The Consultant - 2008 - (Page 43)

CONSULTANT’S FORUM Taxation and Land Devaluation: An Examination of the Tax Burden on Non-industrial Private Landowners BY TAMARA L. CUSHING, PH.D. I Tamara Cushing t has been well documented that landowners hold forestland for many reasons other than timber production. The highest-ranking reasons for owning forestland (aesthetics, privacy, family legacy and recreation) do not provide an annual income to the landowner (Butler and Leatherberry, 2004). Landowners facing an increasing annual tax bill with no income to offset the expense may make less than financially optimal decisions. Worse, the decisions may not be in the best interest for the future of the forest. Taxation has long been discussed as one of the drivers of change in forest ownership and fragmentation. The University of Georgia and the USDA Forest Service recently completed an analysis comparing the total tax burden on private forestland in 22 states. The approach was to look at the reduction in land expectation value on a relative basis. This allowed a comparison of the percent reduction instead of the absolute change in dollar value. Comparing the reduction on a relative basis permitted us to look at the differences between regions of the country that are different in productivity and profitability. Results suggest that the tax burden is moderate to very high in the states analyzed. Land expectation value (LEV) tells us how much a landowner could afford to pay for a property under a certain set of assumptions. Future cash flows as well as current expenses are used to calculate the value of the land for growing trees in perpetuity. Calculation of land expectation value requires a discount rate assumption. For this analysis, a 5 percent discount rate was used. Cash flows that occur after year zero are discounted using the discount rate. All prices and tax rates are from the 2003 tax year. Volumes are region-specific and assumed to be the result of common management practices for private landowners in the state. Before applying any tax, a land expectation value was calculated. This calculation assumes that the management regime used for the first rotation or cutting cycle will continue in the future. This before-tax LEV serves as a base for calculating the percent reduction due to taxes. Land expectation value before tax ranged from $152 (Wisconsin) to $958 (Oregon). The land expectation value is very dependent on the assumptions used in the calculation. The emphasis here will be on the percent or relative reduction rather than the actual land expectation value calculated. To determine the total tax burden on non-industrial private landowners, the federal 43 THE CONSULTANT 2008

Table of Contents for the Digital Edition of The Consultant - 2008

Executive Director’s Message Mapping the Future of ACF
President’s Message ACF Celebrates 60 Years
Professional Forestry Education: The Present, from a Texas Perspective
The Future of Forestry Education: Will We Prepare Relics or Icons?
Forestry and Consulting: Yesterday, Today and Tomorrow
Carbon – A Forestry Opportunity?
Advocacy – Its Benefits May Come With Frustrations
Katrina Top 10: Public Policy Advocacy Lessons Learned After Hurricane Disaster
‘Mighty Giants’ Details Rich History of American Chestnut Tree
The Cost of Breaking in New Employees
Hiring Practices: Questions You Shouldn’t Ask a Job Applicant
Graduate Forestry Degrees and Consulting Forestry
Taxation and Land Devaluation: An Examination of the Tax Burden on Non-industrial Private Landowners
Forester Licensing: Essential to Guarding the Forestry Profession
Forester Licensing: Not Worth the Effort
ACF Code of Ethics: Canon 15 What You Don’t Say or Do Can Hurt You
Philippe Morgan: European Forestry Consultant Extraordinaire
The Final Word: A Tale of Two Technologies

The Consultant - 2008