Taxation Modifications 
The influence of taxes on American forests, an issue even 
in colonial times, became a matter of serious concern dur- 
ing the 1920’s. The Clarke—McNary Act of 1924 called for 
a nationwide study of forest taxation, subsequently carried 
out under the title “‘Forest Taxation Inquiry.’’ The major 
report of the study, sometimes called the Fairchild Report 
after its author, was published in 1935 (Fairchild and Associ- 
ates 1935). In response to the tax problems described in the 
Fairchild and other reports, both the States and the Fed- 
eral Government have developed a number of special tax 
laws designed to encourage forest management and timber 
investment. 
State Forest Tax Laws 
In the South, four basic kinds of special State laws relating 
to the taxation of forest property have been developed— 
exemptions, modified assessments, yield taxes, and sever- 
ance taxes. Exemption laws remove forest land and/or tim- 
ber from property tax rolls permanently or for a specified 
number of years. Modified assessment laws provide a re- 
duced tax rate or a different valuation standard for forest 
properties. For example, forest property may be valued by 
a ‘‘current use’’ standard rather than fair market value at 
‘‘highest and best use.’’ Under yield tax laws, forest land 
is subject to the normal or modified annual property tax, but 
timber values are untaxed until harvest. At that time, a tax 
based on some percentage of the stumpage value is imposed. 
Severance taxes, also imposed at the time of harvest, are 
customarily based on a fixed amount per unit of product har- 
vested rather than a percentage of value and are assessed 
against the timber operators. The time of passage and ex- 
tent of usage of these laws by State is shown in figure 2.9. 
Federal Taxes on Timber 
In the case of Federal taxes, the 1943 Revenue Act and Sec- 
tion 631 of the Internal Revenue Code allowed income from 
both timber sales or use by owners to be treated as capital 
gains, with lower tax rates than applied to ordinary income. 
A further amendment to the Code in 1980 allowed taxpay- 
ers to amortize over 8 years the first $10,000 of expendi- 
tures for reforestation, together with a tax credit equal to 
10 percent of the first $10,000 of such costs. 
The 1986 Federal Tax Reform Act changed the capital gains 
provision in the Internal Revenue Code in several respects, 
including a change in the capital gains tax rates to equal 
the rate on ordinary income. However, it retained the 
amortization and tax credit for reforestation and the 
expensing of annual management costs. The major timber- 
related provisions of current Federal income tax law are 
summarized in appendix table 2.23. 
There is very little quantitative data on the impacts of the 
special State and Federal tax laws on timber resources and 
timber supplies. However, they have generally reduced man- 
agement costs and provided incentives for investments in for- 
est management programs. In addition, in many Southern 
States some of the revenues from special forest taxes, and 
particularly that from severance taxes, have been used to 
directly support tree planting and other forestry programs. 
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