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
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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
$36.43 per year with no sever-
ance tax to be paid at harvest,
except FPHT if harvest exceed-
ed the 25MBF exemption.
Alternative method, too
The calculations become
much more complex for forest-
land owners who may wish to
apply for STF. Under STF, an-
nual property taxes are based
on 20 percent of the same
forestland values used under
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FTP. However, a severance tax
is assessed at harvest to recov-
er the unpaid property tax. The
severance tax is based on the
volume (MBF) sold. The rate of
the severance tax will vary from
year to year, based on changes
in the forestland value but is
controlled by property tax limi-
tation measures and therefore
cannot increase by more than 3
percent per year.
Determining your best
choice
Whether to elect the STF
program is a decision that must
be answered on an individual
basis. Property owners can find
out from their county asses-
sor’s office how their property is
classified, the acreage in each
productivity class and the cur-
rent property tax rate ($/$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. Landowners may
combine
non-contiguous
pieces to reach the 10-acre
threshold for STF but contigu-
Please see page 17
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