AGO 1955 No. 40 - Mar 16 1955
TAXATION ‑- PROPERTY TAXES ‑- VALUATION OF MERCHANTABLE TIMBER ‑- TAX COMMISSION'S TIMBER APPRAISAL MANUAL.
The "period of cutting" and "rate of logging" factors listed in the timber appraisal manual prepared by the Tax Commission are proper factors to consider in common with the other factors herein listed in determining the valuation of merchantable timber for property tax purposes.
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March 16, 1955
Mr. Robert L. Charette
Grays Harbor County
Montesano, Washington Cite as: AGO 55-57 No. 40
You have requested our opinion as to the propriety of considering certain factors in determining the market value of timber for property tax purposes.
1. Is the period of cutting (i.e., the period within which it is probable that a tract of timber being assessed will be harvested) a proper factor which an assessor should take into account in determining the true market value of timber?
2. If the answer to question 1 is in the affirmative, is the rate of logging in area (i.e., the rate of logging in the past, adjusted to reflect any relevant facts affecting the projection of that rate into the future) a proper factor which should be taken into account by an assessor in determining the period of cutting?
We conclude that both the period of cutting and the rate of logging in the area are proper factors to be considered in determining the fair market value of timber.
[[Orig. Op. Page 2]]
You relate that a question has arisen with respect to the application of the formula for appraisal of merchantable timber which is set forth in the Timber Appraisal Manual promulgated by the Tax Commission, pursuant to chapter 20, Laws of 1951, second extraordinary session. One of the factors in the formula as set forth by the manual is termed "period of cutting". Five such periods are listed. As the period of cutting increases the present value of timber is said to decrease.
You indicate that an opinion of this office to the Tax Commission of March 12, 1952 [[Opinion No. 51-53-257]], has raised some question as to the propriety of considering the period of cutting factor. That opinion in part states:
"Where mature timber is so situated that it is physically impossible to harvest the same in the year of the assessment due to its inaccessibility, such factor should be considered by the assessor in determining its assessed valuation, the timber being of less value than similar timber which is accessible and is possible of harvesting in the year of assessment."
We feel the above is a correct statement, when understood not to exclude the other factors listed by the manual.
As stated above, the manual suggests that the present value of merchantable timber decreases directly as the period of cutting increases. The manual thus recognizes that the current stumpage price of timber should be discounted in proportion to the time which will elapse before the timber can be logged. This principle appears to be generally recognized by timber appraisal experts. Though the average current stumpage price obtained in sales of timber is $15.00 per thousand, it should not be assumed that such price is the fair market value of all the timber within a county, since it will necessarily be several years at least before all the timber can be logged.
"* * * no businessman would pay as much for an inventory of goods to be sold in the future, [[Orig. Op. Page 3]] with all the attendant costs and risks of doing business, as he expected to sell it for. * * *" Rothery ‑Forest Taxation in the Pacific Northwest, 1952 at page 19.
The merchantable timber which cannot be logged currently stands subject to the risks of fire, insects and disease, and incurs expenses for protection and taxes.
As stated by Chapman and Meyer in their book,Forest Valuation (McGraw Hill 1947) at page 142:
"The price that a purchaser of standing timber can afford to pay is influenced by the promptness with which he can convert the stumpage into salable products * * * The present worth of a 20 year stock of timber depends on the prospective net income receivable over this period. This series of not earnings must be discounted, i.e. 'capitalized,' at an acceptable rate just as for land. The resulting value will be appreciably less than that based on the product of 1 (the current) year's calculated future net annual income multiplied by the total period of operation, * * *"
See Appeal of Coburn Heirs, Inc. 7 U.S. Tax Appeals 365 at 370.
The current stumpage price of the various species of merchantable timber should not be taken as the fair market value of that part of the timber in a given area which cannot be logged currently. The timber appraisal manual makes proper adjustment for this lapse of time by establishing the period of cutting as a factor in valuation.
Rate of logging in the area is stated by the manual to be one of the objective factors to consider in determining what the period of cutting will be. Consideration of such factor employs the past experience in the area as an indication of the likely future rate of cutting. However, the manual properly recognizes that the past rate of logging alone is not the sole determinant of [[Orig. Op. Page 4]] the cutting period. Other factors included on page 12 of the manual are: the distance from usable roads; the practicability of constructing a logging road to the tract; and such other factors as the assessor considers applicable.
The rate of logging factor itself is determined by reference to past logging operations and probably future operations, both as affected by plans for extension of public roads in the area. The manual thus suggests that proper allowance be made for changing situations such as construction of new sawmills and roads in an area which may accelerate the logging rate and shorten the period of cutting. Conversely, proper allowance is provided for events which may tend to decrease the rate of logging in an area and increase the period of cutting.
As stated in our opinion to which you have referred, timber in common with all property must be valued at 50% of its fair market value. Adjusting the current stumpage price, which is probably the most reliable factor in fixing value, according to the length of time which will pass before logging occurs, merely recognizes an essential principle in determination of the fair market value of merchantable timber.
We conclude the period of cutting is a proper factor to consider in common with the other factors given by the timber appraisal manual in the valuation of merchantable timber. Furthermore, the rate of logging in the area in the past, adjusted to reflect any relevant facts affecting projection of that rate into the future, is a factor which should be considered in determining the period of cutting.
Very truly yours,
Assistant Attorney General