2005 Legislation
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HOUSE BILL NO. 126 – Forest lands/tax/productivity optn


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Bill Status

H0126...............................................by REVENUE AND TAXATION
FOREST LANDS - TAXATION - Amends existing law relating to the taxation of
forest lands and forest products; to provide for taxation of forest lands
under the productivity option; to authorize and direct the State Tax
Commission to take certain action; and to provide for the Committee on
Forest Land Taxation Methodologies.
02/07    House intro - 1st rdg - to printing
02/08    Rpt prt - to Rev/Tax
02/15    Rpt out - rec d/p - to 2nd rdg
02/16    2nd rdg - to 3rd rdg
02/17    3rd rdg - PASSED - 69-0-1
      AYES -- Anderson, Andrus, Barraclough, Barrett, Bastian, Bayer,
      Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Cannon, Chadderdon,
      Clark, Collins, Crow, Deal, Denney, Edmunson, Ellsworth, Eskridge,
      Field(18), Field(23), Garrett, Hart, Harwood, Henbest, Henderson,
      Jaquet, Jones, Kemp, Lake, LeFavour, Loertscher, Martinez, Mathews,
      McGeachin, McKague, Miller, Mitchell, Moyle, Nielsen, Nonini,
      Pasley-Stuart, Pence, Raybould, Ring, Ringo, Roberts, Rusche,
      Rydalch, Sali, Sayler, Schaefer, Shepherd(2), Shepherd(8), Shirley,
      Skippen, Smith(30), Smith(24), Smylie(Telleria), Snodgrass,
      Stevenson, Trail, Wills, Wood, Mr. Speaker
      NAYS -- None
      Absent and excused -- Bradford
    Floor Sponsor - Denney
    Title apvd - to Senate
02/18    Senate intro - 1st rdg - to Loc Gov
02/23    Rpt out - rec d/p - to 2nd rdg
02/24    2nd rdg - to 3rd rdg
02/25    3rd rdg - PASSED - 34-0-1
      AYES -- Andreason, Brandt, Bunderson, Burkett, Burtenshaw, Cameron,
      Coiner, Compton, Corder, Darrington, Davis, Gannon, Geddes, Goedde,
      Hill, Jorgenson, Kelly, Keough, Langhorst, Little, Lodge, Malepeai,
      Marley, McGee, McKenzie, Noble, Pearce, Richardson, Schroeder,
      Stegner, Stennett, Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- Broadsword
    Floor Sponsor - Stegner
    Title apvd - to House
02/25    To enrol
02/28    Rpt enrol - Sp signed
03/01    Pres signed - To Governor
03/01    Governor signed
         Session Law Chapter 24
         Effective: 01/01/05

Bill Text

  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   First Regular Session - 2005
                              IN THE HOUSE OF REPRESENTATIVES
                                     HOUSE BILL NO. 126
                             BY REVENUE AND TAXATION COMMITTEE
  1                                        AN ACT
  9    Be It Enacted by the Legislature of the State of Idaho:
 10        SECTION 1.  That Section 63-1701, Idaho Code, be, and the same  is  hereby
 11    amended to read as follows:
 12        63-1701.  DEFINITIONS.  As  used  in  this  chapter,  unless  the  context
 13    requires otherwise:
 14        (1)  "Average  annual  net  wood  production" means the average net usable
 15    volume of wood one (1) acre of forest land will grow in  one  (1)  year  under
 16    average  current and actual forest conditions and under current and reasonable
 17    management practices for each forest value zone.
 18        (2)  "Designation period" means any one (1) ten  (10)  year  period  in  a
 19    sequence of ten (10) year periods which begin January 1, 1983.
 20        (3)  "Forest" means forest land and the timber thereon.
 21        (4)  "Forest  land" means privately owned land being held and used primar-
 22    ily for the continuous purpose of growing and harvesting trees of a marketable
 23    species. Having met the above criteria, forest land may be further  identified
 24    by the consideration of any of the following criteria:
 25        (a)  Forest land is land evidenced by present use and silvicultural treat-
 26        ment.
 27        (b)  Forest  land  is  land which has a dedicated use that is further evi-
 28        denced by a forest land management plan that includes eventual harvest  of
 29        the forest crop.
 30        (c)  Forest  land is land bearing forest growth or land which has not been
 31        converted to another use.
 32        (d)  Forest land is land which has had the trees removed  by  man  through
 33        harvest, including clear-cuts or by natural disaster, such as but not lim-
 34        ited  to  fire,  and  which within five (5) years after harvest or initial
 35        assessment will be reforested as specified in  the  forest  practices  act
 36        (chapter 13, title 38, Idaho Code).
 37        (5)  "Forest  landowner"  means  the legal entity which holds the property
 38    rights under law to the forest land surface.
 39        (6)  "Forest products" means any forest crop harvested from forest land.
 40        (7)  "Forest products yield tax" means a tax levied on the value of forest
 41    products harvested from  a  parcel  as  prescribed  in  sections  63-1703  and
 42    63-1706, Idaho Code.
 43        (8)  "Forest  value"  means  the  market  value for assessment purposes as
  1    determined only on the basis of its ability to produce  timber,  other  forest
  2    products,  and associated agricultural products through an income approach the
  3    timber productivity valuation process as prescribed by section 63-1705,  Idaho
  4    Code.
  5        (9)  "Stumpage  value"  means  the  value  of  timber, whether standing or
  6    downed by other than an intentional act of severance, expressed  in  terms  of
  7    dollars per unit of measure.
  8        (10) "Timber"  means wood growth, of any species and of any size, standing
  9    or down on privately owned lands.
 10        (11) "Bare land value" means the value of forest  land  exclusive  of  the
 11    value of timber and other products growing or being thereon.
 12        (12) "Stumpage  owner"  means  the  legal  entity which holds the property
 13    rights under law to the timber growing on private lands.
 14        (13) "A substantial change of use" means any use other than as forest land
 15    as defined in subsection (4) of this section.
 16        (14) "Deferred taxes" as used in section 63-1703, Idaho Code, means a  tax
 17    levied to recapture the difference between taxes that were collected on a par-
 18    cel  designated  under  section  63-1706, Idaho Code, and what would have been
 19    collected on the parcel, had it  been  designated  under  section  63-1702  or
 20    63-1705, Idaho Code.
 21        (15) "Custodial expense" shall mean those expenses incurred in the mainte-
 22    nance of the forest land and limited to the following:
 23        (a)  Reforestation;
 24        (b)  Road maintenance;
 25        (c)  Managing public use;
 26        (d)  Forest inventory;
 27        (e)  Forest management planning;
 28        (f)  Facility operations and maintenance;
 29        (g)  Environmental analysis and documentation;
 30        (h)  Appeals and litigation;
 31        (i)  Land survey;
 32        (j)  Forest fire suppression;
 33        (k)  Other management expenses; and
 34        (l)  Labor  associated  with items (a) through (k) of this subsection, but
 35        shall not include the salaries or expenses, or any portion thereof, of any
 36        person or officer not directly engaged in the  management  of  the  forest
 37        land.
 38        (16) "CFTM"  means  the committee on forest land taxation methodologies as
 39    provided in section 63-1705, Idaho Code.
 40        SECTION 2.  That Section 63-1705, Idaho Code, be, and the same  is  hereby
 41    amended to read as follows:
 43    ITY OPTION. (1) In order to encourage private forest landowners to retain  and
 44    improve  their  holdings  of forest lands and to promote better forest manage-
 45    ment,  large-size  forest  tracts  lands  subject  to  this  option  shall  be
 46    appraised, assessed and taxed as real property under the  provisions  of  this
 47    section.
 48        (2)  The  inventory  of timber and other forest products growing on large-
 49    size forest tracts shall not be included as a part of the total forest  asset.
 50    The  forest  land  value  shall be determined by an income approach the timber
 51    productivity valuation process, as provided for in  the  committee  on  forest
 52    land  taxation methodologies, User's Guide to the Timber Productivity Option's
 53    Valuation Method - 2005 (Schlosser, January 1, 2005, Moscow, Idaho),  referred
  1    to  in  this  chapter  as the "user's guide," on file with the Idaho state tax
  2    commission, available on the website of the Idaho state  tax  commission,  and
  3    which  shall  be  made available  in the office of each county assessor, which
  4    capitalizes the values of the average annual net wood production over  a  rea-
  5    sonable  rotation  period plus other agricultural-related income, if any, less
  6    annualized custodial expenses including, but not limited  to,  the  establish-
  7    ment, protection, maintenance, improvement and management of the crop over the
  8    rotation  period  as  defined  in section 63-1701, Idaho Code. Pursuant to the
  9    provisions of this section, the inventory of  forest  products  shall  not  be
 10    included  as  part  of the valuation of the forest land as provided in section
 11    63-602W, Idaho Code. The state tax commission shall promulgate rules  relating
 12    to the timber productivity valuation process, including custodial expenses, as
 13    provided for in the user's guide and the provisions of this chapter.
 14        (3)  Effective January 1, 20005, through January 1, 2006, the market value
 15    for  assessment  purposes  shall be determined annually by the county assessor
 16    either under rules prescribed by the state tax commission or the market values
 17    contained in subsection (5) of this section, whichever is less. In prescribing
 18    such rules, using the timber productivity valuation process developed  by  the
 19    CFTM,  and  as further prescribed in rule. Notwithstanding any other provision
 20    of law, the state tax commission is authorized to cite the user's guide in its
 21    rules and shall:
 22        (a)  Divide the state into appropriate forest valuation zones,  with  each
 23        zone designated so as to recognize the uniqueness of marketing areas, tim-
 24        ber  types, growth rates, access, operability, and other pertinent factors
 25        of that zone; and
 26        (b)  Establish a uniform system of forest land classification  which  con-
 27        siders  the  productive  capacity  of the soil to grow forest products and
 28        furnish other associated agricultural uses.;
 29        (c)  Provide for the annual input to  the  timber  productivity  valuation
 30        process  including the stumpage value, rotation length, mean annual incre-
 31        ment, guiding discount rate, annualized  custodial  expenses,  appropriate
 32        property tax rates, and real price appreciation rate of stumpage according
 33        to the user's guide. The guiding discount rate and the real price appreci-
 34        ation  rate for timber products shall remain constant at four percent (4%)
 35        and one and one-quarter percent (1.25%)  respectively,  until  January  1,
 36        2012;
 37        (d)  Conduct a forest management cost study every five (5) years to deter-
 38        mine the annualized custodial expenses to be used in the timber productiv-
 39        ity  valuation  process  as  provided in the user's guide. The first study
 40        shall be conducted in 2005 and evaluated by the  CFTM,  with  the  results
 41        incorporated  into  the user's guide timber productivity valuation process
 42        on January 1, 2007. The forest management cost study shall  be  funded  by
 43        the state tax commission, subject to appropriation by the legislature; and
 44        (e)  Provide for any additional data as needed.
 45        (4)  The  state  tax commission shall by March 1 of each year, furnish all
 46    input for the timber productivity valuation process to  the  county  assessor.
 47    for  each  value  zone  the capitalization rate, stumpage value, agricultural-
 48    related income, if any, and expense component to be used  in  determining  the
 49    forest  value. From January 1, 1999, until January 1, 2006, the capitalization
 50    rate shall be the interest rate for the  farm  credit  bank  district  serving
 51    Idaho,  as  set forth in the most current revenue ruling made pursuant to sec-
 52    tion 2032A(e)(7)(A) of the Internal Revenue Code  and  26  CFR  20.2032A-4(e),
 53    plus eighty-five one hundredths percent (.85%), plus a component for the local
 54    tax rate.
 55        (5)  Stumpage  values  shall  be  based  upon  the preceding five (5) year
  1    rolling average value of timber harvested within the forest  value  zone  from
  2    state  timber  sales and/or the best available data for the same five (5) year
  3    period. Average agricultural-related income  and the average expense component
  4    for each forest value zone shall be determined for the same time period as the
  5    period used to determine average stumpage values.
  6        (5)  The following are the alternative market values for  assessment  pur-
  7    poses  for  the  period January 1, 2000, until January 1, 2006. The rules pre-
  8    scribed by the state tax commission in effect on January 1, 2000, are applica-
  9    ble to these alternative market values.
 10                            Alternative Forest Land Values
 11                                       ($/Acre)
 12        2000      Productivity Class     2003     Productivity Class
 13        Zone      Good  Medium  Poor     Zone     Good  Medium  Poor
 14        I         733    470    207      I         564    361    159
 15        II        700    449    198      II        539    346    152
 16        III       553    368    172      III       426    283    132
 17        IV        379    252    117      IV        291    194     90
 18        2001      Productivity Class     2004     Productivity Class
 19        Zone      Good  Medium  Poor     Zone     Good  Medium  Poor
 20        I         676    434    191      I         507    325    143
 21        II        646    415    183      II        485    311    137
 22        III       511    339    159      III       383    255    119
 23        IV        350    232    108      IV        262    174     81
 24        2002      Productivity Class     2005     Productivity Class
 25        Zone      Good  Medium  Poor     Zone     Good  Medium  Poor
 26        I         620    398    175      I         451    289    127
 27        II        592    380    167      II        431    277    122
 28        III       468    311    145      III       341    226    106
 29        IV        321    213     99      IV        233    155     72
 30        (6)  Forest lands upon which, at any time after January 1, 1982, the trees
 31    are destroyed by fire, disease, insect infestation or other  natural  disaster
 32    such that the lands affected will not meet minimum stocking requirements under
 33    rules  adopted pursuant to chapter 13, title 38, Idaho Code, shall be eligible
 34    for a reduction in value for the first ten (10) property tax  years  following
 35    the  loss. The amount of reduction shall be determined by dividing the average
 36    age of the trees destroyed by the rotation age for the specific  forest  value
 37    zone  in  which the property is located productivity class appropriate for the
 38    affected acres. In no instance shall the annual reduction exceed  eighty  per-
 39    cent  (80%) of the original forest value per year. In order to obtain a reduc-
 40    tion, the landowner shall, on or before January 1, following the  destruction,
 41    make  written  application to the assessor indicating the legal description of
 42    the lands in question and stating all pertinent facts. The assessor may inves-
 43    tigate the facts and may request assistance from the state tax  commission  in
 44    performing such investigations. If the requirements are met, such forest lands
 45    shall be assessed and taxed on the reduced basis herein provided.
 46        (7)  Buildings and other improvements, other than roads, located on forest
 47    lands  shall  be  appraised, assessed and taxed as provided by applicable laws
 48    and rules.
 49        (8)  Effective January 1, 2004, there is created within  the  Idaho  state
 50    tax  commission  the committee on forest land taxation methodologies CFTM. The
 51    membership of the committee CFTM shall be:
  1        (a)  A nonvoting chairman who shall be the member of the Idaho  state  tax
  2        commission assigned to property tax matters;
  3        (b)  Four  (4)  members  selected from the membership of the intermountain
  4        forest association;
  5        (c)  One (1) member selected from  the  membership  of  the  Idaho  forest
  6        owners' association;
  7        (d)  Five  (5)  members selected from the membership of the Idaho associa-
  8        tion of counties; and
  9        (e)  The state superintendent of public instruction or  his/her  designee,
 10        in a nonvoting capacity.
 11    The  committee shall CFTM may retain a forest economist selected by a majority
 12    of its members to advise the committee CFTM.
 13        The costs of each committee CFTM member shall be borne by  the  respective
 14    member.  The  fees  and costs of the forest economist shall be borne as deter-
 15    mined by the committee CFTM.
 16        The committee shall review forest land valuation  in  Idaho  and  consider
 17    replacement of the current income methodology found in this section by review-
 18    ing  all  income  and  soil expectation methodologies to determine forest land
 19    values.
 20        The committee shall CFTM may prepare and deliver written  reports  to  the
 21    house  of representatives revenue and taxation and senate local government and
 22    taxation committees of its findings and recommendations for legislation by  no
 23    later  than January 15, 2005 as the need may arise. The CFTM may meet periodi-
 24    cally as determined by its chairman or the CFTM.
 25        During the first regular session of the fifty-eighth Idaho legislature the
 26    house of representatives revenue and taxation and senate local government  and
 27    taxation  committees, shall review the values and formula used to compute for-
 28    est land values to determine if modification to this  section  is  appropriate
 29    and necessary.
 30        SECTION  3.  An  emergency  existing  therefor,  which emergency is hereby
 31    declared to exist, this act shall be in full force and effect on and after its
 32    passage and approval, and retroactively to January 1, 2005.

Statement of Purpose / Fiscal Impact

                      STATEMENT OF PURPOSE
                            RS 14853
Passage of this legislation will encourage private forest land
owners in taxation category 6 to retain and improve their
holdings of forest lands and to promote better forest
management by putting in place a new method of valuing
forest land. The new method, as outlined in the 2005 Users
Guide, developed by the statutorily designated Committee on
Forestland Taxation Methodologies (CFTM), uses the soil
expectation/net present value approach to value forest lands
in category 6. Passage of the legislation will require the
adoption of rules necessary for implementation of the new
                         FISCAL IMPACT
Enactment of this legislation will have no effect upon the
States' general fund but will stabilize forest land property
tax revenues that support county and school budgets.
Name: Dan Chadwick, Executive Director, IAC Phone: 287-4830
Name: Mark Munkittrick, IFOA, Phone: 762-8630
Name: Jane Gorsuch, Vice President, IFA Phone: 342-3454