48 CIRCULAR 899, U. S. DEPARTMENT OF AGRlCUliTURE 



might impose an unduly severe penalty on the owner if his lands at 

 the time of classification were stocked with merchantable timber. 



If land is declassified by State action because the owner has failed 

 to devote the land to the required purpose a penalty may justifiably be 

 included in the declassification tax. This would help to pay the ad- 

 ministrative costs associated with the classification and declassification 

 of land that was not devoted to forestry or was put to a use contrary 

 to the purpose of the law. If the penalty is desired the declassification 

 tax could be the yield tax on merchantable timber or the difference 

 between the tax on classified and unclassified land with interest, which- 

 ever is the greater amount. 



The yield-tax lav: should not disturb local revenues unduly. — The 

 optional yield-tax laws in effect have not disturbed local revenues 

 appreciably. This has been due largely to the fact that relatively 

 small areas of land have been classified under these laws. There ex- 

 ists, however, a great potential capacity to reduce local revenues. 

 Eeports from individual counties where timber has been cut heavily, 

 where large areas of cut-over land have subsequently been classified, 

 and where yield taxes have been small, indicate that serious problems 

 of local finance have developed. 



The seriousness of the problem under a law of general application 

 or under an optional law expected to be widely used will vary accord- 

 ing to forest conditions and present methods of taxation in different 

 States. The most serious loss of local revenue resulting from a gen- 

 eral or wide application of the yield-tax principle might be expected 

 in areas containing large volumes of mature timber on which the 

 property assessment recognizes these timber values, which will be 

 subject to clear cutting before the land is classified, and which will 

 be replaced by a new crop only after many years. The least effect 

 will be felt in areas where timber values are not recognized in current 

 assessments, where timber stands are made up of many age classes. 

 and where production subject to the yield tax is carried on at a fairly 

 regular rate. The first situation, the serious one. has been character- 

 istic of some of the counties in northwestern Oregon. The second, 

 the least serious one. is illustrated by the State of Mississippi where 

 county revenues actually have been increased under the yield tax. 



The disturbance of local revenues may be the result of either of two 

 circumstances. If total payments under the yield tax are made equal 

 to what payments under the property tax would have been, the taxing 

 jurisdiction will suffer only a postponement of revenue, to be made up 

 when yield-tax payments increase. But if total payments under the 

 yield tax are less than payments under the property tax would have 

 been, the local unit suffers from both a postponement of revenue and 

 an absolute loss of revenue. 



The first situation resulting from the postponement of revenue may 

 be taken care of in a number of ways. If the current reduction in 

 revenue is small the local government may be able to absorb it through 

 economies or slight increases in the tax rate. If the reduction is too 

 great to be absorbed and the county has ample borrowing power it 

 can issue bonds or other evidences of indebtedness to which vield-tax 

 receipts are pledged. Or the State may set up a fund from which 

 counties are reimbursed to the extent of revenue losses due to the 

 exemption of timber from the property tax. the fund to be replenished 



