Sources of Revenue:

General Fund,Other Fund local property tax

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 is to increase the assessment of value of managed timberland while providing for a tax of ten percent on the sale or transfer of managed timberland. As written, this bill requires county assessor to apply a flat rate for managed timberland of $300 per acre. Additionally, the bill would impose a 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland. According to our interpretation, the imposition of a flat rate of $300 per acre on managed timberland would result in an increase in local government revenue of roughly $8.3 million per year and an increase in the State General Revenue Fund of roughly $33,000 per year. However, the State Tax Department does not have sufficient information to estimate the revenue impact of the 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland. Additional administrative costs to the State Tax Department and local governments attributable to the flat rate of $300 per acre on managed timberland would be minimal. However, additional administrative costs related to the 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland could be significant.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2008 Increase/Decrease (use"-")	2009 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

Explanation of above estimates (including long-range effect):

As written, this bill requires county assessor to apply a flat rate for managed timberland of $300 per acre. Additionally, the bill would impose a 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland. According to our interpretation, the imposition of a flat rate of $300 per acre on managed timberland would result in an increase in local government revenue of roughly $8.3 million per year and an increase in the State General Revenue Fund of roughly $33,000 per year. However, the State Tax Department does not have sufficient information to estimate the revenue impact of the 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland. Additional administrative costs to the State Tax Department and local governments attributable to the flat rate of $300 per acre on managed timberland would be minimal. However, additional administrative costs related to the 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland could be significant.

Memorandum

The stated purpose of this bill is to increase the assessment of value of managed timberland while providing for a tax of ten percent on the sale or transfer of managed timberland. Currently, regulations exist to classify managed timberland into classes ranging from Grade 1 (excellent to very good) to Grade 3 (poor). Under the proposed bill, all managed timberland would be assessed at the same rate, ignoring the differences in income potential of the property. This would appear to violate the Constitutional requirement that property be taxed in proportion to its value. The bill also contains a provision to impose a 10 percent surcharge on the capital gain obtained by the sale or transfer of managed timberland. Although the State Code does provide for different classifications of real property for tax assessment purposes, the imposition of a special surcharge on income generated by the sale or transfer of one species of real property is unprecedented under State law, and raises a Constitutional question regarding the uniformity of taxation under the law.

Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us