The Florida Forestry Association supports the preservation of four longstanding timber tax provisions in the federal tax code that are key to the sustainability of working forests. We believe the Timberland Tax Provisions reflect the uniqueness of active forest management as a business investment and are required to ensure the economic viability of, and ongoing investment in, private working forests:
Capital gains treatment of timber revenue. Since 1944, the federal tax code has defined timber as a capital asset for the harvest of timber or sales of standing trees. Capital gains treatment recognizes our very large initial capital investment, low liquidity and the long waiting periods before realizing any returns—similar to other long-term investments. This promotes forest retention by reducing pressure to convert timberland to other uses that generate ordinary income more quickly, with less risk. It also reflects the reality that timber is a living asset that appreciates over time, unlike other merchandise or inventory.
Deduction for timber growing costs. For more than 30 years, tax law has allowed landowners to deduct forest management costs in the year they are incurred, rather than capitalizing these costs. This enables landowners to afford forest health treatments that reduce the risk of natural disturbance and makes fertilization, road maintenance, prescribed burning/weed control, thinning and paying interest expenses and property taxes affordable through the long growing cycle. Capitalizing these costs over the long holding periods required to grow timber would create an unsustainable mismatch of income and costs.
Treatment of timberland as real property for purposes of the real estate investment trust (REIT) rules. REITs are a common ownership form chosen by many current forest owners and investors. Timberland REITs are the only vehicle for ordinary investors to invest in commercial, diversified and professionally managed timberlands and are an important part of many individuals’ diversification plans for long-term savings. The overwhelming majority of shares in timberland REITs are held by institutions on behalf of 401(k) and mutual fund investors. Timber REITs continue to issue billions of dollars in taxable dividends and distributions each year.
Deduction and amortization of reforestation costs. The tax code currently allows forest owners to deduct up to $10,000 of reforestation costs per stand as they are incurred and amortize the remaining costs over seven years. The separate deduction for tree planting encourages reforestation, recognizes the need for long-term investment in forest management and encourages the economic and public benefits from retaining land in forests. The $10,000 cap should be removed, allowing all reforestation costs to be deducted in the first year rather than amortized.
Economic Implications of Changing the Tax Treatment of Timber
Despite the increased level of timber production over many decades, domestic supply still only satisfies about 76 percent of today’s US demand for forest products. Negative changes to these particular provisions would discourage investment in US timberlands and reduce the productivity of domestic forests. This would result in more foreign imports, higher prices to consumers (including increased costs of homes), and eventually the off-shoring of US timber and manufacturing jobs. Repealing the timber tax provisions will also not raise corporate tax revenue. Due to the long-term, capital intensive nature of this investment, a single level of taxation is essential to keep private and public capital investing in timberlands.
More generally speaking, the Association favors tax policies that encourage sustainable management of forests and that recognize the important benefits that working forests provide. Tax policies, like regulatory policies, should facilitate the forest industry’s ability to keep working forests working and providing clean air and water, wildlife habitat, green spaces, and jobs. We also support comprehensive business tax reform that encourages economic growth and improves competitiveness.
Timber Innovation Act: Support
The Timber Innovation Act would create new opportunities and demand for wood products by supporting research and development; authorizing the Tall Wood Building Competition, and expanding the US Forest Service’s Wood Innovation Grant Program.
Regulatory Reform: Protect Working Forests
Regulatory policies should facilitate the forest industry’s ability to keep working forests working and providing clean air and water, wildlife habitat, green spaces and jobs. The Association opposes any regulations that unduly threaten the rights of our members to grow, harvest and use forest products.
The Waters of the US (WOTUS) rule, which significantly expanded the definition of “waters of the United States” under the Clean Water Act (CWA), is an excellent example of this kind of overreaching regulatory reform. Recognizing the problems embodied in the 2015 rule, President Donald Trump and EPA Administrator Scott Pruitt have announced their intent to rewrite it with a less expansive definition of which waters fall under federal jurisdiction.
Practical Immigration Policies: Support
The H-2B program, managed by the Departments of Homeland Security and Labor, was created to provide access to nonimmigrant temporary workers for seasonal and peak load needs when no American worker can be found for available positions. The current program is capped at 66,000 visas annually (approximately .04% of the American workforce). Despite this small number, these immigrant workers are critical to many seasonal businesses, including forest management work such as tree planting.
The H-2B visa cap is too low to meet the workforce needs of the sectors that rely on these workers. In addition, Department of Labor regulations associated with employment of these workers has become too complex and costly. Legislation is needed to re-orient the programs to meet the employment needs of seasonal businesses.
While the recent funding bill did authorize the departments to increase the cap when needed for FY 2017, a more complete and permanent solution is still needed. As such, the Agricultural Guestworker Act by Rep. Bob Goodlatte (R-VA) creates an H-2C program to be administered by USDA. Under this proposed program:
- Employers could employ visa workers for up to 18 consecutive months.
- Visa workers could change jobs after completing contract employment.
- Mandated wage rate would be the higher of state/local wage or 15% above the federal minimum wage.
- There would be no housing or transportation mandate.
- There would be an annual cap of 500,000 with an automatic escalator if all visas are claimed; former H-2A and H-2B workers don’t count against the cap when working for the same employer.
The H2C program would make it easier for employers to get seasonal workers, clearly define the rules and keep the wood supply competitive, while not displacing US workers.
Resilient Federal Forests Act: Support
The “Resilient Federal Forests Act of 2017,” introduced by Rep. Bruce Westerman (R-AR), is a bipartisan solution to address the growing economic and environmental threats of catastrophic wild re. The legislation pairs a responsible budget x with targeted forest management reforms to dramatically improve the health and resiliency of our nation’s forests and rangelands. The bill provides federal land management agencies immediate tools to increase the pace, scale and cost ef ciency of forest management projects without sacrificing environmental protections.
The legislation also includes the Future Logging Careers Act. which amends the Fair Labor Standards Act of 1938 to allow 16- and 17-year olds to work in their family’s mechanized logging operations under parental supervision. The agricultural industry enjoys regulatory exemptions that permit 16- and 17-year olds to work in the family business under the direct supervision of their parents. However, without the Future Logging Careers Act, young men and women in families who own and operate timber harvesting operations are denied the right to learn the family trade until the age of 18.
Estate Tax: Repeal
The weight of the estate tax can force heirs of forestland owners to harvest timber prematurely or sell the land in order to pay the taxes. The costs and consequences of estate taxes can also interrupt longstanding forest management plans, which is bad for both the economy and the environment.
Farm Bill: Support
- Increasing the long-term protection and conservation of forest resources from threats such as wildfire, insects and diseases, and promote the use of fire as an important forest management tool,
- Conserving and enhancing wildlife habitat through voluntary conservation activities, particularly habitat for at-risk species, to prevent the need to list species under the Endangered Species Act,
- Encouraging the retention and perpetuation of forestland and associated values, goods, and services,
- Increasing employment, rural jobs, and active forest management through a strong forest products industry, and
- Streamlining and otherwise improving forest and conservation programs to better enable use by private landowners and land managers to address many of the above issues.
Truck Weights: Increase
Our nation’s federal vehicle weight limit is outdated and out of touch with today’s engineering advancements and consumer needs. The 80,000-pound arbitrary truck weight restriction on Federal Interstate Highways has introduced unnecessary costs and inefficiencies to raw material suppliers and finished product shippers that depend on our roadways every day. In many states, the allowable weight limit for state roads is higher than the limit imposed on federal highways. This anomaly has created a number of unreasonable outcomes, including forcing loggers to travel longer distances on state roads and through small towns instead of safer, more direct routes on the federal interstate. In the forest products sector, moving harvested trees from forest to facility may comprise 30% of a product’s delivered cost, despite the fact that the entire forest product supply chain has worked tirelessly to wring every cent out of the system through innovation and technology.
The Association supports legislation to allow trucks operating at the maximum allowable state road truck weight limit to travel at that weight on that state’s portion of the federal interstate highway system. The bill, known as the Right To Haul Act, would apply only to trucks carrying agricultural commodities, including raw logs. This is a sensible approach to a problem that confronts loggers and farmers looking to trim delivery times and improve efficiency.
Increasing allowable gross vehicle weights on the Federal Interstate Highway system will:
- Conserve fuel.
- Reduce total emissions, including carbon.
- Increase productivity of forest products transport and wood supply management.
- Enhance safety and reduce traffic congestion by reducing the volume of trucks now forced to use state roads as primary hauling arteries, due to their exclusion from the interstate system.
- Reduce congestion and accident-exposure on local roads.
- Improve the U.S. forest industry’s global competitiveness.