Date Requested:February 10, 2011
Time Requested:01:07 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R2525 Introduced SB480
CBD Subject: TAX ON TIMBER PRODUCTS
FUND(S)
Division of Forestry Funds
Sources of Revenue
Special Fund
Legislation creates:
Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The stated purpose of this bill, per the note, is “to clarify the intent of the Legislature as to the measure of tax imposed on a person who produces timber and saws, mills or otherwise manufactures it into green lumber. The bill requires the producer to report twenty-five percent of the gross proceeds from the sale of the green lumber for severance tax purposes. The bill permits the change in tax be retroactive to 1993. The bill also defines the term ’green lumber.’ ”
    
    This bill, as written, defines green lumber as “boards of wood that have been sawed from one or more species of logs into various lengths, widths and thicknesses but have not undergone any further processing, including, but not limited to, drying in a dry kiln or otherwise.”
    
    The bill would require integrated timber producer-processor businesses to value green lumber, for purposes of the Severance Tax levied by West Virginia Code §11-13A et seq., at 25 percent of the gross proceeds from the sale of the green lumber, or 25 percent of the value of the green lumber before further processing or manufacturing. The bill mandates that value be determined at the value of similar green lumber in the area of the saw mill, or by use of market reports for sales of similar green lumber in lieu of the use of taxpayer gross receipts related to such activities.
    
    The bill indicates that the provisions are to be applied retrospectively to the 1993 effective date of West Virginia Code §11-13A-3b.
    
    Currently, Legislative Rules provide a “safe harbor” calculation severance tax valuation whereby timber and by-products sold after the logs have been sawn, milled or otherwise manufactured into lumber, cross ties, timbers, veneer and other products for sale, profit or commercial use -- are valued at 25 percent of gross proceeds on sales. The Rules also provide a similar 25 percent valuation when no sale occurs but the timber is further processed or manufactured. While the 75 percent reduction in value provided by the current Legislative Rule accounts for the value added by kiln drying and manufacturing into lumber, the bill would provide a further discount by applying the 25 percent valuation before kiln drying. This bill appears to be in part related to current West Virginia circuit court litigation, and would revise the long-standing timber valuation rules embodied in Legislative Rule CSR 110-13A.
    
    Passage of this bill would result in a reduction in the tax on timber of roughly $50,000 to $100,000 per year for both the WV Code §11-13A tax dedicated to the Division of Forestry and the WV Code §11-13V Workers’ Compensation Debt Reduction Tax. Additionally, the retrospective application of the change could result in some refund claims for prior years. However, for tax years beginning in 2010, 2011 and 2012, the temporary elimination of the WV Code §11-13A-3b tax will result in no revenue impact for the Division of Forestry.
    
    Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal.
    
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    This bill, as written, defines green lumber as “boards of wood that have been sawed from one or more species of logs into various lengths, widths and thicknesses but have not undergone any further processing, including, but not limited to, drying in a dry kiln or otherwise.”
    
    The bill would require integrated timber producer-processor businesses to value green lumber, for purposes of the Severance Tax levied by West Virginia Code §11-13A et seq., at 25 percent of the gross proceeds from the sale of the green lumber, or 25 percent of the value of the green lumber before further processing or manufacturing. The bill mandates that value be determined at the value of similar green lumber in the area of the saw mill, or by use of market reports for sales of similar green lumber in lieu of the use of taxpayer gross receipts related to such activities.
    
    The bill indicates that the provisions are to be applied retrospectively to the 1993 effective date of West Virginia Code §11-13A-3b.
    
    Currently, Legislative Rules provide a “safe harbor” calculation severance tax valuation whereby timber and by-products sold after the logs have been sawn, milled or otherwise manufactured into lumber, cross ties, timbers, veneer and other products for sale, profit or commercial use -- are valued at 25 percent of gross proceeds on sales. The Rules also provide a similar 25 percent valuation when no sale occurs but the timber is further processed or manufactured. While the 75 percent reduction in value provided by the current Legislative Rule accounts for the value added by kiln drying and manufacturing into lumber, the bill would provide a further discount by applying the 25 percent valuation before kiln drying. This bill appears to be in part related to current West Virginia circuit court litigation, and would revise the long-standing timber valuation rules embodied in Legislative Rule CSR 110-13A.
    
    Passage of this bill would result in a reduction in the tax on timber of roughly $50,000 to $100,000 per year for both the WV Code §11-13A tax dedicated to the Division of Forestry and the WV Code §11-13V Workers’ Compensation Debt Reduction Tax. Additionally, the retrospective application of the change could result in some refund claims for prior years. However, for tax years beginning in 2010, 2011 and 2012, the temporary elimination of the WV Code §11-13A-3b tax will result in no revenue impact for the Division of Forestry.
    
    Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to clarify the measure of the severance tax imposed on the privilege of producing timber in the case of a person who does not sell the timber he severs and produces, but further processes such timber into other wood products for sale, profit or commercial use.
    
    The bill, as written, proposes the “retrospective” application of the new section back to the 1993 effective date of West Virginia Code §11-13A-3b. The “retrospective” application may violate Article 6, section 11 of the West Virginia Constitution.