July 



1919 



HARDWOOD RECORD 



21 



flepartmect appears as a buyer of the timber with everything to gain by 

 the lowest possible valuation, and the timber owner appears as the seller 

 of the timber with everything to gain by the highest possible valuation. 



The government comes not as the ordinary buyer, but one possessed 

 o£ the right of eminent domain with undoubted right to examine our rec- 

 ords, to fix a valuation and to tax us accordingly, leaving our only remedy 

 the slow, tedious and expensive one of the courts — a way almost pro- 

 hibitive to most of the smaller timber owners. 



With all his powers, the commissioner of internal revenue has hesitated 

 at the tremendou.s ask of the valuations involved and no timber depletion 

 charge has yet been determined by the revenue department. In cases in- 

 volving depletion charges the department has admitted the charge claimed 

 by the timber owner without contest, but the tremendous amount of tax 

 dependent upon a fair and correct determination of timber charges has 

 caused the commissioner to establish a timber section for the purpose of 

 valuing the entire stand of timber in this country in 1913 and of audit- 

 ing the returns of all lumber manufacturers since 1915. 



Major David T. Mason was appointed chief of this unit, as timber 

 valuation expert, which will consist of a group of regional valuation 

 engineers and an organization of accountants and auditors at Washing- 

 ton. The valuation of timber and a certain portion of the audit of income 

 returns "will be based on information obtained by the forest industries 

 questionnaire, which has been compiled under the direction of Major 

 Mason. The principles on which this questionnaire is based were discussed 

 at a conference between the officials of the timber section and the bureau 

 of economics of the National Lumber Manufacturers' Association, at which 

 conference representatives of forest industries, other than lumber, were 

 present. The conference was held in Washington from June IS to June 

 28. Mr. Stiles W. Burr of St. Paul was spokesman for the industry and 

 Major Mason for the Bureau of Internal Revenue. The following general 

 principles were assented to by the representatives of both the government 

 and the industry. Although the wording is my own and exception may be 

 taken to my phraseology, I believe no exception will be taken to the sub- 

 stance. 



Conclusions of the Conference 



The forest industries questionnaire will inquire, first, as to purchases 

 and sales of timber since 1910 of 1,000 acres or more : second, as to total 

 timber owned March 1, 1913 ; third, aggregate purchases and sales March 

 1, 1913 to 1918; fourth, timber cut March 1, 1913 to 1918. 



The purpose of these inquiries is to determine the unit value of each 

 species of timber and the number of such units owned by the tax payer 

 March 1, 1913. Maps are called for, for it is recognized that the unit 

 value of timber is materially affected by its location with respect to mill, 

 the extent and character of its grouping or blocking, and the general loca- 

 tion with respect to market. 



Questions are also formed to determine the relative accuracy of the 

 estimates on which purchases and sales are based, as the ratio of the 

 estimate to the actual stand is also the ratio of the unit price on this 

 estimate to the unit value for depletion. 



Conditions surrounding or affecting the purcha.se or sale are also in- 

 quired into as these surrounding conditions affect the validity of the 

 price obtained as a factor in determining unit value. 



Actual cutting results are asked for as a check to the ratio of esti- 

 mates. 



As land and sometimes other physical property are acquired or sold 

 with the timber, these items must be given their proper weight in allocat- 

 ing consideration for the timber only. 



With respect to the detail of the information called for, the conference 

 committee has gone through the questionnaire with what might be called 

 a fine tooth comb, and we can assure the industry that every question, 

 every table, every column of every table has a definite and practical use, 

 either for the determination of value or the auditing of returns. 



The answering of the questions as they apply to each taxpayer will be 

 limited to the tax payer's records. He is not asked to recruise or re- 

 estimate, but he is expected to compile his existing data and to make use 

 of his own knowledge of his timber. lie is expected to, and for that 

 matter he has the privilege to, determine the anumnt in feet log scale 

 and cords and pieces of his standing timber on March 1, 1913. This he 

 can do by compiling his estimates, determining their rate of accuracy 

 where his records show both estimate and yield in a specihc acreage, oy 

 his own experience in cutting, by any evidence that he considers pertinent, 

 and he is expected to make this determination of his stand as of March 

 1, 1913, in good faith and to show how he did it. If growth, decay, fire, 

 changed methods of cutting enter into his problem, he must fairly deal 

 with each. 



It is realized that although the timber owner might have made this 

 100% estimate of his timber in the year 1913. he then had no occasion 

 to do so, and yet he is entitled to all the benefit that would have accrued 

 to him, had he done so, but no more, so, that if the present determinatior 

 made in good faith subsequently develops a gross error, he is clearly en 

 titled to set up at some future time a correction of his quantity, rathei' 

 than a change in his unit prices. But the error to be a gross error mus(, 

 be clearly free from the element of growth, decay, and changed logginf; 

 specification, and must be greater than the casual error within the ordi 

 nary limits of accuracy inherent in even the most careful cruising. 



It is not expected that the information given by the average operator 

 in response to the timber portion of the questionnaire will furnish a suf 



Sclent basis for approving the unit value claimed for depletion charges. 

 Perhaps in some large grouping of associate interests this will be the case, 

 but the individual returns of data will not be expected to be sufficient in 

 each individual case to prove the tax payer's own valuation. Hence thi; 

 function of valuation engineer and the great co-operative assistance of 

 the timber section of the Bureau of Internal Revenue by virtue of which 

 every answer to every question helps swell the aggregate volume of valuf - 

 evidence acquired from all, for the benefit of each individual tax payer. 

 It is because of this co-operative feature of the questionnaire that th? 

 bureau of economics of the National Lumber Manufacturers' Association 

 feels it strictly within the field of association effort ; first to confer with 

 the revenue department as invited by Mr. Callau and Mr. Mason with 

 respect to the actual framing of the forest industries' questionnaire; sec- 

 ond, to maintain through Secretary Manager Compton and his office a 

 representative of the National Association in Washington to keep the in- 

 dustry and the timber section of the revenue bureau in close touch ; thirl, 

 to urge upon the regional associations an active campaign of educaticn 

 and instruction among its membership, and among all other timber owin- 

 ers in its territory respecting the proper filling out of this questionnaire. 



Recommendations 



Further, the conference committee earnestly recommends confidence in 

 the bureau of revenue. J. H. t'allan, the deputy commissioner, has In 

 the opinion of the committee, adopted the general outline of a course 

 eminently fair to the lumber industry, granted that the revenue depai t- 

 ment's interpretation of the law is correct. We recommend confidence In 

 Major 11. T. Mason, both as to his fairness of mind and as to his special 

 knowledge of the conditions affecting timber values in the various regions, 

 and to his training as a forest economist, and in Chas. E. Boggs adviser in 

 connection with the particular accounting problems of the lumber in- 

 dustry, and in the other officials of the revenue department appearing at 

 the conference. Our first hand Impression after a ten days' conference — 

 and we wish to pass this impression on to every. timber owner — was tlatj 

 we would get a fair deal from these men, but we were fully impresiied 

 with the fact that these men know their business, and our business, and 

 we most emphatically warn any tax payer in the industry not to try to 

 get by with anything that is not right. 



The conference committee also most particularly urges the taxpayer to 

 post himself thoroughly as to his timber values, for an understatement 

 of these values reflects on the correct valuation made by his neighbor, and 

 we also particularly warn against over-statement of value for such a 

 statement will be detected and tend by that much to discredit other faiily- 

 made statements. And we warn against substantiating fair valuation by 

 evidence that is not trustworthy, for the introduction of erroneous ( vi- 

 dence will reflect on an otherwise honest valuation. 



We urge against voicing of objections and complaints at the labor in- 

 volved in answering the questionnaire. The questionnaire is the remidy, 

 the only remedy, any one had devised for our relief from the hazard of 

 applying a "standardized" law to a "specialized " industry. Our objeeuon 

 and complaints are with the law, not with this effort of the revenue de- 

 partment to administer the law in a way that will insure fair treatment 

 to the lumber industry. If you balk at the questionnaire or slight it, 

 you are to some extent prejudicing your own case, and you are also pre- 

 judicing the case of other timber owners Avho are helping you by their 

 conscientiously answering the questionnaire. 



If the mass of evidence should cause the timber section to queslion 

 an individual valuation. Major Mason has promised that the taxpayer 

 would be advised and given an opportunity to submit further evidsnce 

 or argument. This the conference committee is fully satisfied with because 

 the question then ceases to be one of common interest, but becomes the 

 special case of the individual, 



I shall not touch upon the further sections of the questionnaire, ex- 

 cept to say generally of them, what I have already said of the timber 

 section ; the same practical importance justifies each question and schedale; 

 the same necessity exists for accuracy; the same ground for co-operative 

 helpfulness, and the same underlying basis of fair treatment ; the same 

 desire not to put the tax payer to unnecessary trouble or expense. The 

 conference committee recommends that the same consideration be given 

 to these sections as to the timber section. 



It is the consensus of the conference committee representing the re- 

 gional associations that each association itself should devise machiuery 

 tor compiling data for its region from this questionnaire, and that imch 

 regional meetings as are called on this subject, should include the discus- 

 sion of a program that will provide for the recording of such regional 

 statistics. The bureau of economics of the National Lumber Mani.fac- 

 turers" Association will act as a central clearing house for the aggregation 

 of this statistical information from each region for the entire industry. 



I cannot conclude without a tribute to the ability, the reasonableaess 

 and the unselfish labor of the members of the conference committee selejted 

 by the bureau of economics. These men represented nearly all regions 

 of the Industry, and also pulp-wood interests in the eastern and New 

 England states. The committee was composed of lumbermen, attorneys 

 familiar with our problems, and accountants of wide and responsible ex- 

 perience. I also wish to express our obligation to the Southern Pine, the 

 West Coast, and the California .\ssociations for the presence of Mejsrs. 

 Rickey, C. P. Moore, and Stowell Smith, and to Attorneys Boyle, Burr, 

 and Andrews for their lucid arguments and sane counsel, and our thanks 

 to Dr. Compton, E. T. Allen, and Robert Ash for their supervision of the 



