WSR 00-05-033

PROPOSED RULES

DEPARTMENT OF REVENUE


[ Filed February 9, 2000, 2:25 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 99-24-037.

Title of Rule: Amend WAC 458-12-320 Timber and forest products -- Ownership -- Roads and repeal WAC 458-12-315 Timber and forest products -- Valuation.

Purpose: WAC 458-12-315 explains valuation of timbers sold by a governmental agency and owned separately from the publicly owned land. WAC 458-12-320 declares that timber standing on federal land is not taxable until title to it passes to a taxable party. It also deals with assessment and taxation of a right-of-way or easement over land adjacent to publicly owned timberland.

Statutory Authority for Adoption: RCW 84.04.080 and 84.33.074.

Statute Being Implemented: RCW 84.04.080, 84.33.040, and 84.33.074.

Summary: The contents of WAC 458-12-315 and 458-12-320 are out-of-date. Property Tax Bulletin 97-1 reflects the current valuation and assessment practices related to public timber sales. The proposed rule combines the bulletin's information into Rule 320 and supplants the out-of-date information contained in the two existing rules.

Reasons Supporting Proposal: The proposed text of WAC 458-12-320 will provide taxpayers and local taxing officials with the majority of information they may need regarding the valuation and assessment public timber sales. The department intends to repeal WAC 458-12-315 and cancel Property Tax Bulletin 97-1 when WAC 458-12-320 is permanently adopted.

Name of Agency Personnel Responsible for Drafting: Kim M. Qually, 711 Capitol Way South, #303, Olympia, WA, (360) 664-0086; Implementation and Enforcement: Sandy Guilfoil, 6004 Capitol Boulevard, Tumwater, WA, (360) 753-5503.

Name of Proponent: Department of Revenue, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: Timber on publicly owned land is exempt from property tax. However, when timber on publicly owned land is sold by a governmental agency, it is subject to personal property tax. The amount of personal property tax paid on this public timber is used as a credit towards any timber excise tax that is normally assessed on all timber harvested. Information now provided in WAC 458-12-315 and 458-12-320 needs to be updated and should be consolidated into a single rule. Current valuation and assessment practices relating to public timber sales are provided in Property Tax Bulletin 97-1 (Procedure for assessment of state timber sales). This bulletin, rather than either of the existing rules, is used by taxing officials in determining value of public timber held separately from public land. The contents of the bulletin should be combined with pertinent information in WAC 458-12-315 or 458-12-320 into one rule. The proposed rule will provide taxpayers and local taxing officials with the majority of the information they may need regarding public timber sales. The amended version of WAC 458-12-320 will establish uniform procedures to be used in determining the taxable value of timber sold by agencies of state and local government separately from publicly owned land. It will also describe the origin and use of the state timber sales adjustment table, the effect road construction costs have on the true and fair value of the timber, and the method used to determine the amount and value of timber remaining from a public timber sale on each January 1st assessment date.

Proposal Changes the Following Existing Rules: The proposed rule-making action will consolidate WAC 458-12-315 Timber and forest products -- Valuation, WAC 458-12-320 Timber and forest products -- Ownership -- Roads, and Property Tax Bulletin 97-1 (Procedure for assessment of state timber sales) into a single rule. The property tax bulletin accurately reflects the current assessment and valuation practices related to sales of public timber sales. The contents of this bulletin have been rewritten and form the basis of the proposed rule, WAC 458-12-320. WAC 458-12-315 and Property Tax Bulletin 97-1 will be repealed or cancelled when WAC 458-12-320 is permanently adopted.

No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required because the rule and the proposed amendments do not impose any requirements or burdens upon small businesses that are not already specifically required by statute.

RCW 34.05.328 does not apply to this rule adoption. This rule is an interpretive rule as defined in RCW 34.05.328.

Hearing Location: Evergreen Plaza Building, 711 Capitol Way South, 2nd Floor Conference Room, Olympia, WA, on March 23, 2000, at 1:30 p.m.

Assistance for Persons with Disabilities: Contact Ginny Dale no later than ten days before the hearing date, TDD 1-800-451-7985, or (360) 586-0721.

Submit Written Comments to: Kim M. Qually, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail kimq@dor.wa.gov, by March 23, 2000.

Date of Intended Adoption: March 31, 2000.

February 9, 2000

Claire Hesselholt

Rules Manager

Legislation and Policy Division

OTS-3669.2


AMENDATORY SECTION(Amending Order PT 68-6, filed 4/29/68)

WAC 458-12-320
Timber ((and forest products)) -- Ownership -- Valuation--Roads--Easements over public lands.

((Federal timber itself is not taxable until title passes to the taxable party under the terms of the purchase agreement. Contract interest of private parties in such exempt timber is taxable. Such contracts must have value in themselves in order to be taxable. (Skate Creek Logging Company Case v. Fletcher 46 Wn.2d 160 (1955); AGO 1923-24, p. 33; AGO 12-2-52; AGO 5-5-53; AGO 53-55 No. 29, 4-30-53) The principles for assessing leasehold interests as contained in WAC 458-12-325 shall be followed. Where a private owner has a right-of-way easement over land where title is in the United States appurtenant to owner's adjoining lands, such easement and land to which it is appurtenant shall be assessed and taxed together. (Hammond Lumber Company v. Cowlitz County, 84 Wash. 462 (1915); Ozette Railway Company v. Grays Harbor County, 16 Wn.2d 459 (1943); AGO 4-2-1942.))) (1) Introduction. The purpose of this rule is to establish uniform procedures to be used in determining the taxable value of timber sold by agencies of state and local government separate from publicly owned land. This rule examines the different types of timber sales and outlines the factors used to determine the true and fair value of timber sold at each type of sale. It also describes the origin and use of the State Timber Sales Adjustment Table ("adjustment table" or "table"), the affect road construction costs have on the true and fair value of the timber, and the method used to determine the amount of timber remaining from a sale on each January 1st assessment date.

(2) General provisions. Any standing timber sold by the state department of natural resources ("DNR") or any state or local governmental agency separate from the land, except federally owned land, which is then held or owned separately from the land, is subject to personal property tax (see RCW 84.04.080). As used in this section, "timber" has the same meaning as the term is defined in RCW 84.33.035 and WAC 458-40-610.

(a) Under the provisions of RCW 84.33.078, the notice of sale or prospectus prepared by the governmental entity selling the timber must state that the timber is subject to personal property tax. Any property tax paid on the timber may be used as a credit against any tax imposed under RCW 84.33.041 on timber harvested from publicly owned land.

(b) The amount of personal property tax owed is determined by the true and fair value of the timber, which was sold as part of a public timber sale, remaining on the public land on each January 1st assessment date. The true and fair value is the original sales price ("sales price") of the timber, in cash and other consideration, adjusted by the table that is contained in subsection (3) of this section. "Other consideration" includes, but is not limited to, any permanent improvements to the land such as roads (see WAC 458-40-610).

(3) Adjustment table. The department's property tax division issues an adjustment table on or before the last day of February each year. This table is used, in combination with the sales price, to calculate the true and fair value of timber remaining on public land each January 1st assessment date. The sales price of the timber sold must be adjusted to reflect the true and fair value of the remaining timber as of the January 1st assessment date. The adjustment table is based on the average quarterly stumpage price of DNR timber sales throughout the state. The table is based on a multiple regression analysis model that reflects variations in the average quarterly timber sales' values during the pertinent time interval; that is, the time between the quarter in which the sale takes place and the assessment date.1

(a) The true and fair value of timber remaining on each January 1st assessment date is calculated by adjusting the sales price by an amount listed on the adjustment table. The amount of adjustment is determined by the date of the timber sale as follows:


DATE OF SALE

FIGURE TO BE USED FROM ADJUSTMENT TABLE
1/1 through 2/15 1st Quarter
2/16 through 5/15 2nd Quarter
5/16 through 8/15 3rd Quarter
8/16 through 11/15 4th Quarter

(b) No adjustment is needed if the sale occurs on or between 11/16 through 12/31 of the year immediately preceding the assessment date. But, if the sale occurs on or between 11/16 through 12/31 of any previous year, the first quarter adjustment figure for the subsequent year should be used.

(c) Example. The following example should be used only as a general guide and cannot be relied upon for any other purpose.2 The table below illustrates the form of the adjustment table:

1998 STATE TIMBER SALE ADJUSTMENTS

SALE DATE QUARTER ADJUSTMENT

$ PER MBF

1994 Q1 -347.33
Q2 -274.50
Q3 -207.97
Q4 -174.22
1995 Q1 -202.97
Q2 -189.86
Q3 -157.75
Q4 -172.65
1996 Q1 -142.12
Q2 -123.07
Q3 -113.49
Q4 -168.55
1997 Q1 -161.06
Q2 -134.70
Q3 -133.77
Q4 -54.92
1998 Q1 -70.39
Q2 -41.47
Q3 -5.80
Q4 19.06

(d) Salvage or blow down timber sales are not considered in developing the adjustment table. Therefore, the table is not used to determine the value of a salvage or blow down sale. The true and fair value of timber sold at such a sale is the sales price plus other consideration.

(4) Determining volume remaining on assessment date. One of the crucial factors in establishing the true and fair value of timber is determining the volume of timber remaining on the public land on each January 1st assessment date. The most accurate way to determine this volume is to hire a professional forester to cruise the remaining timber. However, if a professional forester is not hired, the type of timber sale will dictate the manner in which the volume remaining will be determined.

(a) Lump sum sales. A "lump sum sale" is a sale of timber wherein the total sales price is dependent upon an estimate of the total volume of timber (usually termed "cruise volume") in the sale, as opposed to the actual volume of timber harvested; for example: A sale for $1,200,000 for all species of timber purchased (see WAC 458-40-610). This type of sale is also known as a "cash" or "installment" sale.

(i) If public timber is sold as a lump sum sale, the assessor may contact the purchaser and request information about the total volume of timber in MBF (thousand board feet) included in the sale, total purchase price of the sale, total volume of timber harvested, total volume of timber remaining on January 1st, and other facts pertinent to the sale. This information may be obtained by an audit of the purchaser's records or by a site visit to ascertain the volume of timber remaining on the land.

(ii) Calculating the true and fair value of a lump sum sale is a three step process. First, the total sales price must be converted into an average price per thousand board feet ($/MBF) by dividing the sales price by the original cruise volume, as established by the public owner. Second, calculate an adjusted sales price by adjusting the average price/MBF using the adjustment table. And third, calculate the true and fair value by multiplying the adjusted sales price by the volume of timber remaining on January 1st of the assessment year. The following example is provided for illustrative purposes only and cannot be relied upon for any other purpose:


Date of Lump Sum Sale: 3/18/98
Original Sales Price (All Species): $2,050,000
Original Cruise Volume (All Species): 3,709 MBF
Volume remaining on 1/1/99: 1,235 MBF
Actual cost of roads: $55,000

1st step:

Calculate average price per MBF

(sales price cruise volume)

Average Price Per MBF: $2,050,000 3,709 MBF = $553 per MBF

2nd step:

Calculate adjusted sales price: Add or subtract the appropriate adjustment from the average price per MBF. In this case, the sale occurred after 2/16 so the 2nd Quarter adjustment is used.
Adjusted Sales Price: $553 - $41= $512/MBF

3rd step:

Calculate true and fair value: Multiply volume of timber remaining on 1/1 assessment date by adjusted sales price.
True & Fair Value without consideration for roads: 1,235 MBF x $512 = $623,320

(b) Scale sales. A scale sale is a sale of timber in which the sales price is the product of the actual volume of timber harvested and the unit price of each species at the time of harvest (see WAC 458-40-610).

(i) If public timber is sold as a scale sale, the assessor uses the "cut and sold report" compiled by DNR to calculate the volume of timber remaining on the land on each January 1st assessment date.

(ii) Calculating the true and fair value of timber remaining from a scale sale is a two step process. First, determine an adjusted price per MBF by adjusting the sales price for each timber species using the adjustment table. Second, calculate the true and fair value by multiplying the adjusted sales price per MBF by the volume of timber, by species, remaining on January 1st of the assessment year. The following example is provided for illustrative purposes only and cannot be relied upon for any other purpose:


Date of Scale Sale: 1/21/98
Original Sales Price: Doug Fir -- $425/MBF
W. Hemlock -- $300/MBF
Volume remaining on 1/1/99: Doug Fir -- 750 MBF
W. Hemlock -- 250 MBF

1st step:

Calculate adjusted sales price per MBF: Add or subtract from the sales price for each species the appropriate adjustment listed on the adjustment table. In this example the adjustment listed for 1st Quarter 1998 should be used because the sale occurred between 1/1 and 2/15.
Adjusted Sales Price:
Doug Fir -- $425/MBF - $70 = $355/MBF
W. Hemlock -- $300/MBF - $70 = $230/MBF

2nd step:

Calculate true and fair value: Multiply the volume of timber, by species, remaining on 1/1 assessment date by the adjusted sales price.
Doug Fir -- 750 x $355 = $266,250
W. Hemlock -- 250 x $230 = $ 57,500

True & Fair Value without consideration for roads: $323,750

(5) Road construction costs. In many public timber sales, permanent roads are constructed to provide the purchaser with access to the timber. As used in this section, "permanent roads" refers to both required and optional roads. These roads are generally constructed according to standards prescribed by the governmental agency selling the timber. An assessor may obtain information about the roads from the timber purchaser. Road construction costs are considered in the original sales price and are used to determine the true and fair value of timber.

(a) Road construction costs are established by using one of the following methods:

(i) Actual road construction costs; or

(ii) Average road values ascertained by determining the number of stations (a "station" = 100 feet) listed on the "timber notice of sale." The number of stations is then multiplied by the dollar amounts listed below to calculate a total average road value.

AVERAGE ROAD VALUES

Western Washington:
New Construction $ 1149 per station
Reconstruction/Betterment $ 249 per station
Eastern Washington:
New Construction $ 118 per station
Reconstruction/Betterment $ 31 per station

(b) Road construction costs are not adjusted by the adjustment table because these costs remain relatively stable.

(c) Calculating the true and fair value of a public timber sale including road construction is a four step process. First, road construction costs must be determined using one of the methods contained in subsection (5)(a) of this section. Second, calculate an average value of roads per MBF by dividing the road construction costs by the volume of timber on the public land on the date of sale. The volume will either be the cruise volume, if the sale was a lump sum sale, or the volume of timber per species, if the sale was a scale sale. Third, add the average value of roads per MBF to the adjusted sales price per MBF to arrive at a final adjusted sales price including road costs. And fourth, calculate the true and fair value by multiplying the final adjusted sales price by the total volume of timber remaining for all species (on lump sum sales) or by the volume of timber remaining for each species (on scale sales) on the January 1st assessment date.

(d) Example. The following is a continuation of the example regarding lump sum sales in subsection (4)(a)(ii) of this section. The example is provided for illustrative purposes only and cannot be relied upon for any other purpose:


Facts from Lump Sum Sale:
Cruise volume of timber: 3,709 MBF
Actual costs of roads: $55,000
Adjusted sales price: $512/MBF
Volume remaining on 1/1/99: 1,235 MBF
Procedure to calculate the true & fair value of a public timber sale including road construction:

1st Step: Determine road construction costs

(actual costs or average road value)

Actual Cost of Roads: $55,000

2nd Step: Calculate average road cost per MBF

(road construction costs volume of timber sold)

Average Road Cost per MBF: $55,000 3,709 = $15/MBF

3rd Step: Calculate final adjusted sales price

(adjusted sales price + average road cost/MBF)

Final adjusted sales price including road costs: $512 + 15 = $527

4th Step: Calculate True & Fair value on assessment date

(final adjusted sales price x volume remaining)

True & Fair Value including road costs on 1/1/99 assessment date: $527 x 1,235 = $650,845

(6) Easements to adjoining public land. When a private party has been granted a right-of-way easement over public land that is adjacent to their privately owned land, the privately owned land and the easement shall be valued and taxed together.


1 A copy of this table may be obtained from Property Tax at P.O. Box 47471, Olympia, Washington 98504-7471, (360) 753-1382, FAX (360) 586-7602.
2 The examples contained in this rule identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The status of each situation must be determined after a review of all the facts and circumstances.

[Order PT 68-6, 458-12-320, filed 4/29/68.]

Washington State Code Reviser's Office