6 CIRCULAR S99, U. S. DEPARTMENT OF AGRICULTURE 



PRINCIPLE AND APPLICATION OF THE YIELD TAX 



TAX AND REVENUE FEATURES 



The basic principle of the yield tax is the postponement of all 

 taxes on growing timber until the time of harvest. This tax post- 

 ponement applies only to the growing timber ; the land remains under 

 the general property tax or is subject to fixed annual payments made 

 in place of the property tax. The owner of forest land is not relieved 

 of all annual tax payments by a yield tax. but generally the greater 

 part of the total tax is deferred until income is received from the 

 catting and sale of forest products. 



The amount of the yield tax is determined by the amount or value 

 of the timber cut. The latter is the method in general use, and the tax 

 is a stated percentage of the stumpage value of the timber harvested. 

 The yield tax is to be distinguished from the deferred timber tax 

 under which the timber continues to be assessed and taxed under 

 the property tax. with part of the accumulated tax debt deferred 

 to the time of harvest. The principle of the two taxes is similar 

 but the method of computing the tax is different. 



The yield tax is also to be distinguished from the privilege or 

 occupational taxes generally known as severance taxes. "Whereas 

 the yield tax takes the place of the property tax on timber, the 

 >everance tax is imposed in addition to regular property-tax or yield- 

 tax payments. 2 The purpose of the severance tax is to provide 

 additional revenue, usually dedicated to forestry activities of the 

 State, The nature of the yield tax, on the other hand, is to shift the 

 time of payment of taxes on timber. 



Eates on land and timber under the yield tax can be established 

 to provide a subsidy to forest-land ownership, to equal approximately 

 the amounts that would be paid under the property tax, or to exceed 

 the alternative property-tax payments. Since in 12 of the 14 States 

 with yield-tax laws the classification of forest land is largely subject 

 to the decision of the owner, he can avoid the last situation by not 

 offering his land for classification or by objecting if it is listed for 

 classification. In some States an effort has been made to equate the 

 payments that would be made under the yield-tax law and under 

 the general property tax. The reasoning has been that the yield-tax 

 provisions should not contain any element of subsidy, and that the 

 deferment of taxes would be sufficient to encourage forestry. Other 

 States, thinking they had reduced taxes under the yield-tax law, 

 have required the observance of certain practices by the forest land- 

 owners in return. In still other States it has been recognized that 

 the yield-tax rates were higher, on the average, than property-tax 

 rates. 



FORESTRY FEATURES 



An important objective of the yield tax is to make possible the 

 stable ownership of forest land and to encourage the practice of 



■ Six States imposed taxes on the severance of timber in 1950. Of these, 

 three also had yield-tax laws. One of the three, Louisiana, exempted from 

 the severance tax timber subject to the yield tax. 



