HOUSE BILL REPORT

HB 1156

As Reported by House Committee On:

Agriculture & Natural Resources

Finance

Title: An act relating to consolidating designated forest lands and open space timber lands for ease of administration.

Brief Description: Consolidating designated forest lands and open space timber lands for ease of administration.

Sponsors: Representatives Blake and Orcutt.

Brief History:

Committee Activity:

Agriculture & Natural Resources: 1/29/13, 2/14/13 [DPS];

Finance: 1/16/14, 2/4/14 [DPS(AGNR)].

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 12 members: Representatives Blake, Chair; Lytton, Vice Chair; Buys, Ranking Minority Member; MacEwen, Assistant Ranking Minority Member; Chandler, Haigh, Hurst, Kretz, Orcutt, Schmick, Van De Wege and Warnick.

Minority Report: Do not pass. Signed by 3 members: Representatives Dunshee, Pettigrew and Stanford.

Staff: Jason Callahan (786-7117).

Background:

All property is subject to a property tax each year based on the property's value unless a specific exemption is provided by law. The state Constitution authorizes agricultural, timber, and open space lands to be valued on the basis of their current use rather than fair market value. Two programs currently implement this constitutional exception to fair market value: the "forest land" program and the "open space" program. Forest Land Program.To qualify for current use valuation under the forest land program, the land must be 20 acres or more and be used primarily for growing and harvesting timber. Qualifying land includes land used for incidental activities that are compatible for growing and harvesting timber but that is no more than 10 percent of the overall land. Qualifying land also includes land on which buildings, machinery, and other personal property necessary for the production and sale of timber products exist.

The application for forest land designation includes date of acquisition, a copy of any existing timber management plan prepared by a trained forester, an explanation of the nature and extent to which any existing plan has been implemented, and other evidence of the owner's intent to continue using the property to grow timber. The timber management plan includes a statement that the forest land consists of 20 or more contiguous acres and is devoted to growing and harvesting timber. The application and the timber management plan are each required to include a legal description of the land, a description of the timber or the plan for restocking, a statement about whether the forest land is used for grazing, and a statement that the applicant is in compliance with the state's forest practice laws and rules. The valuation of designated forest land is set by statute and is based on the value of the bare land for growing and harvesting timber. The value of standing timber is exempt from property tax and harvested timber is instead subject to a separate excise tax.

Land is removed from forest land designation: (1) at the request of the owner; (2) by sale or transfer to an ownership making the land exempt from tax; (3) by sale or transfer to a new owner unless the new owner signs a notice of continuance; or (4) by a determination that the land is no longer primarily used for growing and harvesting timber or is not being managed in accordance with forest practices laws and rules. Land may not be removed from the designation if the owner is prevented from harvesting timber because of land use restrictions.Upon removal from the designation, the land is revalued to market value as of January 1 of the year of removal. In general, land that is removed is subject to a compensating tax equal to the tax benefit received in the most recent year multiplied by the number of years the land was designated, not to exceed nine. An exception to the compensating tax is allowed under certain conditions.Open Space Program.

Within the open space program, property may be valued at current use within three different classifications: farm and agricultural land; timber land; and open space land.Land qualifies for the open space timber land program if the land is at least five or more acres or multiple parcels of land that are contiguous and in which there are at least five acres devoted primarily to the growth and harvest of timber for commercial purposes. Qualifications include the same limitations concerning incidental activities, property necessary for the production and sale of timber products, and residential sites as in the forest land program.An owner desiring current use classification under the open space timber program must apply to the county legislative authority. The application includes: legal description; date of acquisition; a description of the timber or the plan for restocking; a statement of whether the land is covered by a forest management plan and the extent to which the plan has been implemented; a statement about whether the forest land is used for grazing; a statement that the applicant is in compliance with the forest practice laws and rules; and other information that is analogous to that required under the forest land program. The elements of the application are considered a timber management plan.Open space timber land is valued according to the same schedule by which forest lands are valued. The criteria for classification continue to apply after classification has been granted. With some exception, land classified under the open space programs must remain under the program for at least 10 years following initial classification. However, if within the 10-year period the use no longer qualifies under the open space program, or the owner requests withdrawal, or a sale of the property is made and the new owner does not sign a notice of intent to continue within the open space program, then the land is withdrawn from the program and additional tax, interest, and penalties apply.

If the owner wishes to withdraw the land from current use after 10 years, the owner must notify the assessor two years prior to having the land withdrawn. The withdrawal then triggers the requirement to pay additional tax and interest, but no penalty is imposed.Land upon which short-rotation hardwoods are cultivated may be classified under the open space timber land program or the open space farm and agriculture program. If classified under the timber land program, harvested trees are subject to the forest excise tax.

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Summary of Substitute Bill:

County legislative authorities are authorized to merge the county's open space timber land program into its designated forest land program. In a county that merges programs, the county must enact an ordinance that terminates its open space timber land program and declares land that had been in the timber land program is to be designated forest land. The date that property was classified as open space timber before the ordinance is considered to be the date of designation under the forest land program.

The removal of land from an open space timber land program as a result of a merger of programs is exempt from additional taxes, assessments, interest, and penalties.

The designated forest land program is also modified for all counties, regardless if the county enacts an ordinance merging the two programs. The minimum size requirement for land to be designated as forest land is reduced from 20 acres to five acres.

Also applicable to all designated forest land programs (not just those subject to a merger) is a change in the nature of timber management plans. The statutorily required elements of a timber management plan are made optional. In addition, an assessor may require a timber management plan if there is reason to believe that the land sized 20 less than acres is no longer being used for forest land purposes.

Substitute Bill Compared to Original Bill:

The substitute bill: (1) removed a requirement that a parcel must be managed for commercial purposes in order to be considered designated forest land; (2) allows a two-year grace period for land to change official designation after a county merger of programs; (3) limits the ability to order a timber management plan when a parcel is suspected to not being used in a qualifying manner to only those parcels that currently quality as under the open space program; and (4) requires counties to report any program mergers to the Department of Revenue for inclusion on a list of counties with merged programs.

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Appropriation: None.

Fiscal Note: Available.

Effective Date of Substitute Bill: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) This bill creates a way for county assessors to operate more efficiently and reduce bureaucracy. Merging the two programs will create a more efficient county office because managing the open space program for timber is time consuming and expensive. Landowners often move in and out of the two current use tax programs for various reasons, and are often faced with fees and delays for doing so. Merging the programs makes this process easier and less expensive for the taxpayers. The administration savings of a merger more than offset the lost fees. The tax rates are not changing, so there is very little tax impact on the counties.

(Opposed) None.

Persons Testifying: Representative Blake, prime sponsor; Dianne Dorey, Lewis County; Terry McLaughlin, Cowlitz County; Bruce Walker, Pacific County; and John Ehrenreich, Washington Forest Protection Association.

Persons Signed In To Testify But Not Testifying: None.

Majority Report: The substitute bill by Committee on Agriculture & Natural Resources be substituted therefor and the substitute bill do pass. Signed by 13 members: Representatives Carlyle, Chair; Tharinger, Vice Chair; Nealey, Ranking Minority Member; Orcutt, Assistant Ranking Minority Member; Condotta, Fitzgibbon, Hansen, Lytton, Pollet, Reykdal, Springer, Vick and Wilcox.

Staff: Jeffrey Mitchell (786-7139).

Summary of Recommendation of Committee On Finance Compared to Recommendation of Committee On Agriculture & Natural Resources:

No new changes were recommended.

Appropriation: None.

Fiscal Note: Available.

Effective Date of Substitute Bill: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) Combining these programs will provide benefits to both programs. It is not mandatory; counties may opt in. This bill will streamline office procedures and lower administration costs for assessors. It will also lower the cost to owners. There is no difference in tax revenue, and no tax shift.

(Opposed) None.

Persons Testifying: Representative Blake, prime sponsor; Bruce Walker, Pacific County and Washington State Association of County Auditors; Dianne Dotey, Lewis County and Washington State Association of County Assessors; and John Ehrenreich, Washington Forest Protection Association.

Persons Signed In To Testify But Not Testifying: None.