by Sally Colby
Owning large tracts of forested land is an asset, but it can also be a tax liability.
Scott Jones, CEO of the Forest Landowners Association (FLA), said the organization’s priorities are set on core tenets that will ensure success for private forest landowners, which involves taxes, private property rights and representation of family and private forest owners and markets.
“Success is that you’re economically successful on your property, and therefore have the resources necessary to continue managing the property and also pass it down to the next generation who are equally incentivized to manage the property because it’s a good business opportunity and it makes good business sense,” said Jones. “We are the only organization that looks after the economic success of private forest landowners because ultimately, that’s how we’ll sustain private forestland in the future.”
FLA’s top policy priority is taxes because there is an expected amount of certainty when making decades-long investments such as those made by forest owners. “We achieve certainty in the way we manage land, plant our lands, site correctly and deploy the best genetics,” Jones said, “because that gives us a level of certainty as to what we’re going to have at the end of the rotation.”
When trees go in the ground, the family, individual landowner or company is making an investment, and all expect to be treated a certain way from a tax standpoint. “Taxes become a very important part of the overall economic success dynamic when growing and managing forest land,” said Jones. “There’s been a lot of talk in Congress about spending a lot of money.” Tax discussions always include where money will come from – it comes from taxing citizens.
“One area we’ve been paying attention to for a long time is trying to solve inequities in the tax code that impact the economic success of private forest landowners,” said Jones. “From coast to coast, with the amount of natural disasters, inequity in the tax code as it deals with casual loss on private land really brings a strong focus to it.” Losses due to fires, floods, hurricanes, tornadoes and invasive species show there isn’t a lot of recourse for forest landowners when they experience loss.
Private forest landowners must have the ability to reforest after casualty loss, and Jones said the tax code must reflect that and not leave forest landowners to reforest on their own. “This should be a signal sender to states to say ‘If private forest is what you value, and private forest landowners are the ones managing it, you need to structure your tax code to incentivize them to continue that management and offer assistance when necessary.’”
Jones urges forest landowners to become involved in local, state and national timber organizations. “Everywhere you get taxed, you should be involved in an association that’s representing you,” he said. “That’s where state organizations can help. Try to network in all those areas.” Jones said some of the toughest questions FLA has to answer for landowners involve taxes, and that everyone’s tax situation is different.
Melinda Gable, vice president of FLA, said that although timber growers are considered ag producers, no federal funds are available to provide assistance when growers lose timber due to natural disasters, and the value of timber cannot be deducted from taxes. Gable discussed the recently introduced Disaster Reforestation Act (DRA), which would help family and private timber growers recover from the loss of timber destroyed by natural disasters and provide assistance to help reforest their land.
Because timber growers can’t participate in the USDA crop insurance program, the FLA has spent five years trying to smooth out the Emergency Forest Restoration Program (EFRP). “The EFRP provides cost-share reimbursements to forest landowners for the reforestation costs they incur following a natural disaster,” Gable explained. “But it isn’t compensation for the loss of the timber crop. With EFRP, it often takes three to five years before the landowner gets the out-of-pocket costs they’re expected to pay to recover their land and put it back into working forests.”
Private landowners invest 30 to 40 years, providing economic benefits to the community, but can’t get good economic help following a loss. “Within the tax code, timber growers cannot deduct lost value of timber from income taxes,” said Gable. “The ‘casualty loss of timber’ section of the tax code states that the landowner can either take the adjusted cost basis or the fair market value for their loss of timber. That sounds good until you get into the next section, which says ‘Whichever is the lesser of the two.’ After 84 months, most landowners have written off their adjusted cost basis to zero. If a landowner is in year 15, 20, 30, and a natural disaster destroys their timber, they aren’t allowed to take the value of that timber as a deduction.”
This past June, Rep. Terri Sewell (D-AL), House Ways and Means Committee, introduced legislation to change the tax code. FLA is also working with 19 bipartisan and regionally diverse co-sponsors. Gable said the FLA policy team has conducted numerous meetings to make sure the House Ways and Means Committee understood the nuances in the tax code and understand what it is to grow timber. The FLA also emphasized the role of forest landowners in climate and how forested land has numerous environmental benefits.
The co-sponsors of the bipartisan bill represent diverse timber regions. “The members of Congress and their staff understand the issues, but it’s still a tax bill and tax bills don’t pass on their own. The strategy is to insert this bill into a larger package,” Gable said.
She noted the industry is in a good position to have the DRA added to the Senate reconciliation package, but for that to happen, members of the Senate Finance Committee must support it and be willing to advocate to have it inserted.
As this legislation moves forward, Gable said the focus must be on Democrat members of the Senate Finance Committee because that’s who’s making decisions on the reconciliation package. Gable urges forested landowners to contact their representatives and encourage them to add the DRA to reconciliation. Committee members who represent forestry land states in the Country Folks region include Bob Casey (PA), Mark Warner (VA) and Maggie Hassan (NH). “Let them know the Disaster Reforestation Act should be included in the reconciliation package,” said Gable. “Senators support DRA but need to know their constituents want it.”
Visit forestlandowners.com/get-involved for information on how to contact committee members to support the DRA.