THE FEDERAL INCOME TAX AND THE FOREST INDUSTRIES 



1469 



ence of camps for the planters would pollute the water 

 of the cities using it for a municipal supply. One promi- 

 nent citizen spoke with ridicule of the project, claiming 

 it was absurd to spend the people's money for reforesta- 

 tion above an altitude of seven thousand feet because 

 above this altitude the growth was so slow that such 

 plantings could never be of value. Now that the trees 

 show well over the plantations, there is nothing but 

 hearty approval for what has been accomplished. Those 



people who are locally interested in seeing the gradual 

 growth of these trees, which have been planted arti- 

 ficially in order to heal the ghastly scars on the slopes of 

 Pikes Peak, to render these worthless areas productive 

 and ensure an abundant supply of water where every 

 drop is worth its weight in gold — I say, those who see 

 these things realize that an excellent work has been ac- 

 complished and is being carried forward for the benefit 

 of the public. 



THE FEDERAL INCOME TAX AND THE FOREST INDUSTRIES 



BY MAJOR DAVID T. MASON 



FOREST VALUATION EXPERT OF THE U. S. TREASURY DEPARTMENT 



THE Federal Income Tax Law in its present state 

 is a gigantic factor suddenly injected into Ameri- 

 can business affairs. 



It was not until 1913 that an amendment to our Fed- 

 eral Constitution made a Federal income tax lawful. For 

 four years before that time there had been an excise tax 

 on corporations based on income. This tax and the new 

 income tax took only one per cent of the net income of 

 corporations for the years 1909 to 191 5. For 1916 the 

 tax rate increased to two per cent. These rates were 

 so low that business was only slightly affected and paid 

 little attention to the tax. 



With the coming of the war, however, huge amounts 

 of money were required by the Government for im- 

 mediate use. The income tax rates for 1917 and later 

 years were greatly increased to secure a large part of this 

 revenue. The year 191 3 saw sixty million dollars paid in 

 income taxes ; for 191 7 the amount had been increased to 

 fifty times as much and three thousand million dollars 

 were collected. From an insignificant factor in its ef- 

 fect upon the affairs of business and individuals the in- 

 come tax had suddenly become of enormous importance. 

 For one group of lumber companies the income tax now 

 takes approximately fifty per cent of the net income. In 

 many individual cases the tax amounts to considerably 

 more than fifty per cent. 



We have emerged from a great war with a national 

 debt so huge that a billion dollars will be required yearly 

 to pay the interest ; an additional large amount will be 

 needed to reduce the principal of the debt. The annual 

 expense of the Federal Government before the war 

 amounted to a billion dollars and an increase has taken 

 place since that time. Prohibition has removed one of 

 the important sources of Government revenue. Thus it 

 is clear that the income tax will be an important factor 

 in the business affairs of the United States for many 

 years to come. Business men in all their plans for the 

 future must take the income tax carefully into considera- 

 tion. It is, of course, the policy of the Government to ad- 

 just the income tax so that, as great a burden as it must 

 necessarily be, it will cause the least inconvenience. In 

 order to deal with the whole situation in the most intelli- 

 gent way the Bureau of Internal Revenue has secured 

 the aid of specialists in framing the original revenue bills 

 and in drawing up the regulations under which the 



new revenue laws are being administered. The pres- 

 ent income and excess profits tax law presents unusual 

 problems in the case of certain industries such as 

 those engaged in the production of mineral, oil, gas 

 and lumber, which use up natural resources as they 

 operate. The law recognizes as property free from tax 

 the value which such resources had on March 1, 1913, the 

 date upon which the Federal Constitution was amended 

 to provide for an income tax ; all increases of value after 

 that date are treated as net income to be taxed in the 

 year in which the income is realized. This problem in- 

 volves the careful determination of the quantity of the 

 natural resources owned on March 1, 1913, and the unit 

 values of such resources at that time. 



To deal with this and many other vital but less im- 

 portant problems the Natural Resources Division of the 

 Bureau of Internal Revenue was organized in 1918. At 

 first engineers were appointed to deal only with the af- 

 fairs of the oil, gas and mining industries. In the spring 

 of 1919, largely at the request of the forest industries, 

 the Timber Section of the Natural Resources Division 

 was organized to handle these problems in their relation 

 to timber. To deal intelligently with the situation, the 

 staff of the Timber Section includes a group of forest 

 engineers individually familiar with the more important 

 forest regions of the country such as California, the 

 Douglas fir region, the Inland Empire, the Rocky Moun- 

 tains, the Gulf Coast Pine region, the Lake States, the 

 Atlantic Coast Pine region, the Hardwood region, and the 

 Northeast. In order that the regional forest valuation en- 

 gineer may have the data upon which to act, it is necessary 

 to secure from each individual taxpayer of the forest in- 

 dustries a statement describing in detail his timberland, 

 his plants, and his operations during recent years. For 

 this purpose a questionnaire is now being distributed to 

 the taxpayers. This questionnaire will gather data re- 

 lating to the kinds and quantities of merchantable timber 

 and young growing timber owned, the prices at which it 

 has been sold in recent years, the average cut per acre in 

 different regions, the losses of timber from fire and other 

 causes, the extent to which forests are protected, the rate 

 of growth of the old and young timber, systems of 

 forest management used, the character of the manu- 

 facturing plants, the kinds and quantity of lumber pro- 

 duced each year, and many other important matters. 



