Evaluating Forest Taxation Alternatives For Oregon PDF Download

Most forests and timber in Western Oregon are taxed under the Western Oregon Forest Land and Severance Tax (WOST), a system which is accepted as one that promotes "correct" economic rotation lengths. This study was motivated by the observation that an optional tax with the same stated purpose - the Western Oregon Small Tract Optional Tax (WOSTOT) - continued to coexist for the benefit of small nonindustrial private forest (NIPF) land owners. Inferring that some small NIPF land owners must be receiving beneficial tax treatment under WOSTOT, the study sets out to examine and compare the tax effects of WOST and WOSTOT on forest management, productivity, land-uses, and tax burdens on a variety of different sites under different sets of assumptions. The specific objectives of the study are fourfold. First, compare WOSTOT and WOST in terms of their common objective of fostering timber production. Second, compare the equitability of the two tax systems. Third, compare the neutrality of the two tax systems with respect to land use? Fourth, identify which NIPF landowners are likely to use WOSTOT rather than WOST, and why? First, a historical review of timber taxes in Western Oregon is conducted to provide some perspective and understanding regarding the existing NIPF timber tax systems. Next, the forest taxation literature is examined for insights into how others have dealt with similar questions. A methodology utilizing the Stand Optimization System (SOS), a dynamic programming optimization model, is used to examine if and how timber taxes affect: (1) timber production, including the timing and intensity of thinnings and final harvest rotation age, as well as merchantable mean annual increment (MAI); and (2) Soil Expectation Values (SEV5) and site burdens. The results of the simulations show that there are no timber production or land-use impacts attributable to either timber tax system. It was found, however, that the two tax systems were not always equitable, i.e., certain NIPF landowners were likely to find WOSTOT provided preferential tax treatment (higher SEVs) when compared to WOST. Taxpayers most likely to benefit under the WOSTOT system included those; (1) in high WOST land tax zones, (2) with lower site lands, and (3) with low discount rates. NIPF land ownerships are examined by county and tax type to determine if the simulation results help explain actual behavior of tax-paying NIPF land owners. Current NIPF ownership patterns tended to be consistent with the model results. It appears that WOSTOT is most used in those counties with highest WOST land values. Finally, other WOST and WOSTOT related issues are discussed, first from the perspective of NIPF land owners, and then from a public policy perspective.