By Eric Clippinger, Forester, Northwest Management, Inc
Forestland property taxes, also called timber taxes, in the Inland Northwest are typically codified and administered at the state level. However, local county governments are sometimes responsible for determining if a property qualifies as “forest”. Designating property under a forestland tax category oftentimes allows landowners to pay a smaller amount of property tax because the current use valuation is typically much lower than a fair market valuation. This strategy incentivizes forest landowners to keep their forest stocked, healthy and managed for the periodic harvest of forest products. Landowners that develop or otherwise clear their forest for other uses will not qualify for the timber tax and will likely pay a higher property tax bill.
Most states where forest comprise a large percentage of the vegetative cover utilize potential productivity of a given geographic region to determine a current use value for annual taxation. The primary timber-producing attributes that are accounted for are soils, site indices and equipment operability. Additionally, a tax may be collected at the time of harvest based on the volume or dollar amount of forest products sold. Every state has different tax laws and requirements regarding forestland taxes; consultation with a Certified Public Accountant is recommended to address specific timber tax questions and harvest income scenarios. Below is a synopsis of the timber tax programs in the three primary states that Northwest Management, Inc. works in.
In Idaho, property classified under the forestland tax category must be between 5 and 5,000 acres. (Landowners with property holdings over 5,000 acres are automatically enrolled in the Productivity Tax). The landowner must demonstrate that the primary purpose of the land is to grow and harvest trees of marketable species. Most Idaho counties require a simple yet qualified Forest Management Plan to be submitted to the assessor’s office along with the application.
The landowner has two options when declaring a property to be forested: the Productivity Tax or the Bare Land and Yield Tax. The Productivity Tax is based on the ability of the land to produce an annual income from forest products. The forest landowner pays a certain amount every year based on the productivity of the property which is determined by the state by region and average board foot of growth per acre, per year. No additional tax is collected from the sale of forest products. The Bare land and Yield Tax requires that the landowner pay an annual tax based on the present value of the bare forestland and an additional 3% tax on the stumpage value at the time of harvest. Land is once again graded by region and productivity (even though only bare land value is calculated), and regional, average stumpage values are used for the 3% tax. Once an option is selected, the property must stay under this designation for 10 years. 2022 is the next available time to change designations for the 2023-2033 tax time period.
**Update for Latah County, Idaho**
**Starting January 1, 2020, Latah County, Idaho will require any forestland designation applications submitted to the assessor’s office to have an accompanying Forest Management Plan. The requirements of the forest plan involve describing the timbered stands on the property, as well as addressing the current health of the forest and how to mitigate potential insect, disease and fire hazards, and lastly what steps are recommended over the next 20 years to effectively manage the forest for the eventual harvest of forest products. The plans are required to be either written or reviewed by a professional forester. This rule change will apply to buyers of forested property, changes in ownership (e.g. an individual to a LLC/trust), changes to parcel numbers (e.g. parcels are split and/or combined) and changes in legal descriptions (e.g. potentially from a new survey). Any forested properties designated before December 31, 2019 will not be required to submit a copy of a Forest Management Plan. **
In Washington, property owners seeking to sign up for the designated forest land tax must own at least 5 acres and the property should be used primarily for the growth and harvest of timber. Most Washington counties require an in-depth application to be filled out, application fee and a copy of a simple yet qualified Timber Management Plan. A forest landowner can apply for designation or removal of their property from the designated forestland category at any time.
Once a property is determined to qualify for the designated forestland tax category, two complimentary taxes are assessed: an annual current use (forest) tax and an excise or yield tax at the time of harvest.
Annual forest land values are determined by the state, similar to Idaho, using attributes such as timber species and site index/productivity (which is referred to as land grade) and soil characteristics (which is referred to as operability class).
Harvesting timber is subject to a 4-5% excise tax on the actual stumpage value of the logs sold for a small harvester (<2 MMBF annually), or on average stumpage price tables, for a large harvester (>2 MMBF annually), published by the state. The excise tax must be paid quarterly and be paid by the person who owns the timber at the time that it is scaled. Washington also has a Business and Occupation (B&O) tax which is a tax on gross receipts. Timber owners who harvest timber from their land must report the gross income produced for B&O tax purposes.
Montana also utilizes a current use tax system combined with a minimal tax at the time of harvest for forestlands. Forestland in Montana is defined as property that is 15 or more acres, is in one ownership, and is capable of producing 100 board foot per acre per annual increment. There is no Forest Management Plan required as parcels that fits into these parameters are classified as Class 10 properties and automatically entail the following taxation requirements.
Forestland value is determined by a combination of forest productivity as it relates to geographical forest valuation zones. These figures and tables are produced by the state and result in a total taxable value of the forestland. That value is then taxed (currently) at 0.37% to arrive at the annual tax burden.
A small, severance tax of $0.15 per MBF is collected from the harvest of wood products. This tax is administered by the state as part of its slash disposal program. The proceeds go to the cooperative extension for the state.
Idaho State Tax Commission. Forestlands.
Montana Dept. of Revenue. Classifying Forest Land.
National Timber Tax Website. Tax Management for Timberland Owners. State Tax Laws: Idaho, Montana and Washington.
Tax Foundation. States Use Gentle Hand in Taxing Timberland.
https://taxfoundation.org/states-use-gentle-hand-taxing-timberland/ March 25, 2009
Washington Dept. of Revenue. Designated Forest Land. Forest Tax.