Oregon Timber Taxes
Prepared by Terry Lamers.
Updated Jan. 19, 2016 Forestry Consultant, Dallas, Oregon
Two Kinds of Taxes - Harvest Tax & Severance Tax
There are two different taxes that may be triggered upon the harvest of timber. These are the Oregon Forest Products Harvest Tax, (FPHT, frequently called the “harvest tax”) and the Severance Tax. All owners of harvested timber pay the Oregon Forest Products Harvest Tax. The Severance Tax is actually optional.
Note that I am not referring to income taxes: You will show a gain or loss on the sale of timber or logs, and that will be dealt with on your 1040 at both the federal and state level.
For both timber taxes, scaled logs, and logs sold by the ton are taxed. Logs sold by the ton are converted to thousand board feet by dividing the tons by 7.5 or 11, depending on log diameter.
Where do I get these tax forms?
The tax forms you will need to file, with payment, are mailed to you from the Oregon Department of Revenue if you filed a Notification of Operations with the Oregon Department of Forestry indicating you would harvest timber. These tax forms typically arrive in your mailbox around Dec. 1 if you filed the Notification of Operations several weeks before, or earlier. If you filed a Notification of Operations but did not actually harvest (and no tax is due) you still must fill out the forms and return them to the Oregon Department of Revenue stating that no harvest occurred.
When is the tax due?
Tax is due by Jan. 31 for harvest in the prior year, but if the Harvest Tax liability is over $1500 in a year, quarterly payments are required. There is no quarterly payment requirement for the Severance Tax. Penalties for filing late are substantial.
For most people, filing before the end of the year will be advantageous. Why? You possibly had higher income because of the harvest, so that the deduction against your income will likely do more good if it is taken in the year of the harvest. After all, the timber taxes are due on Jan. 31, so you might as well write the check one month earlier to get the deduction in the year of harvest.
Harvest Tax Rates
(These are set by the Oregon Legislature)
- Year of Harvest - Tax Rate per Thousand Board Feet, Scribner Log Scale
- 2004 - $2.95
- 2005 - $2.85
- 2006 - $2.61
- 2007 - $2.61
- 2008 - $3.58
- 2009 - $3.90
- 2010 - $3.58
- 2011 - $3.58
- 2012 - $3.68
- 2013 - $3.68
- 2014 - $3.53
The first 25,000 board feet is exempt from the Harvest Tax each year.
Where does Harvest Tax revenue go?
Where the Harvest Tax Revenue Goes. (Also set by the legislature)
- Forest Practices Program 35%
- Protection Fund (fire) 17%
- OSU Forest Research Lab 24%
- OFRI (Oregon Forest Resource Institute) 24%
There is nothing you can do to minimize the payment of the Harvest Tax, unless you choose not to harvest, or harvest no more than 25,000 board feet/year, so we will not dwell on this tax. Money can possibly be saved from understanding the Severance Tax, so we will concentrate on it.
Severance Tax and Similar Taxes
To understand the other timber tax you might pay, a little background on the forestland property tax system in Oregon will help. Until 1977 land and timber were taxed based on value, (Ad Valorem) so if you had a large volume of valuable timber on your land it was more heavily taxed than if the volume was lower. This was detrimental to holding timber for the long term investment that it is, and many legislators wanted the law changed.
The 1977 legislature got rid of Ad Valorem taxation of timber and put into place a system where land is valued, for taxation purposes, based on the ability of the land to produce timber, but except for the 100% WOSTOT (Western Oregon Small Tract Optional Tax) program, only 20% of that land tax was collected annually, with the 80% theoretically collected at the time of harvest via a “severance tax”, which for a few years was called a “privilege tax,” a term I detested. The Severance Tax is frequently called the 20-80 system, where the forest land in this option is valued at only 20% of Maximum Specially Assessed Value for forestland, and the severance tax is collected after a timber harvest to (theoretically) collect the other 80% of land taxes that had not been paid.
This tax program was in trouble for several reasons, mainly because it had the highest cost to administer of any Oregon tax program. It was also a cumbersome nightmare for large producers to file, because the old severance tax system was based on log grade, species, value etc. There were too many variables, which resulted in many errors, especially by small private forestland owners. One truck load of logs could easily have several different grades of logs, with different taxable values for each grade.
In 1999, the legislature passed HB 3575, which put forestland owners with 5,000 acres or more, or less than 10 acres, into the 100% program: They would pay all of their land taxes every year, and there would be no severance tax upon harvest. (The Harvest Tax must still be paid)
Now, to be in the Small Tract Forestland Program, as the current 20-80 program is called, a person with over 10 and less than 5,000 acres of forestland must opt into the program by filing a form with your local county assessor’s office. This form is titled “Application for Small Tract Forestland.” If you own 10 acres or less, or 5,000 acres or more you are automatically in the 100% program, and therefore pay no severance tax. Also, if you did not file the “Application for Small Tract Forestland” form since 2004 (when the law went into effect) you are in the 100% “Forestland Program” as all forestland in the state went into this system when the law changed.
Should you be in the Small Tract Forestland Program (STF) and literally pay 20% of your land taxes annually, with a Severance Tax if you harvest, or is it advantageous to pay 100% of the land taxes yearly, with no severance tax upon harvest? That is the question!
There is an Excel Spreadsheet on the Oregon Department of Revenue website that may help you decide which program is right for you. Go to: http://www.oregon.gov/dor/timber and then click on “choosing a tax program.” At this website there is also much information about the timber tax programs, as well as the form titled “Application for Small Tract Forestland,” that is to be filed with your county assessor to get into the Small Tract Forestland Program.
For most people the right choice of which program to be in is rather clear, because of the age of marketable species, stocking levels, goals of the owners, etc. Here are some guidelines:
The 100% program will probably result in less taxes paid if you:
Likely will harvest substantial volumes of timber in the near future, beyond sustained yield amounts: Not just one year but several years of substantial harvests. Practice intensive forest management, where expected yields and harvests are very high. Your property is in a taxing district where tax rates are low.
The STF (20-80) program will probably result in less taxes paid if:
You have younger timber where large volume harvests will be years away. Much of your land is not producing timber that you can harvest, because of poor soils, large riparian areas, non-marketable tree/brush species, or other non-productive areas. You practice less intensive forest management. Your goals and objectives place timber production and harvest as low priorities. Your property is in a tax district where tax rates are high.
Keep in mind that only timber (all species) is taxed in this system. Alternative forest products such as firewood, salal, ferns, boughs, moss, mushrooms, etc. are not.
STF rates for 2015:
- Western Oregon $5.33/thousand board feet
- Eastern Oregon $4.03/thousand board feet
These tax rates are tied to the changes in value of forestland, which is in Oregon statute. In Western Oregon for 2015-2016 these values vary from $8.50/acre for the lowest site to $641.54/acre for the very highest site. In Western Oregon, Site 3 land (a site commonly owned by low elevation small woodland owners) is valued at $362.08/acre for 2015-2016. In Eastern Oregon, for 2015-2016, the land is valued at $72.66. Increases in value are limited by law to a maximum of 3% from the prior year.
Once you opt into the STF program you must remain in that program, so it is important you understand the ramifications before you opt into the program, as you can’t opt out.
The land automatically reverts to the 100% system upon sale of the land. The new owner has to apply to join the STF program.
All contiguous tax lots of the same owner must also be in the STF program.
Deadline to apply for the STF without penalty is April 1 of the first year you want the land to be assessed as STF, except after a forestland purchase, when you have 30 days after the county assessor notifies you of a disqualification of the STF because of the sale. You apply for the STF program by filing the form with your local county assessor’s office. The Oregon Revised Statutes (ORS) that deal with the STF program are ORS 321.706 to 321.719
In 2013 the Small Tract Option Severance Tax receipts were distributed as follows:
- County Fund: 35%
- State School Fund 60%
- Community College Fund 5%