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How Timber Owners are Taxed on Timber in the United States

Determine Your Timber Tax Obligation to State and Federal Government


Who Pays Timber Tax in the United States:

According to a report in the Journal of Forestry,JOF, the United States is growing the world’s fourth largest forest, much of which is subject to one or more timber taxing schemes. Four hundred and thirty million forested acres are privately owned and subject to taxation by local, state and federal taxing authorities (57% of all US forests). Most of these lands, about 84%, belong to 10.4 million family timber owners. The forest products industry or timber investment companies own the balance. Over 90% of US timber sold in the US grow in these private forests.

Problems with Multiple Timber Taxes:

Private Investment in American forestland can take years to realize significant income while management costs are being incurred every year. An investment in timberland can be undermined by low forest liquidity and risks from wildfire, insects, and disease. Simply put, a forest is hard to sell quickly but can be destroyed immediately.

An ill-conceived taxing policy can further discourage forestland investments. Properly constructed taxes are important to insure reasonable returns from forestland investments and are necessary to avoid a reduction in timberland investment and further loss of beneficial American forests.

Timber Tax Burden Comes in Three Forms:

Property tax is payed annually on “the value at which a property would change hands between a willing buyer and a willing seller”. The property tax (including timber) accounts for almost three-quarters of tax revenues collected by local governments.

Income tax (usually federal) is payed annually on income received (including timber income), with tax rates increasing for higher incomes. The income tax applies to both individuals and corporations.

Estate tax is payed on an estate at the time it is passed on to heirs. All property, real and personal, tangible and intangible are taxable (and includes timber).

Government's Good Taxation Obligation:

From a JOF discussion called How Do Taxes Affect America’s Private Forestland Owners?, all government taxing authorities should decide timber taxes in terms of three principles of “good” taxation: "(1) neutrality—taxation should not significantly distort market forces unless there is an overriding social need; (2) efficiency—taxation should minimize its own administrative costs; and (3) fairness—taxation should treat taxpayers and economic sectors equitably while fairly redistributing income. Tax burdens should reflect the ability to pay balanced against the benefits received from government services."

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