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aSSOCIATION tAX lETTER
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 April 15, 2013

Rep. Kenny Marchant
Chair, Working Group on Debt, Equity and Capital
Committee on Ways and Means
U.S. House of Representatives
1110 Longworth House Office Building
Washington, DC 20515 

 Rep. Jim Gerlach Chair,
Working Group on Manufacturing
Committee on Ways and Means
 
U.S. House of Representatives
2442 Rayburn House Office Building
Washington, DC 20515

Rep. Jim McDermott
Vice Chair, Working Group on Debt, Equity and Capital
Committee on Ways and Means
U.S. House of Representatives
1035 Longworth House Office Building
Washington, DC 20515

Rep. Linda Sanchez
Vice Chair, Working Group on Manufacturing
Committee on Ways and Means
U.S. House of Representatives
2423 Rayburn House Office Building
Washington, DC 20515

Dear Representatives Marchant, McDermott, Gerlach, and Sanchez: In response to the invitation from the Committee on Ways and Means regarding the Tax Working Group process, we wish to express our views about the existing tax treatment of working forests across America. We appreciate this opportunity to provide input to the Committee and wish to highlight three provisions in the tax code that Congress has adopted to reflect the unique nature of the forest products industry which are critical to sustaining private ownership of forestland.

The undersigned organizations represent all facets of the forest products industry and have members that own forest land or operations in virtually every state of the Union. Even with that, we represent only a small subset of the estimated 11.3 million private forest owners. Private forest land, which constitutes more than 50% of forest land in the U.S., produces over 90% of the timber used to manufacture forest products.

Congress has long recognized that growing forests have unique economic attributes that do not necessarily match easily with general tax principles. It can take between 20 and 80 years before a forest stand is harvestable. This investment in forests ties up large amounts of capital in the land, but the forest owner must also bear substantial annual costs to maintain the forest (including fire prevention, road maintenance and pest control) to improve the growth and productivity of the trees. Additional costs are incurred for replanting after harvest as well as for environmental protections and set-asides for wetlands, protected species and other significant resources. Moreover, healthy forests provide significant societal value by consuming carbon dioxide, curtailing erosion, creating wildlife habitat, sourcing drinking water and maintaining natural open space for human recreation for which the forest owner receives little or no compensation.

In response, Congress has crafted specific provisions in the Internal Revenue Code to reflect this unique economic framework and challenge. These provisions allow all forest owners, whatever their size, to:    

  • Deduct the costs of forest management, including prevention measures (fire, pest and disease), thinning, fertilization, interest, taxes, protection of wetlands and endangered species, and forestry activities. (Sections 162 and 263A(c)(5));
  • Receive capital gains treatment for the harvest of timber or sales of standing trees. (Sections 1231(b)(2) and 631(a)&(b)); and
  • Deduct up to $10,000 of reforestation costs per stand, with the remainder amortized over 7 years. (Section 194).

These timber tax provisions have provided long-term, stable returns for the many individuals who directly or through pension funds rely on their forestland investment for retirement and other needs. At the same time, these timber tax provisions have well-served the nation, consumers and manufacturers, forest owners and the environment.  Overall, the forest products industry sustains over 2 million direct, indirect, and induced jobs nationwide. These provisions have worked so well that since the 1950’s timber volume has increased by about 50% on approximately the same amount of forested acres. Two-thirds of that increase has occurred on private forestland.

As you examine various options for tax reform, we urge the Committee to consider, as Congress has long recognized, that timber is a long-term investment, decisions to invest in timber were made decades ago, and changing the tax treatment would significantly and negatively impact investments in working forests that contribute to economic growth and environmental quality.

 

Sincerely,

National Alliance of Forest Owners

Alabama Forestry Association

Allegheny Hardwood Utilization Group

American Farm Bureau Federation©

American Forest Foundation

American Loggers Council

Arkansas Forestry Association

Associated Logging Contractors of Idaho

Associated Oregon Loggers, Inc.

Association of Consulting Foresters

California Forestry Association

Empire State Forest Products Association

Family Forest Foundation

Florida Forestry Association

Forest Landowners Association

Forest Landowners Tax Council

Forest Resources Association

Georgia Forestry Association

Great Lakes Timber Professionals Assn.

Hardwood Federation

Idaho Forest Owners Association

Kentucky Forest Industries Association

Louisiana Forestry Association

Maine Forest Products Council

Michigan Forest Product Council

Minnesota Forest Industries

Minnesota Timber Producers Association

Mississippi Forestry Association

 Missouri Forest Products Association

Montana Wood Products Association

National Association of Conservation Districts

National Association of State Foresters

National Woodland Owners Association

New Hampshire Timberland Owners Assn.

North Carolina Association of Professional Loggers

North Carolina Forestry Association

Ohio Forestry Association

Oklahoma Forestry Association

Oregon Forest Industries Council

Oregon Small Woodlands Association

Oregon Women in Timber

Pennsylvania Forest Products Association

South Carolina Forestry Association

Southeastern Lumber Manufacturers Assn.

Tennessee Forestry Association

Texas Forestry Association

Virginia Forest Products Association

Virginia Forestry Association

Washington Farm Forestry Association

Washington Forest Protection Association

Wisconsin Paper Council

Wisconsin Woodland Owners Association

West Virginia Forestry Association

 Cc: Rep. Dave Camp, Chairman, House Ways and Means Committee

Cc: Rep. Sander Levin, Ranking Member, House Ways and Means Committee

 

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