A report prepared for Friends of the Earth by Prof. Janet E. Milne, Director,Environmental Tax Policy Institute, Vermont Law School, South Royalton, Vermont, USA

An Inventory of

State Tax Provisions in

Maine, New Hampshire

and Vermont

Taxation & Timber

The Taxation and Timber report was made possible by the generous support of the Foundation for DeepEcology, Merck Family Fund, and the EducationalFoundation of America, and the generous support of individual donors to Friends of the Earth.

Taxation and Timber was prepared by Prof. Janet E.Milne, Director, Environmental Tax Policy Institute,Vermont Law School, South Royalton, Vermont, USA

This report will be made available for free via theinternet. Please point your browser to www.foe.org

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© 2004 Friends of the Earth

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Table of Contents

Introduction

The Scope of this Report 3

Section 1

The Tax Structures of the Three States 4

Section 2

A Brief Analysis of the Findings 5

Section 3

Forest-related Tax Provisions in Maine 10

Section 4

Forest-related Tax Provisions in New Hampshire 15

Section 5

Forest-related Tax Provisions in Vermont 19

Seeking Additional Information 23

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IntroductionThe Scope of this Report

The Northern Forest spans northern New England,from Maine across New Hampshire and Vermont andinto New York. As development pressure builds innorthern New England and as the forest productsindustry comes under increased global pressure,ownership patterns of forestlands are changing. Papercompanies, the traditional owners of large tracts ofland, are selling some of their holdings, and in the lastseveral years, conservation agencies and organizationsand agencies have stepped in to acquire significanttracts of land that have gone on the market in Maine,New Hampshire and Vermont. As ownership patternsare shifting, it is important to continue to study theforces behind change. One significant question is:How are the economics of the ownership offorestlands and the economics of the forest productsindustry affecting decisions about whether to sellthese lands for development? Another question is: Asforestlands remain as working forests, howenvironmentally sensitive are the management of theforestlands and the production of forest products?

The economics of land ownership, land managementand the forest products industry involve manycomplex factors, one of which is the tax costassociated with owning forestlands, managing theforestlands and converting timber into saleable forestproducts. This report explores the tax codes of Maine,New Hampshire and Vermont in order to determinethe extent to which these states have used their taxsystems to positively affect the ownership and

management of forestlands and the timber industry intheir states by employing timber-specific taxmeasures. To what extent do these states use theirstate tax codes to encourage the continued ownershipof forestlands as open space? To what extent do theyuse their tax codes to positively affect the financialviability of the forest products industry? And to whatextent do they use their tax codes to encourage anyparticular types of environmentally sensitivemanagement activities for the forestlands orproduction activities using forest products?

The scope of this report is limited in severalsignificant respects. For the most part, it focuses onprovisions explicitly designed for forestlands and theforest products industry, so it does not address manytax measures that are generally applicable but couldaffect forestlands and the forest products industry,such as the issue of overall tax rates. While examiningthe forest-related tax provisions in these three states,the report does not look beyond the language of thestates’ tax codes to determine the actual empiricalimpact of tax provisions on the forestlands and theforest products industry. It does not explore thelinkage between federal tax provisions and state taxprovisions nor does it suggest policy measures thatmight be implemented. However, by outlining thecontours of the tax provisions currently in effect, itlays the foundation for these important inquiries asdiscussions about the Northern Forest move forward.

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Section 1The Tax Structures of the Three States

Before delving into the details of specific tax measuresthat affect forestlands and the forest productsindustry, it is useful to look at the overall tax structureof the three states to help set the context. All threestates rely on the property tax at a local level, but atthe state level, they rely to varying extents ondifferent types of state-wide taxes. Maine andVermont both have broad-based individual andcorporate income taxes, on the other hand, NewHampshire has a very limited individual income tax,which applies just to dividends and interest, and abusiness enterprise tax on business income. Maine andVermont have broad-based sales taxes, while NewHampshire’s sales tax is limited to certaincommodities. The chart at right, which compares therevenues that the states received in 2001 from theirstate (not local) taxes, provides a picture of eachstate’s reliance on various types of taxes.[1]

The relative burden of statewide taxes (excludinglocal taxes) also varies significantly from state to state.The average per capita tax burden for state taxes inMaine was $2,074 in 2001, and Maine ranked 17th inthe nation in the amount of taxes paid per capita thatyear. The per capital tax burden in New Hampshire in2001 was $1,470, putting it in 47th rank, and theaverage in Vermont was $2,532, placing it highestamong the three states at 7th rank in the nation.[4]

Percent of total state Type of tax tax revenues in 2001

New Maine Hampshire Vermont

Property tax 1.8 25.8 34.1

Sales and gross receipts 44.1 33.5 23.7

Licenses 5.2 8.2 5.0

Individual income tax 43.5 4.3 31.1

Corporateincome tax 3.6 19.7[2] 2.0

Death and gift tax 1.1 3.3 .9[3]

Documentary and stock transfer .7 5.2 1.4

Other — — 1.0

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Section 2A Brief Analysis of the Findings

Sections 3, 4 and 5 of this report contain descriptionsof the state tax provisions identified in each of thethree states that explicitly or directly affect theownership and management of forestlands in theirstates, presented on a state-by-state basis, and a chartat the end of this section provides an overview ofthese tax provisions. A number of trends andconclusions emerge from these details as onecompares the use of timber-related tax measures inthe three states.

The Influence of Inherent Differences in theTax Systems: The approaches in Maine andVermont differ from the approach New Hampshiregiven the fundamental differences in the basicstructure of the tax system between Maine andVermont, on one hand, and New Hampshire, on theother. With their broad-based income tax onindividuals and corporations and their general salestax, Maine and Vermont have tax vehicles into whichthey can build timber-related provisions. With nogeneral sales tax and a very limited income tax onindividuals, New Hampshire does not have the sameopportunity, and it has chosen not to build timber-related provisions into its business enterprise tax.Consequently, Maine and Vermont have a broaderarray of types of timber-related tax provisions, whileNew Hampshire almost exclusively uses its propertytaxation system to address timber-related issues.

Using Current Use Assessment ofForestlands to Encourage ContinuedOwnership and Sustained Yield: All three statesembrace the principle of offering current use assessmentof forestlands for property tax purposes. Valuation ofthe land at its current use value as timberland, ratherthan its fair market value, can reduce one cost ofownership that might otherwise cause owners to selltheir property, and by reducing the tax burden on thestanding timber, it can encourage landowners tomanage their forests on a sustained yield basis. Thedetails of the current use programs in each state,however, vary significantly in a number of respects. Forexample:

■ Acreage: Eligible acreage varies from 10 acresin Maine and New Hampshire to 25 in Vermont.

■ Management plans: Requirements forforestry management practices differ, from nospecific management requirements in NewHampshire (although lower assessments areavailable for land with documentedstewardship) to mandatory management plansin Maine and Vermont. Vermont mandatesperiodic state inspections of the property forcompliance with the management plans.

■ Public access: The assessed value in NewHampshire is reduced by an additional 20percent if the landowner offers year-roundpublic access.

■ Penalties: The penalties for changes in use aresubstantially different in each state. In Maine thepenalty is linked either to repayment of taxes thelandowner has saved as a result of enrollment inthe program or to a percentage of the fair marketvalue of the property (ranging from 30 to 20percent, depending on how long the land hasbeen enrolled). In New Hampshire, the penalty isa flat 10 percent of the fair market value of theland. In Vermont, the penalty is either 20 or 10percent of the fair market value, depending onthe number of years the land was enrolled.

■ Use of the penalty revenues: NewHampshire allows municipalities to elect todeposit the revenues they collect in penalties ina dedicated municipal conservation fund. Maineand Vermont have no comparable provisions.

■ Local fiscal impact: Both Maine andVermont have mechanisms for reimbursing themunicipalities for property tax revenue that islost as a result of enrollment of land in thecurrent use program, but New Hampshiremakes no provision for reimbursement.

Many of these features will influence the landowners’calculations about whether to enroll their land in thecurrent use program and, once enrolled, whether tobear the cost of withdrawing the land. Consequently,they will influence the long-term effectiveness ofcurrent use assessment in encouraging the continuedownership and sound management of the forestlands.

Using the Property Tax Exemption for Standing Timber to Encourage Sustained Yield

Both Maine and Vermont include the value of standingtimber in the valuation of the land for property taxpurposes but, as indicate above, allow valuation of thetimber and land at its current use value. NewHampshire, however, takes a different approach. Itexplicitly exempts growing wood and timber from theannual, general property tax and instead imposes ayield tax on the timber at the time that it is cut. As aresult, New Hampshire’s current use program appliesonly to the underlying land. Removing standing timberfrom the general property tax reduces one economicpressure to cut the timber to meeting short-termfinancial obligations, arguably encouraging owners tomanage the forestlands on a sustained yield basis.

Using Other Forestry Management Incentives

Beyond requiring management plans as a prerequisitefor enrollment in current use assessment, Maineprovides landowners a $200 income tax credit onceevery 10 years to help offset the cost of preparingforestry management plans regardless whether theland is enrolled in the current use program. Mainealso exempts seedlings from the sales tax, which canhelp subsidize the cost of reforestation.

Using the Taxation of Gains to Discourage Speculative Transfers

Vermont has a unique tax on capital gains from thesale of undeveloped land. If an owner of more than 10acres sells the land within six years of purchase, thelandowner will pay a capital gains tax linked to thelength of time the property has been owned and theextent to which it has appreciated in value during thatperiod of time. This tax was designed to inhibit themarket for short-term, speculative transfers of landthat could lead to development of the land.

Using Tax Measures that Improve theEconomics of Activities Associatedwith the Forest Products Industry

A number of provisions in all three states give positiveeconomic benefits to activities that are part of theprocess of converting timber into consumer productswithout linking the economic benefit to any particularenvironmental result. Some of these provisions aregeneral in nature and are not specifically targeted tothe forest products industry. For example:

■ Manufacturing equipment andfacilities: In a number of generally applicable

provisions not targeted to the forest productsindustry, Maine and Vermont offer tax benefitsfor certain types of investment that may helpreduce the cost of investment in manufacturingfacilities and equipment used in the forestproducts industry. For example, Vermont givesmunicipalities the option of exemptingmanufacturing facilities from the property tax fora limited period of years exempt, and Maineprovides a 12-year property tax reimbursementfor certain depreciable business equipmentinstalled after April 1, 1995. Vermont exemptssales of manufacturing equipment from the salestax. Vermont has a special income tax credit formanufacturing facilities that qualify under astatewide economic advancement program, whichcould apply to new manufacturing facilities.Maine and Vermont also exempt from the salestax purchases of research equipment used inlaboratory research (not for quality control). Inone provision that is specific to the timberindustry, Maine provides a trade-in credit thatexcludes the value of a traded-in chain saw fromthe sales tax due on the sale of a new chain saw.

■ Inputs: Maine and Vermont exempt from thesales tax personal property that is a componentof or consumed in the process of manufacturingproducts for sale. These generally applicableprovisions would apply to inputs into themanufacture of forest products, reducing the taxburden associated with those products. Theprovision applies equally to all inputs, regardlessof their environmental attributes.

■ Outputs: Several provisions provide tax relieffor forest products which may enhance theeconomics of the industry by reducing the taxcost associated with its products, although someof these provisions may have been enacted forother policy reasons. Maine exempts forestproducts, such as logs, timber and woodchips,from its personal property tax. Maine andVermont exempt sales of domestic wood fuel andpackaging materials from the general sales tax.Vermont specifically exempts property that is ancomponent part of or consumed in themanufacture of newspapers, which would includenewsprint, and it exempts building materials inlimited situations. New Hampshire allowsmunicipalities to exempt central heating systemsthat use wood from the property tax, whichpresumably would enhance the market for wood.

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Using Tax Measures that Encourage Environmentally Sensitive Manufacturing Processes

The provisions described above are not explicitlyenvironmental in nature. All three states, however, alsohave provisions for which the forest products industrymight be eligible that may encourage certain types ofenvironmentally beneficial behavior as timber productsmove from the forestland to consumers. For example:

■ Air and water pollution controlfacilities: All three states to some degreeexempt certain pollution control facilities fromthe property tax under provisions that apply toindustry in general. These exemptions helpsubsidize the cost of pollution control facilities.

■ Alternative energy systems: In agenerally applicable provision, Vermontexempts its sales tax sales of net meteringsystems, energy systems not connected to theutility distribution grid and property used in hotwater systems that function from solar energy.This provision may encourage manufacturers,including those in the forest products industry,to use alternative energy systems.

■ Waste facilities: In another generallyapplicable provision, Vermont imposes afranchise tax on waste delivered to wastefacilities, a provision that could have the effectof limiting waste. The tax exempts recycled

waste. It also exempts brush, logs, stumps androots, but not other wood wastes or products,so it could have both a negative and a positiveeffect on reducing waste.

Using Tax Measures that EncouragePermanent Protection of Forestlands

All three states have some tax provisions thatencourage the permanent protection of land. Theyoperate by reducing the cost of acquiring or owningconserved land.

■ Property tax exemptions forconservation lands. New Hampshireprovides a property tax exemption for landowned for land conservation purposes byqualifying charities or governmental agencies.

■ Property tax abatement forconservation lands. Vermont allows landowned for conservation purposes by qualifyingcharities to be assessed at its current use value.

■ Property tax reductions for land underconservation easement. All three statesafford some degree of property tax relief forland under conservation easement. Maine

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provides explicit current use treatment for landthat is permanently protected by a conservationeasement, with the option of applying specifiedpercentage reductions in assessed value. NewHampshire defines the circumstances underwhich land under a perpetual conservationeasement can qualify for a reduced assessment atleast as low as the value that would be set underthe current use program, and it allowsmunicipalities to accept shorter term easementsthat would qualify for assessment at less than fairmarket value. Vermont requires that the assessorvalue the property based only on the value ofthe rights that the landowner continues to ownafter granting the conservation easement.

■ Real estate transfer tax exemptions. Allthree states impose a real estate transfer tax atthe time real property is transferred or sold.Maine and Vermont, but not New Hampshire,exempt qualifying land conservation transfersfrom the transfer tax.

Using Taxes that Generate RevenueDedicated to Timber-related Issues orLand Conservation

A relatively limited number of tax measures in the threestates provide revenue that is or can be dedicated toforest and land conservation purposes. For example:

■ Using the yield tax for land useregulation and forest conservationpurposes: New Hampshire provides that theyield tax collected in unorganized towns andplaces will be used for land use regulation andforest conservation purposes.

■ Using a forestry excise tax to fund fireprotection. Maine imposes an excise tax onthe owners of commercial forest land in excessof 500 acres that helps fund the state’s forest fireprotection activities.

■ Using the current use penalty for landconservation: New Hampshire allowsmunicipalities to elect to dedicate the revenuesfrom the current use penalty to landconservation.

■ Using the real estate transfer tax forland conservation: Vermont’s real estatetransfer tax helps fund the Vermont Housingand Conservation Board, which engages in part

in land conservation activities. Maine and NewHampshire dedicate their transfer taxes to otherpurposes (housing and education, respectively).The two major state land acquisition programsin Maine and New Hampshire, the Land forMaine’s Future Board and New Hampshire’sLand and Community Heritage InvestmentProgram, do not rely on dedicated tax revenues.

■ Using general revenues for research.Vermont offers a nongame wildlife checkoff onindividual income tax returns that allowstaxpayers to dedicate some portion of their taxpayment to the research and management ofnongame wildlife, which potentially could haveimplications for forest management practices.This mechanism is different from those listedabove because a specific tax does not generatededicated revenues; instead, the taxpayers havethe option of dedicated general tax revenues.

As indicated in the Introduction, this report does notevaluate the effectiveness of any of these provisions,but this survey indicates that there is some level oflegislative attention to forest-related issues in the taxcodes of these three states. However there is littleconsistency among the states, even the current useprograms, which are fundamental to forestland policyin each state, vary substantially from state to state. Tosome extent, these differences are logical, given thedifferences in tax structure among the states anddifferences in economic and environmental policyobjectives. Nevertheless, the differences mean that theowners of forestland and forest products industriesface varying tax burdens in each state that may causethem to behave differently in each state. Similarly,policymakers and advocates who are looking at forest-related policy issues across the region must learn threesets of laws and consider how the relative tax burdensinfluence policies to promote a secure, long-termsustainable forest for the future. A fundamental policyquestion beyond the scope of this report, however, ishow significant these differences are in the regionaland global market for land and forest products.

The following Sections outline, on a state-by-statebasis, the various forest-related tax measures that weresummarized above. For each state, they describemeasures related to the property tax, sales tax, incometax and, lastly, any special taxes.

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Summary of the Forest-related Tax Measures

New Tax Measure Maine Hampshire Vermont

Property Tax

current use assessment x x x

current use for easement land x x x

yield tax x

abatement for roadside shade trees x

abatement for conservation holdings x

tax exemptions

forest products x

pollution control facilities x x x

business property x x (LIMITED)

conservation land holdings x

woodheating energy systems x

Sales Tax

tax exemptions

tree seedlings x

domestic wood fuel x x

pollution control facilities x

research equipment x x

manufacturing equipment x x

manufacturing inputs x x

special newsprint exemptions x

certain building materials x

certain energy systems x

packaging material x x

trade in credit

chain saws x

Income Tax

tax on speculative capital gains x

tax credits

forest management plans x

economic advancement x

checkoff for nongame wildlife x

Special Taxes

forestry excise tax x

franchise tax on waste facilities x

real estate transfer tax x x x

exemption for conservation x x

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Section 3Forest-related Provisions in Maine

Forest-related tax provisions in Maine are built intovarious different types of tax systems. These types oftax systems, which do not represent all the types oftaxes in Maine, are:

■ The local property tax which funds municipalgovernment.

■ A general sales and use tax of 5 percent on thevalue of most tangible personal property andcertain services, with sales taxes at higher ratesfor certain property or services, such as liquorand accommodations.

■ A corporate income tax that ranges from 3.5percent of Maine net income to 8.93 percentfor net income of at least $250,000.

■ An individual income tax that ranges from 2percent of Maine taxable income to 8.5 percentof income. The threshold for the top marginalrate starts at $16,700 for single individuals andrises to $33,400 for married individuals filingjoint returns.

■ Special taxes, including the forestry excise tax.

■ A real estate transfer tax of $2.20 for each $500of value.

The following paragraphs briefly describe the forest-related provisions within each of these tax systems.

Property Tax ProvisionsMaine has significant property tax provisions thatreduce the burden of property taxes on forestlandsand two provisions that aid the forest productsindustry, one of which is specific to wood productsand one of which is general in nature but presumablyassists the forest products industry.

The General Policy for Assessing Forest Land

As a matter of public policy, state and local officialsare directed to use their powers as assessors toencourage “the operation of all forest lands on asustained yield basis” and “to establish and maintainuniformity in methods of assessment for purposes oftaxation according to the productivity of the land,

giving due weight in the determination of assessedvalue to location and public facilities as factorscontributing to advantage in operation.” (Me. Rev.Stat. Ann. tit. 36 §563)

If a landowner provides proof that the assessmentcreates an incentive to abandon or strip the land or tooperate it in a way contrary to the general policy ofencouraging sustained yield, then a court shall deemthe assessment to be in excess of just value. Thelandowner’s proof must include a showing that the taxprevents the landowner from efficiently operating theforest land on a sustained yield basis that willgenerate an adequate annual net return. This relief isavailable to landowners who own, under singleownership, land in excess of 25 acres that is held togrow trees for commercial cutting. (Me. Rev. Stat.Ann. tit. 36 § 564)

Maine Tree Growth Tax

Recognizing how valuation of forestland at fairmarket value can discourage the management offorests on a sustained yield basis and the publicinterest in encouraging landowners to retain theirholdings of forest lands, Maine amended itsconstitution in 1970 to allow for the valuation offorestland according to its current use, and a yearlater the legislature enacted the Tree Growth Tax Lawto implement this concept.

Eligibility

Any landowner who owns 10 or more acres offorestland used “primarily for the growth of trees tobe harvested for commercial use” is eligible to havethe land certified under the Tree Growth Tax subjectto certain qualifications, a number of which aresummarized below.

Excluded land: Eligible acreage does not includeledges, marshes, swamps, bogs and similar areas notsuitable for growing forest products or commercialharvesting even in situations where these types ofland are located within eligible forestlands.

Forest products deemed to have commercialvalue: Land is eligible only if the trees will beharvested for forest products that have commercialvalue. Products that have commercial value includelogs, pulpwood, woodchips, Christmas trees, maplesyrup, biomass, wreaths, bough material and conesand other enumerated products.

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Land deemed to be used primarily for thegrowth of trees for commercial use: The lawrequires that the land must be used primarily for thegrowth of trees for commercial harvest, but itcontains some exceptions to this requirement. Itallows qualification in the following situations wherethe land might not otherwise be deemed to be usedprimarily for commercial growth: where the land usealso used for public recreation (with special provisionsfor recreational leases); where governmentalrestrictions prevent harvesting or require anotherprimary use; where deed restrictions, covenants orcharters effective before 1982 prevent commercialharvesting or require another primary use; where theonly use is harvesting for personal use if the propertyis less than 100 acres; and where the land is or wasalso used for mineral exploration.

The management plan requirement: In orderto qualify, the landowner must submit a managementand harvest plan that is prepared by a licensedprofessional forester or, if prepared by the landowner,is certified by a licensed professional forester. Thisplan must outline the landowner’s plans to“regenerate, improve and harvest a standing crop oftimber,” and it must be updated every 10 years. Thelandowner is eligible for an income tax credit of up to$200 to help defray the cost of preparing the plan.(See discussion of income taxes below.) Whenownership of the land or timber rights is transferred,the new owner must file a statement that a new planhas been prepared or a statement from a licensedprofessional forester that the land is being managed inaccordance with the previous owner’s plan. Themunicipal assessor or the State Tax Assessor canrequest the Bureau of Forestry to assist in reviewingmanagement plans and determining whether thelandowner is complying with the plans.

Tax Effect Once Qualified

The State Tax Assessor is responsible for determiningthe current use value of forestland for each countyand region based on the productivity of the land togrow timber and the type of forest. The local assessor(the assessor for the municipality and the State TaxAssessor for the unorganized territory) will adjust this100 percent current use valuation according to thepercentage used in the jurisdiction to determine theassessment of all other property. The land is thentaxed according to the tax rate generally applicable inthe jurisdiction. Each municipality is entitled to anappropriated reimbursement for 90 percent of the tax

revenue lost as a result of enrollments of property inthe program, subject to certain qualifications.

Penalty for Withdrawal or Change in Use

When a landowner withdraws from the program orchanges the land use, the owner will be subject to apenalty. The penalty is equal to the greater of thefollowing two amounts:

1 the property taxes that would have been paidover the preceding five years (or the number ofyears the land was enrolled in the program, iffewer than five years), minus the taxes actuallypaid, plus interest; and

2 a percentage of the fair market value of the landthat is linked to the number of years that landhas been enrolled in the program — 30 percentof fair market value for land enrolled 10 yearsor less, declining one percent each year to 20percent for land enrolled for at least 20 years.

If the owner fails to report withdrawal or the changein land use, the assessor will add an additional 25percent penalty. The penalties are not required bystatute to be dedicated to any particular use.

Sale of the land will not trigger the penalty unless thesale involves less than 10 acres, in which case thetransferor must pay the tax. In addition, withdrawal ofthe land from the program in order to enroll it in theFarm and Open Space Program, described below, willnot trigger the penalty, but the years of enrollment inthe Tree Growth Tax Law program will be included incalculating any penalty under the Farm and OpenSpace Program.

Statutory Citation

Me. Rev. Stat. Ann. tit. 36 §§ 571-581

Farm and Open Space Tax Law

When it instituted current use assessment for forestlands, the state also provided parallel relief for farmand open space land. These provisions are relevant toforestland because they may apply in instances wherethe forestland does not meet the eligibilityrequirements of the Tree Growth Tax Law.

Eligibility

In order to qualify, farmland must comprise of at least5 contiguous acres on which agricultural or farmingactivities have contributed $2,000 per year to thehousehold income in 1 of 2 or 3 of the 5 yearspreceding date of the application. Farmland includeswoodland and wasteland.

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In order to qualify as open space, the land does nothave to meet minimum acreage requirements, but thepreservation of the land must provide one of thefollowing types of public benefit: the conservation ofscenic resources, the enhancement of recreationalopportunities, the promotion of game management orthe preservation of wildlife or wildlife habitat.

For both farmland and open space land, thelandowner must submit a schedule to the assessor,who will then determine whether the land qualifies. Inapplying the criteria for open space, which aresomewhat subjective in nature, the assessor willconsider whether preserving the land will achieve oneof the required public benefits in light of all of thecircumstances surrounding the land and the vicinity.The statute suggests a number of factors the assessorshould consider, such as the proximity of the parcelto extensive development, the scenic, natural andfiscal consequences if the land were developed, therelationship of the property to conserved properties,the intent of the landowner to permanently protectthe land, the consistency of protection with local,state or federal planning objectives and a number ofother factors.

Tax Effect Once Qualified

For farmland, the municipal tax assessor, or State TaxAssessor for unorganized territories, will determinethe 100 percent valuation of the property accordingto its current use, guided by values set by theDepartment of Agriculture, Food and Rural Resources.The assessor must substantiate any deviations fromthese guidelines. Farm woodlands within thequalifying farmland, however, will be assessed

according to the values developed under the TreeGrowth Tax Law, described above. The assessor willthen adjust the 100 percent valuation by thepercentage of current use value applied to otherproperties in the jurisdiction.

For open space, the current use value is the fairmarket value of the land if it remained as open space.However, if the assessor cannot determine that value,the assessor can elect to reduce the ordinaryassessment by the total percentage for which the landqualifies when applying the following reductions on acumulative basis:

■ A 20 percent reduction for all open space;

■ An additional 30 percent reduction forpermanently protected open space;

■ An additional 20 percent reduction for foreverwild open space that is permanently protected;and

■ An additional 25 percent open space thatinvolves public access.

In the case of forestland, however, the value cannotfall below the value that would apply under the TreeGrowth Tax Law. After determining the value, theassessor will then adjust the 100 percent valuation bythe percentage used in the jurisdiction to determinethe assessment of all other property.

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Maine

Recapture Penalty

In the case of farmland, the penalty is equal to thetaxes that would have been paid for the preceding fiveyears, minus the taxes paid, plus interest. The penaltycan be paid in five annual installments. If the land hasbeen enrolled for less than 5 years, the penalty isequal to 40 percent of the assessed fair market valueof the land. In the case of open space, the penalty isthe same formula used under the Tree Growth TaxLaw, described above. In the case of both types ofland, the assessor will impose an additional 25 percentpenalty if the landowner does not notify the assessorof any change in use, but the assessor may waive thisadditional penalty for cause.

Certain transactions are not considered to be changesthat will trigger the tax. The transfer to anothercurrent use classification for property tax purposeswill not trigger the penalty but may affect the way inwhich the penalty is calculated for the property if itultimately is withdrawn or the use is changed. Thetransfer of ownership of a portion of an open spaceproperty will not trigger the penalty unless either orboth of the resulting parcels no longer provide thepublic benefit that allowed the property to beenrolled in the program.

Statutory Citation

Me. Rev. Stat. Ann. tit. 36 §§1102-1121

Standing Wood Taxed to Purchaser

If a landowner sells the wood, bark or timber standingon the land pursuant to a written contract, the ownermay notify the property tax assessor of the sale andthe assessor will impose the property tax on thepurchaser. This administrative provision does notaffect the actual property tax burden but rather onlythe identification of the taxpayer. (Me. Rev. Stat. Ann.tit. 36 § 562)

Property Taxation of Timber on Public Reserved Lots

The State can hold timber and grass claimed onpublic reserved lots for the payment of taxes assessedagainst the timber and grass. Timber forfeited underthis provision will be held by the Bureau of Parks andLands in trust for the benefit of the people of thestate. (Me. Rev. Stat. Ann. tit. 36 §§ 1541-1545)

Property Tax Exemptions

The personal property tax applies to tangible property,but it specifically exempts certain forest products fromthe definition of taxable personal property forest

products, including logs, pulpwood, woodchips andlumber. (Me. Rev. Ann. Stat. tit. 36 § 655)

The personal property tax exempts qualifying waterand air pollution control facilities. (Me. Rev. Ann.Stat. tit. 36 § 655) The property tax on real propertyalso exempts qualifying air and water pollutioncontrol facilities. (Me. Rev. Stat. Ann. tit. 36 § 656)Although these exemptions for pollution controlfacilities are not specific to the forest productsindustry, they may be directly relevant tomanufacturers involved in manufacturing forestproducts.

Business Property Tax Reimbursement

Taxpayers can claim a reimbursement from the state forproperty taxes paid on qualified business propertyplaced in service after April 1, 1995. Qualified businessproperty is defined in part as property held exclusivelyfor business purposes that is subject to depreciation,and it includes property attached to real estate that isused in a trade or business taking place in that buildingor on the land. This reimbursement is designed toovercome the cost of owning business property in thestate and to avoid a disincentive for the capitalinvestment, and although it is not specific to the forestproducts industry, it may be directly relevant.

This reimbursement is limited for certain energy-producing equipment, including co-generationfacilities, which again might affect the forest productsindustry. The portion of the co-generation facilityeligible for reimbursement is based on the ratio of (1)electricity produced and consumed withouttransmission by the manufacturing facility thepreceding year to (2) the amount of total energyproduced by the facility the preceding year.

In all cases, the reimbursement is available for up to12 years, but the number of years is reduced by thenumber of years for which the taxpayer also claims asolid waste reduction investment tax credit or aninvestment tax credit for the same equipment (seediscussion below). (Me. Rev. Stat. Ann. tit. 36§§6651-6663)

Sales and Use Tax Provisions

Exemptions

The sales and use tax exempts some sales that maydirectly or indirectly affect the forestry and forestproducts industry, although these exemptions mayreflect a range of policy goals. It exempts:

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■ Tree seedlings for use in commercial forestry(subsection 73);

■ Wood used for cooking and heating instructures used for human habitation andsleeping; (subsection 9-A);

■ Qualifying water and air pollution controlfacilities, including material used to construct,repair or maintain the facilities (subsections 29and 30);

■ Machinery and equipment used in theproduction of personal property for sale or forresearch and development in “an experimentaland laboratory sense” (subsections 31 and 32);

■ Tangible personal property that becomes part ofor is consumed during the production oftangible personal property for sale or lease(subsection 74); and

■ Packaging materials, including boxes and bagsthat could be forest products, where thematerials are used in the business of packingand shipping or for packaging and shippingitems for sale or servicing (subsection 12-A).

Me. Rev. Stat. Ann. tit. 36 § 1760.

Trade-in Credit

The sales tax provides a credit for trade-ins of certaintypes of products so that the sales tax will apply onlyto the difference between the sale price of thepurchased item and the trade-in allowance of thetrade-in property. Chain saws are eligible for thisrelief, and lumber harvesting vehicles were eligible forit until 1997. (Me. Rev. Stat. Ann. tit. 36 § 1765)

Income Tax Provisions

Income Tax Credit for Forest Management Planning

The income tax provisions provide a non-refundableincome tax credit for the cost of developing a forestmanagement and harvest plan, up to $200, for anyparcel of land greater than 10 acres. Plans preparedby a licensed professional forester in the regularemployment of the taxpayer do not qualify. Thecredit can be claimed only once every 10 years andtaxpayers who deduct the cost of preparing the planunder the federal Internal Revenue Code must reducethat deduction by the amount of the credit. (Me. Rev.Stat. Ann. tit. 36 §§5219-C, 5219-H)

Reclaimed Wood Waste and Cedar Waste Credit

From 1989 through 1993, the income tax provisionsincluded an income tax credit for reclaimed woodwaste and cedar waste. The credit, now no longer ineffect, was equal to $5 per green ton of reclaimedwaste purchased by the taxpayer and used in thetaxpayer’s plant in Maine for fuel for the generation ofelectricity of thermal energy. (Me. Rev. Stat. Ann. tit.36 § 5219-F (repealed)) Maine also had an investmenttax credit and a tax credit for solid waste reduction,both of which applied to investments made duringcertain time periods in the 1990s. (Me. Rev. Stat.Ann. tit. 36 §§ 5219-D, 5219-E)

Special Taxes

Commercial Forestry Excise Tax

Maine imposes an excise tax on the owners ofcommercial forest land (other than governmentalowners) for the privilege of engaging in forestry inthe state. The total amount of the tax paid each yearis 40 percent of the amount that the stateappropriates or allocates for forest fire protectionactivities, and the tax is allocated among landownersaccording to their acreage of commercial forest landin excess of 500 acres. Commercial forest land that issubject to the tax is defined as land eligible forclassification under the Maine Tree Growth Tax Lawunless governmental restrictions or deed restrictionsprevent commercial harvesting. (Me. Rev. Stat. Ann.tit. 36 §§ 2721-2728)

Real Estate Transfer TaxMaine applies a tax of $2.20 for each $500 in valueon the transfer of property, imposed half on thetransferor and half on the transferee. This taxprovides a number of exemptions, which includetransfers to governmental agencies and gifts of titleor interests in land (such as conservation easements)to charitable conservation organizations forqualifying conservation purposes. Ten percent of therevenues from the transfer tax are distributed to theregistries of deeds that collect the tax, and theremainder is distributed to the state to be used halffor the General Fund and half for the HousingOpportunities for Maine Fund. (Me. Rev. Stat. Ann.tit. 36 §§ 4641-4641N)

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Section 4Forest-Related Tax Provisionsin New Hampshire

Forest-related tax provisions in New Hampshire areincorporated primarily into the property tax, but it isuseful to put the property tax in the context of NewHampshire’s overall tax structure. New Hampshirerelies in large part upon:

■ The local property tax, plus a statewideproperty tax to fund education.

■ A variety of sales taxes rather than a generalsales tax, including a sales tax on tobacco (52cents per package of cigarettes) and meals androoms (8 percent).

■ A business profits tax of 8.5 percent of thetaxable business profits of businessorganizations.

■ A business enterprise tax of 3/4 of one percent ofthe taxable enterprise value tax base of businessenterprises, which is linked to the compensationand dividends paid by the enterprise.

■ An individual income tax of 5 percent only ondividends and interest.

■ A real estate transfer tax of $.75 for each $100of value.

The following paragraphs briefly describe the forest-related provisions in New Hampshire.

Property Taxation Provisions

Yield Tax

Standing wood and timber is not subject to thegeneral property tax, with the exception of specialtypes of trees such as fruit trees, nursery stock,Christmas trees and ornamental trees. Instead, thetimber is subject to a yield tax when it is cut at a rateof 10 percent of the stumpage value at the time ofcutting. The stumpage value is determined by thelocal assessor. Certain types of cutting do not triggerthe tax, such as when:

■ A person cuts up to 10,000 board feet a year onhis or her own land for the purposes ofconstruction, reconstruction, or alteration ofstructures (including fences) that person owns

in New Hampshire, provided the structures arenot built for sale;

■ A person cuts up to 20 cords of fuel wood forhis or her own consumption in New Hampshirefor domestic fuel purposes or any amount cutfor making maple syrup;

■ Federal or state government, cities, towns,school districts or other political subdivisionscut wood or timber for their own use; and

■ A person cuts up to 10,000 board feet of logsand 20 cords of wood or the equivalent inwhole tree chips a year from his or her ownproperty for land conversion purposes pursuantto all required permits.

Yield taxes collected by municipalities go into theirgeneral funds. Yield taxes collected in the unorganizedtowns or places are used first to pay the countycommissioners’ cost of administering the tax. Thecounty commissioners then distribute an amount(determined by the county’s legislative delegation to theDepartment of Resources and Economic Development)to be held in the Unorganized Towns and UnorganizedPlaces Forest Conservation Fund for the benefit of thetowns and places where the tax was collected. Themoney in this fund can be used for land use regulationand forest conservation purposes, which include forestand fire protection facilities and equipment and insectand disease control. Any remaining funds are allocatedamong unincorporated towns and places according tocollections over the prior two years and are used tooffset the county tax the next year.

N.H. Rev. Stat. Ann. §§ 79:1-19 (2002).

Current Use Taxation

In 1973 the New Hampshire legislature enacted theCurrent Use Tax in order to encourage thepreservation of open space and forest resources byreducing the risk that property taxation will cause theconversion of open space into more intensive uses.

Eligibility

Land that qualifies for current use assessment is “openspace land”, which includes “farm land,” “forest land”and “unproductive land” (including wetlands). Thestatute and the implementing rules adopted by theState Current Use Board contain definitions forqualifying land, but a significant feature relevant toforest land is that the land must total 10 or more acresin some combination of forest land, farmland orunproductive land (or a certified tree farm of any

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size). The owner of the land need not prepare orsubmit a forest management plan in order to qualifyfor current use assessment.

Tax Effect Once Qualified

Once qualified, the land is subject to assessmentaccording to assessed values established each year bythe state Current Use Board. The Board uses forestland classifications (White Pine, Hardwood and AllOther) and sets two ranges of values for each, one forproperties with documented forest stewardship andone for properties without stewardship. The localassessor will determine where the property fallswithin the range depending upon the class, grade,type and location of the land.

If a landowner opens the land to the public forrecreational use, without entrance fee, the Boardallows an additional reduction in the assessment ofthe current use value by 20 percent. To qualify forthis additional benefit, the landowner must allowskiing, snowshoeing, fishing, hunting, hiking andnature observation unless these activities would bedetrimental to a specific agricultural or forest crop oractivity. A landowner who opens land to the publicwill not be liable for personal injury or propertydamage to any person using the land.

Land Use Change Tax

The landowner must pay a land use change tax whenthe use is changed to a use that would not qualify forcurrent use assessment. Examples of changes areconstruction that causes physical changes in the earth(but not including construction of roads for forestrypurposes), excavation of topsoil, gravel or minerals(but not the removal of gravel or maintenance of roads

for forestry purpose) and changes in the size of theproperty so that the minimum acreage requirementsare not met. The tax is not triggered when theproperty changes from one use that qualifies forcurrent use assessment to another qualified use. Theland use change tax is equal to 10 percent of the “fulland true value” of the land, not the current use value.

The revenues from the land use change tax are paid tothe municipality. The municipality has the authority toput the revenues in a “conservation fund” separate fromthe general fund. In order to establish such a fund, themunicipality must follow statutory procedures thatrequire the matter to be voted upon by ballot at a townmeeting, in the case of a town, or to be adopted in thesame manner as an ordinance, in the case of a city. Ifthe municipality has not created a conservation fund,the revenues from the land use change tax are added tothe municipality’s general fund.

Statutory Authority

N.H. Rev. Stat. Ann. §§79-A:1-72 through 79-A:25-b

Conservation Restriction Assessment

If undeveloped land is permanently restricted forconservation uses, the land must be assessed based onthe permanent restrictions and, in no event, more thanthe fair market value of open space set by the CurrentUse Board. The landowner must apply for thistreatment, but no minimum acreage is required. In

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order to qualify, the protected land must have at leastone of the following demonstrated public benefits:

“(a) The preservation of land for the outdoor recreationby, or education of the general public, whereby:

(1) The general public must have the regularopportunity for access to and use of the land forpedestrian purposes; and

(2) The land has conservation and recreationalvalues which make it attractive for public use.

(b) A relatively natural habitat for fish, wildlife andplants, or similar ecosystem, whereby:

(1) The property must be in a relatively naturalstate; and

(2) Rare or endangered or threatened speciesmust be present; or the property must contributeto the ecological viability of a park or otherconservation area; or it must otherwise represent ahigh quality native terrestrial or aquatic ecosystem.

(c) The preservation of open space land, whereby:

(1) There is scenic enjoyment by the generalpublic from a public way or from public waters; or

(2) The open space protection is pursuant to aclearly delineated federal, state, or localgovernment conservation policy.

(d) The preservation of a historically important landarea, whereby:

(1) The property is either independentlysignificant due to recorded local, regional or statehistory, or is within a historic district; or

(2) The property is immediately adjacent to ahistoric district; or

(3) The land’s physical or environmental featurescontribute to the historic or cultural integrity of aproperty listed on the National Register ofHistoric Places.”

If the land is developed or used in a way that violates theperpetual restrictions, the owner must pay a property taxpenalty equal to 10 percent of the “full and true value” ofthe portion of the land that is put to inconsistent use andcan no longer qualify for reduced assessment under thisprovision. This penalty is in addition to any civilpenalties the landowner might owe.

N.H. Rev. Stat. Ann. §§79-B:1-6

Discretionary Easement

If land does not meet the criteria for open spaceunder the current use assessment program, describedabove, a landowner may seek to obtain a reducedproperty tax assessment by granting an easement tothe municipality for more than 10 years if the landdemonstrates a public benefit. These public benefitsare the same as those used to evaluate perpetualconservation restrictions, described above, plus twoadditional types of public benefits — the preservationof an airport and the preservation of a golf courseopen to the general public. The easement mustprohibit subdivisions or other development activitiesinconsistent with this provision.

If the municipality accepts the easement, themunicipality will assess the land according to amethod included in the easement, but the value,which the municipality will determine based on thepublic benefits conferred, must fall between (1) thevalues used for current use assessment of open spaceland and (2) an amount equal to 75 percent of the fairmarket value of the land multiplied by the currentequalization rate.

The easement is binding on the landowner andsuccessive landowners for the term of the easement.In case of extreme personal hardship, the landownermay apply for release from the easement, but if arelease is granted, the owner must pay 20 percent ofthe full value assessment of the land in the case of arelease during the first half of the term of theeasement and 15 percent in the case of a releaseduring the second half. The municipality may alsorequire a payment of up to 10 percent of the full valueassessment upon the termination of the easement if itincludes this provision in the easement agreement.

N.H. Rev. Stat. Ann. §§ 79-C:1-15

Exemption for Pollution Control Facilities

Treatment facilities used to reduce or control air orwater pollution are exempted from the property tax tothe extent that the facilities are used for pollutionabatement. The taxpayer seeking the exemption mustfile an application with the Department ofEnvironmental Services, which will notify themunicipality of the extent of the exemption. Thefacilities remain exempt for as long as they continueto be used for pollution control purposes. Althoughnot targeted to the forest products industry, thisprovision could apply to any qualifying pollution

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control facility used by the industry. (N.H. Rev. Stat.Ann. §§ 72:12-a, 72:12-b)

Exemption for Charitable Property

Real and personal property owned and used by acharitable organization for the organization’scharitable purposes is exempt from the property tax.A charitable organization is defined in part as anorganization that performs “some service of publicgood or welfare advancing the spiritual, physical,intellectual, social or economic well-being of thegeneral public or a substantial and indefinite segmentof the general public that includes residents of thestate of New Hampshire”. Each year the charitableorganization must file with the relevant municipalityan annual statement of the information necessary toestablish eligibility for the exemption. In addition, itmust file an annual list of all real property for whichexemption is claimed. (N.H. Rev. Stat. Ann. §§72:23.V and VI, 72:23-c, 72:23-l)

Exemption for Woodheating Energy System

Municipalities may choose whether to exempt fromthe property tax central heating systems that usewood or a combination of wood and another sourceof energy. The exemption is allowed only if themunicipality places the issue of exemption on theofficial ballot of the town elections and a majority ofthe voters approve the exemption. This exemptiondoes not apply to fireplaces or to woodstoves that donot operate as a central heating system or sole sourceof heat. (N.H. Rev. Stat. Ann. §§ 72:69-72)

Tax Abatement for Shade Trees

A person who plants and protects shade trees by ahighway adjoining his or her land can apply forabatement of property taxes, and the selectmen maymake an abatement to the extent they deem “just andequitable.” (N.H. Rev. Stat. Ann. § 76:19)

Special Taxes

Transfer Tax on Real Property

A transfer tax of $.75 per $100 of the price or otherconsideration (or a minimum of $20 for transferswhere the price is $4,000 or less) applies to transfersof real estate. The tax does not apply to some typesof transactions, including sales to governmental units,but it does apply to sales of land to conservationorganizations. Consequently, transactions involvingthe protection of forest lands would be subject to thetax unless a governmental agency is purchasing theland. The recent conservation transactions to protectthe Connecticut Lakes, which resulted fromInternational Paper’s sale of the forestlands, was notsubject to the transfer tax under a special legislativeprovision enacted for those transactions. Therevenues from the transfer tax, beyond the register ofdeeds’ cost of administering the tax, are paid to thestate treasurer. An amount equal to $.25 per $100 isdeposited in the education trust fund. (N.H. Rev. Stat.Ann. §§ 78-B:1 et seq.)

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Section 5Forest-realted TaxProvisions in Vermont

Forest-related tax provisions in Vermont are built intovarious different types of tax systems. These types oftaxes, which do not represent all the types of taxes inVermont, are:

■ The local property tax which funds municipalgovernment. A statewide property tax alsofunds education.

■ A general sales and use tax of 5 percent of thevalue of most tangible personal property andcertain services. Vermont also has other salestaxes with higher rates for certain property orservices, such as cigarettes, cars, meals andaccommodations.

■ A corporate income tax that ranges from 7percent of Maine net income to 9.75 percentfor net income in excess of $250,000.

■ An individual income tax that ranges from 3.6percent of taxable income to 9.5 percent ofincome. The threshold for the top marginal ratestarts at $307,050 for all taxpayers exceptmarried individuals filing separate returns, inwhich case the top marginal rate starts at$153,525.

■ Special taxes, including the hazardous waste tax.

■ A real estate transfer tax of one and one-quarterpercent of value.

The following paragraphs briefly describe the forest-related provisions within each of these tax systems.

Property Tax Provisions

Agricultural and Managed Forest Land Use Value Program

Like Maine and New Hampshire, Vermont has aprogram, started in 1977, that allows landowners toseek assessment of forestland based on its current use,not its fair market value.

Eligibility

The owners of agricultural land, managed forestlandand farm buildings can apply for current use assessment.Qualifying parcels must be at least 25 acres in size,exclusive of any house site. In the case of forestlands,land in private ownership must be under “active long-

term forest management for the purpose of growing andharvesting repeated forest crops in accordance withminimum acceptable standards for forest management.”Land owned by certain types of charitable organizationsmay be eligible if the land is under active conservationmanagement under standards set by the Commissionerof Forests, Parks and Recreation.

In order to qualify for current use assessment offorestlands, the landowner must file a signed, 10-yearmanagement plan with the Department of Forests, Parksand Recreation. The state will determine whether theland qualifies, but it will also seek advice from the localassessor about whether there are any reasons why anyparticular property should not be eligible.

Once the property is enrolled the landowner must filereports of management activity following the plan. TheDepartment of Forests, Parks and Recreation is requiredto audit the plans and monitor for conformance atintervals not exceeding five years, and any adverseinspection report that finds that the property is notbeing managed in accordance with the plan orminimum acceptable standards will disqualify the landfrom eligibility. If a parcel is removed from the programas the result of an adverse inspection report, thelandowner cannot apply for enrollment for five yearsand then must certify that measures have been taken tobring the property into compliance. At the end of each10-year plan, the owner must file a new plan.

In the case of agricultural land, eligibility is linked tothe active conduct of agricultural activities, whichinclude the cultivation of fruit trees and the productionof maple products, and requirements for minimumamounts of annual gross income from the sale of crops.

Tax Effect once Qualified

When the land is enrolled in the program, it is assessedbased on its current use value. These values arerecommended by the State Current Use Board and setby the director of the Division of Property Valuationand Review, who provides the local tax assessor withthe values. The land is then qualified for subsequentyears provided the assessing officials determine that theland’s use remains consistent with the management planand qualifies for the use value.

The program contains a provision requiring the state toreimburse the municipality for revenue lost as a result ofproperties enrolled in the program so that themunicipality will have no increase in its tax rate as aresult of the program. If the state does not appropriate

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funds sufficient to fully reimburse the towns, thereimbursements will be made on a proportionate basis.

Land Use Change Tax

If the land classified under this chapter is developed, thelandowner must pay the municipality a land use changetax. That tax is 20 percent of the full fair market valueof the changed land, or 10 percent if the property hasbeen enrolled for more than 10 years. If the landchange affects only part of the land, the tax is appliedto the fair market value of the affected portion, pro-rating the fair market value of the parcel by acreage.

For purposes of the change tax, development thattriggers the land use change tax includes construction ofany building or road (other than for farming, forestry orconservation purposes), the subdivision of the land intotwo or more parcels less than 25 acres each (withexceptions for intra-family transfers), and the cutting oftimber contrary to the terms of the management plan orminimum acceptable standards for forest management.

Landowners with enrolled land are required toimmediately notify the director of the Division ofProperty Tax Valuation and Review and the localassessor of any development or any other change thatwould cause the property not to be eligible, as well asany transfer in ownership (which would not triggerthe land use change tax). A landowner may petitionfor withdrawal of the land from the program andlisting of the property at its fair market value. Thatfair market value would be used as the basis fordetermining the land use change tax if the land issubsequently developed.

Statutory Authority

Vt. Rev. Stat. tit. 32 §§ 3751-3763,

Taxation of Land Held byConservation Organizations

Land owned by a publicly supported charity may beeligible for assessment based on its actual current use. Theorganization must be principally engaged in thepreservation of undeveloped land (including forestland)in order to prevent development, enhance scenicresources, increase employment and plan for orderlygrowth. If the land ceases to be used for the qualifiedpurpose, the owner will pay the municipality a conversiontax equal to five times the tax avoided as a result ofthe exemption during the most recent year. Alternatively,the land may be enrolled in the current use programdescribed above. (Vt. Rev. Stat. tit. 10 § 6303(b)).

Taxation of Land Subject to a Conservation Easement

If a landowner grants an interest less than the fee, suchas a conservation easement, to certain state agencies orcertain publicly supported charity, the owner of theland will be assessed only on the value of theremaining rights that the owner continues to own. Thecharity must be principally engaged in the preservationof undeveloped land (including forestland) in order toprevent development, enhance scenic resources,increase employment and plan for orderly growth. Theowner, the town assessor, the holder of the grantedrights and the state department of taxes will cooperateto determine the fair market value of the remainingrights. (Vt. Rev. Stat. tit. 10 § 6306(c))

Standing Timber

For property tax purposes, the sale of standing timberwill not affect the valuation of the underlying land.(Vt. Rev. Stat. tit. 32 § 3606)

Property Tax Exemptions

The state exempts various types of property from theproperty tax, some of which may affect holdings offorestland and the forest products industry. Forexample, the code exempts:

■ Real and personal property used for charitableuses, but this exemption does not apply totimber lands owned or leased by colleges,academies or public schools unless acquiredbefore January 28, 1911. (Vt. Rev. Stat. tit. 32 §3802(4))

■ Real and personal property used exclusively forabatement of water pollution of waters withinthe New England Interstate Water PollutionCompact. (Vt. Rev. Stat. tit. 32 § 3802(12))

■ Manufacturing establishments and equipmentfor a period of up to 10 years from the start ofthe business if the town votes to approve theexemption and the investment exceeds $1,000.(Vt. Rev. Stat. tit. 32 § 3834)

Sales and Use Tax Provisions

Exemptions

Vermont imposes a sales and use tax of 5 percent onthe sales of tangible personal property. The taxcontains a number of exemptions, some of which maybe relevant to the forest products industry. Forexample, it does not apply to:

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■ Property that is a component of or is consumedin the manufacture of tangible personalproperty for sale, machinery and equipmentused to manufacture tangible personal propertyfor sale, and devices that monitor themanufacturing process. This generallyapplicable provision would apply to purchasesof equipment by the forest products industry. Itwould also apply to inputs into themanufacturing process for forest products.

■ Property that “becomes an ingredient orcomponent part of or is consumed or destroyed,or loses its identify in the manufacture ofnewspapers”. For example, this provisionpresumably would apply to sales of newsprintby the forest products industry.

■ Packaging materials, such as boxes and bags,that a manufacturer or distributor uses forpacking or shipping tangible personal property.This generally applicable provision would applyto packaging products produced by the forestproducts industry or its customers.

■ Property used exclusively for industrial researchor development “in the experimental orlaboratory sense”, not ordinary testing orquality control.

■ Fuel (presumably including wood) used in aresidence for domestic heating and fuel used inmanufacturing tangible personal property for sale.

■ Sales of building materials which exceed $1million over three years (or $250,000 for certainmanufacturing facilities upon approval of theVermont economic progress council) or forqualifying downtown redevelopment projects.

■ Property incorporated into net meteringsystems, certain business energy systems notconnected to a utility’s electric distributionsystem, or qualifying property used in hot waterheating systems that use solar energy.

Vt. Rev. Stat. tit. 32 § 9741

Income Tax Provisions

Nongame Wildlife Account Checkoff

Income tax returns filed by individuals offer taxpayersthe opportunity to designate funds to the state’snongame wildlife account that otherwise would bepaid to the taxpayer as a refund or overpayment oftax liability. This mechanism was established to

provide an independent funding mechanism forresearch and management of nongame wildlife. (Vt.Rev. Stat. tit. 32 § 5862a)

Income Tax Credits for Economic Advancement

The Vermont tax code provides income tax credits forcertain economic advancement activities that apply tobusinesses in general but may also be relevant to theforest products industry. The Vermont economicprogress council decides on the eligibility of taxpayersfor these credits, based on the determination in partthat the economic activity would not occur but for theaward of the credit(s). Among the guidelines governingthe council are the extent to which the activity will:create new jobs for Vermonters that will contribute tothe employment in the area at wage levels at least ashigh as prevailing levels for the relevant business; havea positive fiscal effect; protect or improve Vermont’snatural, historical, and cultural resources; enhanceVermont’s historic settlement patterns; use Vermontresources; and use existing infrastructure or locate in anexisting downtown. Total amount of credits is set byappropriation each year. No one business can offsetmore than 80 percent of its income tax liability eachyear, and the credits can be carried forward (but notback) for five years. A business cannot request approvalfor more than three of the five incentives. The fiveincentives are:

■ A payroll tax credit;

■ A research and development tax credit;

■ A workforce development incentive tax credit;

■ A Vermont export tax incentive; and

■ A small business investment tax credit.

Vt. Rev. Stat. tit. 32 §§ 5930a-5930i

Gains Tax on the Sale of Land

Vermont imposes a tax on the gains from the sale orexchange of land held less than six years in order todeter short-term, high-profit land speculationtransactions. Accordingly, the tax rate variesdepending on the number of years that the land hasbeen held prior to the sale and the extent to which ithas increased in value.

The tax applies to transfers of land in excess of 10acres or transfers less than 10 acres if the land is notused for a principal residence. The tax also applies tothe sale of timber and timber rights within six years of

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their purchase if the underlying land is also soldwithin six years. The tax contains a number ofexemptions, including: purchases of land by the Stateof Vermont from certain charitable organizations;open-space land sold to certain publicly supportedcharities that are established to preserve agricultural,forestry and open space lands, provided the charityholds the property for at least six years; sales of landby the federal government or Vermont governmentalbodies; and sales of land by charities if the sale wouldbe exempt from federal income taxation.

The tax is applied to the taxable gain, which isdetermined by subtracting the basis (tax cost) of theland from the sales price, with certain adjustments.Reasonable expenses related to the sale may beexcluded from the amount realized from the sale,thereby reducing the taxable gain, unless the sellerhas owned the land for less than one year. In thatcase, the gross amount realized cannot be reduced bya total of more than 12 percent. The tax applies thefollowing rates to the taxable gain:

Vt. Rev. Stat. tit. 32 §§10001-10004

Special Taxes

Franchise Tax on Waste Facilities

Vermont imposes a franchise tax on the operators ofwaste facilities. The amount of the tax is $6 per ton ofwaste delivered for disposal at the facility or deliveredto a transfer facility for shipment to another facility orfor shipment out of state. If the waste is shippeddirectly out of state, the tax is paid by the commercialhauler of solid waste. Landfills that receive less than1,000 tons of municipal waste per year can pay thetax based on volume, rather than weight, at the rateof $2.60 per cubic yard.

The code exempts certain transactions from the tax,including waste delivered to a recycling facility forrecycling, sludge that is not delivered to a landfill,and brush, logs, stumps and roots, but not other woodwastes or products.

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Years land was held by transferor Gain, as a percentage of basis

0-99% gain 100-199% gain 200% or more gain

less than 4 months 60% tax rate 70% tax rate 80% tax rate

4 months, but less than 8 35% 52.5% 70%

8 months but less than 1 year 30% 45% 60%

1 year, but less than 2 25% 37.5% 50%

2 years, but less than 3 20% 30% 40%

3 years, but less than 4 15% 22.5% 30%

4 years, but less than 5 10% 15% 20%

5 years, but less than 6 5% 7.5% 10%

Vt. Rev. Stat. tit. 32 §§10001-10004

Although this is a general provision, it may affect themanufacturing procedures of the forest productsindustry, to the extent that they generate waste, andthe exemptions for wood materials may directly affectthe industry. (Vt. Rev. Stat. tit. 32 §§ 5952 – 5953)

Property Transfer Tax

When a landowner transfers a deed of title, thelandowner must pay a tax of one and one quarterpercent of the value of the property transferred, or $1.00whichever is greater. The value of the property is the fullconsideration, in the case of a sale, and the fair marketvalue in the case of a gift. This tax applies to transfers ofthe full title to the property and transfers of certainproperty interests, including perpetual easements.

Property that is enrolled in the current use program issubject to a lower tax of 5/10ths of one percent of thevalue of the property if the property is not converted toa use that would trigger the land use change tax underthe current use program for three years after thetransfer. The tax does not apply to certain exempttransfers. If the property is transferred to a publiclysupported charitable organization established to acquireproperty interests to preserve farmland or open space(land without structures), the transfer will either beexempted or the tax will be deferred until a subsequenttransfer, depending on the type or charity and the typeof public financial support the charitable organizationreceives. (Vt. Rev. Stat. tit. 32 §§9601-9602)

Revenue from the property transfer tax provides half of the funding for the Vermont Housing andConservation Board, which was created in 1987 toassist Vermonters with their goals of creating affordablehousing and conserving and protecting Vermont’sagricultural land, historic properties, important naturalareas and recreation lands that are “of primaryimportance to the economic vitality and quality of lifeof the state.” (Vt. Rev. Stat. tit. 10 §§ 301-324)

Vermont

Seeking AdditionalInformationIf you know of any forest-related provisions that arenot included here, or if you are aware of anyinformation about the effectiveness of any of theseprovisions, we invite you to contact Brian Dunkiel ofthe Friends of the Earth or the author of the report,Janet Milne. We would be delighted to hear from you.

Brian Dunkiel, Esq.(202) 222-0700

Prof. Janet E. MilneDirector, Environmental Tax Policy InstituteVermont Law SchoolSouth Royalton, Vermont 05068(802) 831-1266jmilne@vermontlaw.edu

[1] See US Census Bureau, Maine State Government Tax Collections: 2001,

http://www.census.gov/govs/statetax/0120mestax.html; US Census

Bureau, New Hampshire State Government Tax Collections: 2001,

http://www.census.gov/govs/statetax/0130nhstax.html; US Census

Bureau, Vermont State Government Tax Collections: 2001,

http://www.census.gov/govs/statetax/0146vtstax.html

[2] In New Hampshire, the tax is a business profits tax on all forms of

business, not just corporations

[3] New Hampshire repealed its inheritance tax in 2002.

[4] U.S. Census Bureau, States Ranked by Total Taxes and Per Capita

Amount: 2001, http://www.census.gov/govs/statetax/01staxrank.html.

Note: The author of this report thanks Ann Melander (Vermont Law

School ’04) for her assistance with the research.

Timber Taxwww.foe.org

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