of
credits claimed under this act attributable to that development rights
agreement may be made payable to the county treasurer of the county in which
the property subject to the development rights agreement is located and to that
claimant.

(8) For property taxes levied after 1987, a person that was
an S corporation and had entered into a development rights agreement before
January 1, 1989, and paid property taxes on that property, may claim the credit
allowed by this section as an owner eligible under subsection (2). A subchapter
S corporation electing to claim a credit as an owner eligible under subsection
(2) shall not claim a credit under subsection (1) for property taxes levied
after 1987.

(9) The department of agriculture and rural development shall
maintain a record of each development rights agreement under section 36104 or
agricultural conservation easement or purchase of development rights under
subpart 11 of part 21, section 36101(a), 36111b, or 36206, or sections 506 to
509 of the Michigan zoning enabling act, 2006 PA 110, MCL 125.3506 to 125.3509,
for which a credit is claimed as authorized by this subsection.

(10) A landowner shall submit a recorded copy of a permanent
conservation easement to the department of agriculture and rural development by
November 1 for the purposes of obtaining a tax credit under this section for
the current tax year. The submitted document must include the legal description
of the land preserved in the conservation easement and be accompanied by any
application form required by the department of agriculture and rural development. If
the department of agriculture and rural development finds that the applicant
meets all applicable requirements, the department of agriculture and rural
development shall issue to the landowner an acknowledgment of the permanent
conservation easement. The acknowledgment shall list a unique identification number
for the easement, consistent with this state’s development rights agreement
tracking system. For the purpose of claiming a tax credit under this section,
the identification number shall serve as confirmation that the land described
in the easement is permanently preserved.

(11) If a person applied for a development rights agreement
in 2017 and the state land use agency approved the application under section
3104(7) between 2023 and 2025, the person may, by December 31, 2026, claim a
credit under this section for tax years 2017 and 2018.

Enacting section
1. This amendatory act does not take effect unless all of the following bills
of the 103rd Legislature are enacted into law:

(a) Senate Bill
No. 688.

(b) Senate Bill No. 686.

(c) Senate Bill
No. 689.

(d) Senate Bill
No. 687.

(e) Senate Bill No.
685.

This
act is ordered to take immediate effect.

Secretary of the Senate

Clerk of the House of
Representatives

Approved___________________________________________

____________________________________________________

Governor