12 



MICHIGAN ROADS AND FORESTS. 



income is assessed, but in forest properties it may 

 also be conceived to consist in the money value 

 of the annual wood increment on the actual stock, 

 no matter whether this is harvested annually or 

 intermittently or not at all, for, if not utilized It 

 becomes capital, re-invested income, invested in 

 woodgrowth; and if it is thrifty growing timber 

 it increases the rent producing capacity of he 

 property by the increased wood value which 

 comes with increased size. 



Logically, the assessment based on actual in- 

 come would appear the most reasonable, for 

 eventually all taxes must be paid out of income. 

 The practical objections are that it is difficut 

 to ascertain actual incomes, and that properties 

 allowed to lie idle would escape taxation to the 

 detriment of the community; hence, a mixed sys- 

 tem is more likely to produce satisfactory results. 



It is, of course, irrelevant in principle whether 

 the tax is assessed directly on income, actual or 

 potential, or on its capitalized value, although in 

 practical operation one or the other method may 

 appear preferable. In the end expediency will 

 vary the application of the method under differ- 

 ent conditions. Thus, in the old settled coun- 

 tries with fully established permanent commun- 

 ities and practically unchangeable conditions, the 

 rent value method may be practicable, while it 

 would be preposterous to apply it to the unset- 

 tled conditions of communities in the pioneering 

 stage. 



With regard to forest properties it has been 

 urged that the timber is really a crop, and not 

 a part of real estate, hence, should not be taxed 

 any more than the farmer's crop. But those ad- 

 vocating this theory overlook the fact that the 

 crop idea involves the idea of human effort, and 

 that in most cases in this country the mature 

 timber is an asset secured without such effort. 



Only when an effort has been put forward to 

 make the soil produce, can we speak of a crop. 

 Here again, the attitude of the owner and the 

 condition of the forest is of moment in charac- 

 terizing the stand either as accumulated capital 

 to be taxed, or as growing crop to merely serve 

 in determining the capital value of the soil, which 

 is then the taxable property. 



Is Timber a Crop? 



One of the latest contributors to the discussion 

 of equitable timberland taxation, having first 

 raised the crop idea, somewhat inconsistently 

 contends that "land should not be taxed at all, but 

 the timber after it is cut into logs. This, would 

 relieve the necessity for cutting half grown trees, 

 allowing them to grow to maturity first." He 

 then raises the very practical point that "the crop 

 of logs is a definite value, obtainable from scale 

 bills, while the value of wild land is something on 

 which no two timberland explorers ever agree." 



At any rate, it would appear reasonable to dis- 

 tinguish in the assessment between the soil value 

 and the stumpage value, the former to be based 

 on the productive capacity of the soil either for 

 farm nse or for forest use, and the tax on stump- 

 "ffJeT of course, to cease when the timber is re- 

 moved. In this connection it should not be over- 

 looked if stump lands are to be assessed on their 

 farm value, the cost of preparing them for farm 

 use is properly deducted from the final farm 

 value. 



It has been pointed out that timberlands af- 

 ford no income until the timber is cut, and since 

 taxes are, or ought to be, paid out of income, the 

 tax should be levied when the timber is cut, as- 

 sessing the actual cut at its fair stumpage value. 

 The principle would appear just, but the practical 

 objection to this method is that administrations 

 have annual needs for funds, and cannot be de- 

 pendent on the whim of owners as to when and 

 how much they propose to cut, and hence an an- 

 nual tax must be levied. The method of assess- 

 ment must therefore be modified to meet this 

 necessity, which is perhaps also best done by a 

 separation of land tax and stumpage tax. 



German Forest Taxation. 



This is the principle on which German forests 

 are taxed, and it may be of interest to briefly 

 recite the latest development in forest taxation in 

 that country, although the methods may not be 

 applied directly under our conditions. 



In that country forestry practices, i. e., man- 



agement for continuity being general and to a 

 large extent enforced, all forest properties are 

 treated in the tax scheme from that point of view. 

 While there are variations in the method of as- 

 sessment in the different states, they all are in 

 the last analysis based on the productive power 

 of the soil and the tax is assessed usually both 

 against the income and the capital invested in the 

 business. 



When a sustained yield management exists, i. 

 e., one which yields an annual cut, the capital 

 represented in the growing stock or timber is con- 

 sidered taxable as well as the income, while in 

 intermittent management instead of the growing 

 stock the soil rent value, i. e., the soil considered 

 on the basis of its productive capacity is the tax- 

 able property. 



In Wurttemberg a revision of the tax law was 

 effected in 1905, following closely the Prussian 

 precedent. Both state and county taxes are as- 

 sessed against forest property. For state pur- 

 poses the taxable income is the actual sale re- 

 sults, cash or credit, of the regular cut, principal 

 and intermediary harvest. The domestic con- 

 sumption of the owner at local average prices as 

 well is considered income. Extraordinary cuts 

 are taxed if they are made to secure cash or to 

 change the use of the area as for farm purposes ; 

 but if occasioned by natural disaster, like wind 

 fall, insect pests, snow breakage, etc., the results 

 are not considered taxable income, for this en- 

 forced cut is considered a misfortune, a loss 

 against the owners' interests, because it disturbs 

 his regular management. 



As expenses are charged not only, all the usual 

 expenditures incurred in the management, but the 

 cost of new plantations also and bad debts of for- 

 mer years if they had been figured as incomes, 

 but costs occasioned by extraordinary cuts in- 

 cluding those of reforestation, do not figure any 

 more than the incomes from such timely utiliza- 

 tion. 



Besides this income tax the hitherto customary 

 realty or soil tax is continued at a reduced rate. 

 This is based not on the income, but on the pos- 

 sible net yield the possibilite of the French and 

 this yield capacity is determined once for all by 

 experts, after classification of the land according 

 to quality. This assessment of the so-called "tax 

 capital," which does not consider individual con- 

 ditions or special methods of management, is sup- 

 posed to hold good for a long period, and is 

 changed only when changes in use and in prop- 

 erty conditions arise. 



For municipal taxation this tax capital forms 

 the basis, the annual county or town expenditure, 

 as far as not otherwise satisfied, being appor- 

 tioned among the owners. The rate on the tax 

 capital varies from year to year, and in 1906 was 

 20 mills the same as on real estate in Toronto. 

 The rate on incomes is determined every two 

 years. The law, however, states a normal rate 

 on a sliding scale, which varies between 2 and 5 

 marks, according to size of income. It is evident, 

 that we have not yet reached such stable condi- 

 tions in the lake states to permit the application 

 of this method, but it is, at least suggestive. It 

 may be of interest to add that the forest soil in 

 Prussia is assessed in the tax lists upon the basis 

 of a net yield varying from 18 cents to $1.25, 

 averaging about 50 cents, while farm soils are 

 taxed on a basis of a net yield of SI cents to $3.96, 

 or, $1.82 on the average. 



I may not, without exhausting my time, analyze 

 in detail the conditions of the other classes of 

 woodland, stumplands, good and bad, from the 

 standpoint of the tax assessor, except to point out 

 that the attitude of both owner and assessor are 

 naturally changed when the timber is cut, and 

 hence entirely different principles and practical 

 considerations enter. But still expediency, i. e., 

 justice to the commonwealth or to the communal 

 interests as a whole in the broadest sense, rather 

 than theoretical personal justice, will probably 

 dictate the procedure, and the attitude of the 

 owner towards his cut-over lands will, and ought 

 to, influence the assessment. 



Fostering Forestry Methods. 



At this point my second main question comes 

 in : how far may the taxing power be utilized to 

 favor the introduction of forestry methods in the 



treatment of woodlands, i. e., to induce owners of 

 timberlands to make them permanent revenue 

 producers ? This, no doubt, is the question which 

 interests this convention even more than the first, 

 namely that of just taxation. 



The principles which would justify the consid- 

 eration of such woodland properties dedicated to 

 hearsed again and again and are familiar. It is 

 ments for tax release or exemption have been re- 

 hearsesd again and again and are familiar. It is 

 claimed, with more or less good reason, that for- 

 est growth is a condition beneficial to the com- 

 munity at large, through its influence on climate 

 and water flow. I call your attention to the fact 

 that these influences are not under conditions evi- 

 dent or proven, and that the location of the forest 

 areas has much to do with the value of their pro- 

 tective function. That is to say, not all forest 

 growth has protective value. 



Another argument is, that the long time in- 

 volved in producing forest crops, the risks in- 

 volved in this kind of crop and various other 

 characteristics of the business of forest cropping 

 are discouraging elements to private enterprise, 

 and hence taking also into consideration the gen- 

 eral need and the general benefit which come to 

 the community at large, this business is consid- 

 ered, as needing the encouragement of an infant 

 industry by reduction or exemption from tax. 



Forestry a Business. 



I have, myself, again and again attempted to 

 show that forestry is a business siii generis, that 

 owing to the long time element mainly, it is ex- 

 ceptional, and may, therefore, justify exceptional 

 treatment even by the tax gatherer. But, admit- 

 ting all the arguments in favor of the principle 

 of partial or entire tax release, as a theoretical 

 proposition, two practical questions must not be 

 lost sight of, namely, first, the difficulty of devis- 

 ing and administering an adequate tax release 

 law, and the still more important question : Is 

 there any reason for expecting that the benefit of 

 tax release will offset the objectionable features 

 of the forestry business from the point of view 

 of private enterprise. 



There have been and there are, as you know, 

 statutes in various states designed to encourage 

 forestry by tax release, tax exemption and boun- 

 ties. If you will investigate the results of the 

 earlier attempts at such encouragement, you will 

 find that they are practically nil. And if you will 

 scrutinize even the newer legislation you will find 

 that it is mostly not only crude, impracticable to 

 administer and from the forester's point of view 

 inadequate, but they usually limit the area which 

 is to enjoy the release to small wood lots, as if a 

 larger area devoted to timber growth would not 

 be a benefit to the community. They limit the 

 kind of trees to be considered eligible for tax re- 

 lease specifically, instead of in general terms. They 

 make lowest limits of the number of trees which 

 would never produce satisfactory results. They 

 limit the length of time for which the release is 

 given, without adequate reasons. 



While I would not deny the possibility of fram- 

 ing adequate legislation and its practical adminis- 

 tration in states where competent forest commis- 

 sions arc in charge, I wish to raise doubts as to 

 whether this encouragement can reasonably be 

 expected to do much good, except perhaps in the 

 case of the small farmer's wood lot. When it 

 comes to raising a nation's and even a state's log 

 supply the much more important problem the 

 matter is very different. 



Even under the small wood lot plantation the 

 benefit of tax release compared with the neces- 

 sary expenditure on one hand and compared with 

 the financial result of the venture on the other 

 hand, can hardly be adequate. At best the tax 

 release would average hardly more than 10 cents 

 per acre, which at 5 per cent, would at the end of 

 30 years have accumulated to $7.90. But to plant 

 the acre and keep it in condition the expenditures 

 would certainly not have been less than $10 in 

 the first place, and at the end of the period would 

 have accumulated to $50. That is to say, you 

 invite the owner to invest six times the amount 

 of the release to secure its benefits, if this were 

 the amount and time for the tax release. On the 

 other hand, if a log proposition of white pine 

 were involved, I have no doubt that with the in- 



