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About The independent. (Vernonia, Or.) 1986-current | View Entire Issue (Nov. 20, 2003)
Page 4 The INDEPENDENT, November 20, 2003 Business Notes Small woodland owners will have complicated choices to make After what has seemed an interminable wait, a program will be in place for small forest- land owners beginning January 1, 2004. Owners that want to participate in the program have until April 1, 2004, to apply to the county assessor’s office. However, making that decision will require forestland owners to calculate which program is the most advantageous for their property. Information for this article was obtained at the Columbia County Small Wood- lands Association meeting No- vember 4, from Chal Landgren, OSU Extension, and Paul Nys of CCWSA. ment of Revenue (ODR) based on land class. Revenue from these timber taxes is divided between the State School Fund and Community College Sup- port Fund (65 percent) and the counties (35 percent). An additional tax, the Forest Products Harvest Tax (FPHT), is assessed on all timber har- vested after the first 25-thou- sand board feet (MBF). FPHT funds a variety of services, in- cluding forest research, emer- gency fire protection, marketing and education, and administra- tion of the Forest Practices Act. Woodlands taxing history Small woodland owners asked for an alternative to this plan that would recognize their special needs. Small forestland owners are often family-owned farms with multiple manage- ment goals. These non-indus- trial goals can include improv- ing habitat, recreation, water quality and aesthetics, in addi- tion to the need to generate revenue. Small tree farmers of- ten have very long rotation pe- riods between timber harvests. While the industry standard is 30 to 40 years, a small tree farmer may not harvest for 50 or more years. Compared to large companies, these smaller farms also experience greater relative impact from regula- tions, estate taxes and difficulty in accessing markets. Historically, forestland has been assessed and taxed dif- ferently than other land in Ore- gon. The state’s objectives are to retain productive forestland in private ownership while al- lowing equitable taxation be- tween forest and other classes and uses of land. The first of these taxes came as a result of the Depression, when many forest properties went into fore- closure. In 1961, distinctions were made between forestland on the east and west sides of the Cascade Mountains. In 1978, because the multiple for- est property and harvest tax laws were complicated, and an- nual appraisals were expen- sive, timberland was removed from the tax rolls statewide and most timber was taxed at har- vest. Effect of property tax limitations In order to provide forest landowners with some relief under property tax limitation measures passed in the mid 1990s, a formula was devel- oped to assess forestland at 20 percent of its value. The other 80 percent was collected as a tax on the value of timber har- vested, known as a “privilege tax.” This program was an ac- counting nightmare and taxes still fluctuated from year to year based on harvest. Another re- structuring occurred that al- lowed large landowners, with annual harvests, to pay proper- ty taxes based on the forest- land special assessment. This special assessment is deter- mined by the Oregon Depart- Small woodland owners seek changes New program developed Beginning in 2004, the state will have two tax programs in addition to the FPHT. All forest- land owners, including those small forestland owners en- rolled in the Western or Eastern Oregon Privilege Tax through December 31, 2003, will be transferred to the Forestland Tax Program (FTP) unless they apply for the Small Tract Forestland option (STF). Under FTP, owners will pay an annual W illiams M etal F ab S PECIALIZING P HONE /F AX IN tax based on land class as de- termined by the Department of Revenue. Forestland owners with 10 to 4,999 acres may ap- ply for STF by April 1, 2004, or April 1 of subsequent years. However, once classified under STF, property owners must stay there, except for very limit- ed circumstances. Properties in STF will remain in STF unless ownership changes or the property is no longer used as forestland. Forestland proper- ties in either program can be disqualified if the standards of the Forest Practices Act are not followed and the property re- verts to real market valuation. Most of the forestland in Co- lumbia County is classed and valued as follows; Type FB val- ued at $368/acre, FC at $308/acre, FD at $262/acre and FE at $174/acre. These valuations, determined by ODR, are updated annually, are NOT subject to the 3 percent property tax increase limitation but they are indexed annually to changes in forest industry in- dicators (principally market sales data). All forestland own- ers with less than 10 acres or more than 4,999 acres will be taxed under this program at a rate determined by the county assessor. For example, a nine-acre parcel of forestland, all class FB, would be valued at $3,312. Based on an average rate in Columbia County of $11 per $1000 assessed value, the tax on this property would be $36.43 per year with no sever- ance tax to be paid at harvest, except FPHT if harvest exceed- ed the 25MBF exemption. Alternative method, too The calculations become much more complex for forest- land owners who may wish to apply for STF. Under STF, an- nual property taxes are based on 20 percent of the same forestland values used under General/Custom Fabrication & Welding of All Metals S TAINLESS S TEEL &A LUMINUM : 503-429-8431 Robert Williams Vernonia, Oregon FTP. However, a severance tax is assessed at harvest to recov- er the unpaid property tax. The severance tax is based on the volume (MBF) sold. The rate of the severance tax will vary from year to year, based on changes in the forestland value but is controlled by property tax limi- tation measures and therefore cannot increase by more than 3 percent per year. Determining your best choice Whether to elect the STF program is a decision that must be answered on an individual basis. Property owners can find out from their county asses- sor’s office how their property is classified, the acreage in each productivity class and the cur- rent property tax rate ($/$1000 assessed value). The landown- er must also determine what their plans are for harvesting timber and if they anticipate any change in ownership or use of the land. At this time, new forestland owners are au- tomatically part of FTP unless they elect STF within 30 days of the transfer. Property may be subject to rollback taxes if it is moved from STF to FTP. For purposes of comparison, assume a 200-acre parcel of forestland in classes FB, FC and FD valued at $65,760 with a tax rate of $11/$1000. Under the FTP, $723.36 of tax would be paid each year. If the owner elected STF, the val- uation of the property drops to $13,040 (based on 20 percent of the forestland valuation by land class) and annual taxes would be only $143.44. This sounds great, until you com- pare the total taxes paid over a five-year period when 40 acres of timber are harvested after five years. At the time of har- vest an estimated severance tax of $5,256 would have to be paid in addition to the five years of property tax of $761.54 ($143.44 x 5). This yields a to- tal tax assessment over the five years of $6,017.54 under STF. If the owner had stayed in FTP the total tax assessment would be $3,840 ($723.36 x 5) with no severance tax due at harvest. Therefore, the landowner would actually pay $2177.54 more in taxes under STF than under FTP. A formula used to determine the average annual harvest needed to profit from staying in the FTP is to divide the amount of deferred tax by the sever- ance tax rate. In the previous example, the deferred tax of $579.92 ($723.36 - $143.44) is divided by the severance tax (estimated at 4.38) yielding a harvest of 132.4 MBF. If the an- nual timber harvest is signifi- cantly below 132.4 MBF, the forestland owner should con- sider STF. Complicated as that exam- ple is, it is a simple comparison. The tax law is incredibly com- plicated. 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