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NB
Information given here about the economics and
taxation of forestry investments is strictly for
general guidance and does not constitute investment
or professional advice. Prospective or existing
investors are strongly advised to seek professional
advice on all aspects of investment in forestry
and on its taxation, which is complex.
US
Forestry Taxation
Although
forestry is not exempt from tax in the United
States, the effective level is not high and recognises
the long term nature of the business.
There
are three basic ways in which income can be realized
from the ownership of timber property:
- Revenue
may come from the sale of logs, lumber, or other
products generated by the trees themselves.
- Income
may be generated from rent for use of the property
itself or from other services that the property
produces such as hunting leases or payments
from other recreational activities.
-
Income may come from the disposal of standing
timber (stumpage), or by cutting the timber
and electing to "treat the cutting as a
sale".
Income
under headings 1. and 2. will be treated as ordinary
taxable income, but income under 3. may qualify
for long-term capital gains treatment, and as
such may be taxed at a lower rate.
Apart
from reasonably favourable federal tax rules,
many states have their own tax incentive programs.
In general these provide property tax breaks to
landowners who engage in sound forest stewardship.
Often these programs provide the benefits of lower
property taxes with state subsidized professional
forestry assistance in developing private forest
management plans.
The
typical state tax incentive program requires that
a landowner enroll his or her land for long periods
of time, typically from 25-50 years, in a management
plan developed or approved by the authorized state
agency. To be eligible for the full tax break,
the total parcel is also usually required to be
larger than 10 continuous acres. Penalties
for early withdrawal or harvesting are typically
quite severe.
A
fee is often assessed on the value of any timber
harvested in accordance with the management plan.
If timber is harvested in violation of the management
plan or there is any other activity in violation
of the management plan such as construction, over
harvesting, or early withdrawal, the landowner
may face a substantial retroactive tax assessment
at current property tax rates.
The
states also administer federal 'Forest Stewardship
Programs'. Although this is a federally funded
program that originated from the FTCA in 1990,
it is typically administered by individual states
to help shape private forest management on a regional
level. Generally, the forest stewardship program
provides states with the financial support necessary
to assist private landowners in developing a sound
forest management plan. In addition, states may
also use forest stewardship monies to provide
grants and cost-share opportunities to private
landowners for wildlife habitat improvement, recreation
development, aesthetic improvements, and soil
or water protection.
Unlike
the typical tax incentives program, obligations
under the Forest Stewardship Program are slight.
Landowners are usually only required to develop
and sign a Forest Stewardship Plan and indicate
their intention to use the grant monies to further
their planned management goals. Typically the
plan will address all aspects of the forest resource
from future harvesting to timber stand improvement
activities. To receive cost-share or grant money,
the usual stewardship plan must describe the activity
to be subsidized and requires a commitment to
maintain the cost-shared practices for a specified
number of years.
According
to the US Department of Agriculture's Forest Service,
in 2006:
"Since
its establishment in 1991 through 2006, the Program
has produced more than 270,000 multi-resource
management plans encompassing more than 31 million
acres of nonindustrial private forest (NIPF) land."
In
2009, United
States Senator Jeanne Shaheen introduced a bill
which aims to provide incentives for small forest
landowners to adopt forest management practices
that will increase the land's capacity to store
more carbon.
The
legislation, known as the Forest Carbon Incentives
Program Act of 2009, calls for the US Department
of Agriculture (USDA) to manage the program and
create guidelines that would help landowners maximize
the value of their land through carbon storage
and conservation.
"As
we build a clean energy economy, we must create
incentives for small landowners to adopt practices
that will lead to greater carbon storage,"
said Shaheen, a New Hampshire Democrat. "The
Forest Carbon Incentives Program can be implemented
quickly so that landowners in New Hampshire and
nationwide can get a return on their land and
the forests that they maintain during this economic
downturn."
The
bill was welcomed by the forestry industry, including
the New Hampshire Timberland Owners Association
(NHTOA) and the American Forest Foundation (AFF).
"We
especially like the voluntary market-based approach
to this and the fact that it creates incentives
for active, sustainable forest management,”
said Jasen Stock, executive director of the NHTOA.
"Senator
Shaheen's legislation will ensure that we fully
tap the climate change mitigation benefits of
US forests," commented Tom Martin, president
and CEO of the American Forest Foundation, a non-profit
family forest conservation organization. "This
bipartisan legislation will give small family
forest owners, who own over one-quarter of the
nation's private forests, a chance to help solve
our climate change problems and at the same time
help keep these families on the land and keep
their forests working."
The
bill calls for a Forest Carbon Incentives Program
to be established under the USDA to provide supplemental
incentives for carbon reductions through US private
forests. These incentives would provide an opportunity
for forest landowners to adopt management practices
that deliver proven emissions reductions, and
be compensated for storing carbon. In addition
to helping landowners maximize the value of their
forests, the bill creates opportunities for landowners
to gain further financial incentives by entering
into permanent conservation easements.
US
forests currently sequester 10% of annual US carbon
emissions, but the US Environmental Protection
Agency estimates that this capacity can be doubled
if proper incentives and systems are in place.
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