Taxes and the Southern Forest 
William C. Siegel and Clifford A. Hickman (1) 
The influence of taxes on American forests, an 
issue even in colonial times, became a matter of 
serious concern during the decade of the 1920's. 
Prices of forest products during those years experi- 
enced the steepest and longest decline in their his- 
tory, and woodland owners suffered disastrous 
losses of income. Tax delinquency on forest lands 
became a national problem. 
As part of the Federal Government's attack on 
forestry problems, Congress passed the Clarke- 
McNary Act in 1924. One section of this legislation 
called for a nationwide study of forest taxation, sub- 
sequently carried out under the title "Forest Taxation 
Inquiry." The monumental and comprehensive re- 
port of the study (Fairchild and Associates 
1935)--sometimes called the "Fairchild Report" after 
its author--is still a basic forest tax reference. 
Following the Fairchild Report, both the Federal 
Government and the individual States began to 
place greater importance on the privately owned 74 
percent of American commercial forests, and on 
taxation's impact upon the stewardship of these 
lands. The result has been the promulgation during 
the last 50 years--both at State and Federal 
levels--of a multitude of special tax laws designed to 
encourage forest management and timber invest- 
ment. 
Tax legislation has been an important compo- 
nent of the evolution of southern forestry. Historical- 
ly, the first special forestry tax statutes were prop- 
erty and yield tax laws enacted at the State level. 
New forest property tax laws are still being written 
and older legislation amended. Next to appear were 
the special timber provisions of the Federal income 
tax. These statutes, too, have been dynamic in na- 
ture. Statutory, judicial, and administrative changes 
in the Federal timber income tax law continue to be 
made on a rather frequent basis (Siegel 1978a). Of 
more recent origin are the timber provisions of the 
Federal estate tax legislation, and those State in- 
(1) William C. Siegel is the leader of a project on forest 
resource law and economics at the Southern Forest 
Experiment Station, USDA Forest Service, New Or- 
leans, LA. Clifford A. Hickman is principal economist 
with that project. 
come tax and State death tax statutes that address 
forestry. 
The Federal Income Tax 
The Federal income tax treatment of timber- 
related receipts and expenditures has been of par- 
ticular interest to forest resource managers in the 
South. The 
16th amendment to the Constitution, ratified on 
February 25, 1913, established the constitutional 
basis for a Federal income tax. Subsequent rapid 
enactment of the 1913 Revenue Act, which became 
effective on March 1 of that year, implemented the 
tax. Thus began the continuous series of income tax 
laws which have evolved into the Internal Revenue 
Code of 1986, under which the tax is presently ad- 
ministered. 
Timber Depletion 
Timber is a natural resource; thus it is a de- 
pletable rather than a depreciable asset. The deple- 
tion deduction provides for the tax-free recovery of 
the cost or other basis of the timber as it is cut. A 
deduction for timber depletion has been allowed 
since the beginning (Siegel 1978b). All revenue acts 
since have contained essentially the same provi- 
sions with respect to timber depletion, and the ad- 
ministrative regulations have not materially 
changed. 
Long-Term Capital Gains 
With the exception of the depletion allowance, 
timber owners and operators during the years 1913 
through 1943 were subject to the same Federal in- 
come tax rules as other taxpayers (Siegel 1978b). 
Standing timber during those years was recognized 
as a Capital asset. Therefore, when it was sold out- 
right in a lump-sum transaction, the sale was con- 
sidered to be a disposal by an investor of a capital 
asset--provided that the timber had not been held 
by the owner for sale to customers in the ordinary 
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