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FEATURED PROFESSIONAL: Charley McKetta, University of Idaho Forest Resources Economist

FEATURED PROFESSIONAL: Charley McKetta, University of Idaho Forest Resources Economist

Pay Attention to Idaho Forest Tax Changes!

Idaho’s 1982 optional productivity tax bill is inconsistent. It declares that standing timber is tax exempt, then mandates a forest value formula assuming every acre has a complete sustained-yield timber inventory. I warned that taxing standing timber lowers land values enough that after the mature timber is liquidated, the shift of forests into rural lots for migrating Californians will continue.

Luckily another error, an inflated interest rate, over-discounts assumed timber incomes. By blind luck, the law’s forest values initially approximated market values of bare land alone. As an unintentional land tax, the productivity tax created stable taxes acceptable to landowners and counties alike.

When Alan Greenspan whipped inflation, Idaho’s formula exploded, pushing the highest assessed values to over $750/acre. Even at 1% tax rates, this reduces after-tax bare land values by $150/acre, easily enough to shift uses. Some forest owners jumped into the alternative bare land and 3% yield tax during the 1992 tax option anniversary. The rest of you could do the same in 2002. But should you?

Whether a land plus yield tax of 3% has a lower dollar impact than the forest productivity tax depends on how soon you’ll harvest and owe 3% of the gross. A consulting forester can help you match your forest plan to your best tax option. One could just cut out under the forest tax system, switch to the yield tax system in 2002, and pay small land taxes thereafter. That’s the law’s perverse incentive, but its not forest stewardship.

The legislature will study solutions until 2006–too late. There are some hints about potential relief. Forest values will decline slowly to 60% of 1999 values by 2005. Its not enough to stop tax switchers, but there is a chance Idaho will eventually follow Oregon’s lead and really exempt standing timber this time.

Sure, forests should pay their fair share of government, but there are few rewards for naively paying more. The media calls the interim fix a forestry tax break. Shifting tax burden to other landowners makes them mad—at you. Ending two decades of tax on what was ruled a tax-exempt asset isn’t really a break, but no one who’s paying more will smile at your relief.

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