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a balance-growth and decay equalizing each other-ad valorem taxation annually capitalizes the crop-producing capacity of the soil and the entire income that will be produced. In both cases the result is, comparatively speaking, continuous over-taxation.

The economic effect of increased taxation upon forest property is far different from the effect of increased taxation upon other forms of real estate. It forces destruction, not development. If taxation is increased on non-income producing city property the owner can improve the same and thus obtain income to meet the increased tax, and in so doing he benefits both himself and the community. If taxation is increased upon non-income producing farm lands the owner can put the same under crop and obtain income to meet the increased taxation, again benefiting both himself and the community. The owner of forest property, however, when taxation increases, can obtain income from the property to meet such charges only by destroying the property.

Forest property, therefore, as an investment, differs so in character from other forms of real estate investment and is so adversely affected by annual ad valorem taxation that cessation of premature and wasteful cutting of mature forests and profitable reforestation of cut-over lands depends absolutely upon modifying our system of taxation.

Many states have recently enacted legislation for this purpose, but study of these laws, in almost every case, discloses that legislators have failed to recognize either the economic principles that control long-time investments or the fact that ad valorem taxation of timber lands invariably results in over-taxation. Law-makers in most states have not been confronted with vast areas that must be reforested through natural reproduction of forest growth, if reforested at all, and they have aimed not so much at developing an equitable system of forest taxation as at encouraging the practice of forestry through special favors. A just and enduring system of forest taxation cannot have for its basis special favors to the owners of forest land. That class of property must, in the long run, pay a total of taxes equivalent to that paid by other classes of property of equal value. What should be done in framing forestry taxation is to take into account the particular character of forest property and the destructive results of certain forms of taxation upon it and frame tax laws in harmony with such character and conditions.

I suggest as basic principles of forest taxation:

First That forest property must not, through ignorance of its character and of the effect of ad valorem taxation upon it, be overtaxed.

Second-That taxation be so framed as to enable the investor in forest land to calculate with reasonable certainty his future tax

burden until such a time as he can realize income from his investment.

Third That the payment of taxes be arranged, as far as possible, for a time when income may be expected with which to pay

the tax.

Fourth - That the interests of the owners of other classes of property and the interests of the political units where forests are located be given proper consideration.

The particular form of taxation that is most frequently urged is: Exemption of land and timber from the annual ad valorem general property tax and the substitution there for of a percentage tax upon yield, payable whenever any part of the crop is harvested.

The substitution of a percentage yield tax for all other taxes would be the simplest solution of the problem but it does not meet the fourth requirement: "That the interests of the owners of other forms of property and the interests of the communities in which forests are located must be given due consideration."

The yield tax necessarily implies an irregular local revenue from all forest property, inasmuch as there would be no revenue from such property except when there was harvesting of forest products; and in districts where forests constituted any considerable portion of the taxable property, failure to receive any annual revenue from such property would work hardship. Again, the unmodified yield tax is open to the objection that forests are not all alike but vary from newly established growing forests, containing no merchantable products, to mature forests of virgin timber that may be harvested with profit. There is rarely any dividing line. There will generally be found some merchantable forest products upon cut-over lands and there will be much immature growth in virgin forests. Again, the uses for forest products are so varied that what is immature and useless for one purpose may be matured and useful for another purpose.

We have declared it fundamental to correct forest taxation that immature forest growth shall not be subject to annual ad valorem taxation while coming to maturity. On the other hand, there is no economic justification for exempting from annual taxation mature forest growth that can be made to yield income. It is equally fundamental that land shall not be exempt from annual taxation, because devoted to any particular crop. The interest of those owning other kinds of property and the interests of the political units, where forests are located, demand that some annual revenue be contributed by forest property. The principle that all property must, in the long run, contribute equally to public expenditure is not violated by deferred taxation such as a yield tax, providing the yield tax is so administered as not to impose double taxation. We cannot satisfactorily classify forests but we can, where land is

devoted to forestry, determine the value the bare land would have and the value of mature forest products on such land and use such values for determining an annual tax upon land and an annual tax upon mature forest growth. With these suggestions in mind, we can so modify the yield tax that fundamental requirements, such as prevention of over-taxation and double taxation, no annual taxation of immature forest growth, and certainty as to future taxation costs, may be preserved and payment of the greater part of the tax which forest property should eventually pay, be arranged to come at a time when income can be derived from the property, and at the same time some regular annual revenue from forest property be provided for the use of the local political units.

The formula for a yield tax, modified in harmony with the above suggestions, would be as follows:

Determine separately bare land value and merchantable timber value; bare land value to be the same as the assessed value of wild, unimproved bare land of similar quality in the same locality; merchantable timber value to be the stumpage value of merchantable forest product upon the land; immature forest growth not to be considered in determining either land value or merchantable timber value.

An annual tax at a fixed sum on land value thus determined.

An annual tax at a fixed sum upon merchantable timber value thus determined.

A percentage tax upon yield; payable whenever any of the merchantable forest products are harvested; but no yield tax to be imposed until forest products to the amount of the original appraisal have been harvested.

Land value not to be changed, except after regular fixed intervals and then only for the purpose of harmonizing such land value with the assessed value of bare lands in the same locality.

Timber value not to be increased at any time but to be decreased, as merchantable forest products are harvested; such decrease to be the stumpage value, at the time of harvesting, of the forest products removed from the land.

This combination of a fixed annual land tax and a fixed annual mature timber tax and a yield tax is logical and just. It prevents over-taxation, by not allowing taxation of immature forest growth. It prevents double taxation, by providing that no yield tax shall be paid upon forest products that have been subject to the annual merchantable timber tax, until the merchantable timber value as originally fixed has been extinguished by cutting. It both encourages and enables the owner of mature forests to delay cutting them, by fixing the future tax burden upon such lands and preventing any increase in such fixed charge. It meets the requirements that

the investor shall be in situation to calculate with reasonable certainty the future cost of carrying his investment, by fixing both the rate of taxation and the valuation upon which it is to be computed. It protects the interests of the owners of other classes of property and the interests of the local community, through the annual land tax and mature timber tax. To fix for a term of years the amount of the annual land tax, basing it largely on what such land is now paying, is no injustice, because the greater part of the land that would be made use of for forestry would be, at the time of coming under the new system, cut-over and waste land, paying a small tax, and, because of conditions that generally operate upon waste land when unoccupied and unprotected, would, in most cases, remain waste land, with little new growth that would add to its value and increase the tax. Under such conditions, to continue the tax at practically the same amount after its dedication to forestry would be no injustice.

The provision that where a valuation had been determined upon for the taxation of mature timber, such valuation can be gradually reduced and eventually extinguished, through the harvesting of mature forest products, creates the most practical opportunity for establishing and maturing a growing forest. By harvesting at any time such portion of the merchantable forest products as will equal in value the timber valuation as originally determined, the mature forest will automatically take on the status of a growing forest, with no timber valuation to be taxed; and this regardless of the fact that because of the growth of what was immature at the time of the valuation and because of a natural increase in the value of products, there might be almost as much actual timber value remaining as there was at the time of the appraisal. From that time on a timber crop can be harvested at regular intervals and the only annual tax will be upon bare land value.

It is not necessary to discuss rates of taxation under such a system. The question of administration, however, is a matter of the highest importance, especially the determining of bare land value and merchantable timber value. Such valuations, because not subject to change over a period of years, must be correctly determined and made as uniform as possible throughout the state, and this cannot be done by local assessors. The board of state tax commissioners should administer this feature of the proposed system, and they should also determine the stumpage value of forest products harvested, and with that information in their possession they would also determine when original merchantable timber values, subject to annual taxation, had been extinguished.

In studying the systems of other states I have found that no matter how carefully and correctly forest taxation laws may have been framed they have accomplished little, because the land owner

has had to elect to come under such laws. If all land more valuable for forestry than for other purposes were automatically placed under the proposed forest taxation law, and the land owner had to elect to withdraw his land or have it permanently classified as forest land, the situation would be far different. In Michigan the conservation department of the state has a bureau known as the Economic Soil Survey Bureau, and they are taking up county after county, and classifying the land. They have one class in which they place all land which they consider more suitable for growing forests than for agriculture, and it is suggested that the proposed law automatically apply to lands they have so classified. Inasmuch as this survey cannot be completed for several years, it is also proposed that individuals may offer their lands for classification as forest land before they are considered by the Economic Soil Survey, and if the lands so offered are approved for forestry purposes by the conservation department, they also would come under the proposed law. It is recognized that many land owners may prefer to make other use of their property, even though it has been classified as more suitable for forestry than for any other purpose. The opportunity, therefore, should be given such land owners to apply to the state tax commissioners and have such lands removed from classification as forests. But in case such application is not made within a certain period, such land will be considered permanently classified as forest land, to be removed from that class only on payment of a proper fee, based upon the number of years it has been so classified.

The question as to how taxes paid on forest property should be distributed has much bearing upon the success of such a taxation system. If, out of the annual land tax, an annual tax upon merchantable timber, state and county taxes should first have to be paid, the portion remaining might not be sufficient for local requirements. To remedy such a situation, it has been suggested that all the annual land tax and all the annual merchantable timber tax should go to the townships and school districts, where forests are located, and that the yield tax be distributed on some percentage basis, between the state, the county and the school district.

MR. BARNES continuing: If any one has any questions, I will be glad to answer them so far as I can. Our situation up there is so different from what it is in other states. With the great mass of timber land we must find some way by which we can make it an inducement for the owners to reforest, and therefore we have considered that we must find some way by which it can automatically become forest land, and that the getting out of that class was upon the owner, and if he did not do it, it remained there. In the valuing of these lands the state board would hold a review just the same as of other lands, and if a community thought at any time it

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