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 (S. 538 by Sens. Debbie Stabenow and Mike Crapo /H.R. 1380 by Reps. Suzan DelBene and Glenn Thompson) 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: Increase H-2B Visa Cap
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.
Future Logging Careers Act: Support
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, 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.
The Future Logging Careers Act (S. 655 by Sen. James Risch/H.R. 1454 by Rep. Raul Labrador) would amend the Fair Labor Standards Act of 1938 to correct this inequity and allow 16- and 17-year olds to work in their family’s mechanized logging operations under parental supervision.
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
Enabling a log truck to increase its payload by one quarter could reduce total hauling costs by close to that amount and (conservatively) reduce net cost of transporting raw materials by 5%. Although transport from woods to mill is a relatively brief phase within the wood supply process, it accounts for approximately 30 percent of the total cost of raw material.
While technological development has lowered the per-unit cost of harvesting, federal truck weight rules—limiting gross vehicle weight to 80,000 pounds on five axles on the Interstate system—have prevented any savings in basic transport, adding to the overall cost of manufacturing. Seasonal or freight-specific waivers in certain states demonstrate the safety of increasing gross vehicle weight requirements.