Maine’s Tree Growth Tax Program: Basics & Benefits

Maine’s Tree Growth Tax Program:Basics & Benefits Maine Property Tax School Belfast, Maine August 6, 2019

In the Beginning… • In effect since 1971. • Purpose: • “to tax all forest lands according to their productivity” • “encourage forest landowners to retain and improve their holdings of forest lands” • “to promote better forest management” (Source: Title 36, Chapter 105, Subchapter 2-A, Tree Growth Tax Law)

Benefits of active forest management • Wood products industry • Traditional--lumber, paper, firewood, biomass • Emerging—pellets, CLT & mass timber • Future– bio fuels, nanocellulose, and… Economy of Maine—8+ billion dollar sector

Woodland eco-system services Clean air—good breathing Clean water (beer & wine!) Recreation-consumptive & non Habitat–bugs,birds,charismatic mega-fauna Maine landscape, way of life Climate change & carbon storage Add yours here

“Paying” for services Only the wood has a well-established methodology for payment to landowners Carbon credits—maybe some day, not now for smaller acreages Water-very select circumstances (Poland Spring) Recreation-lease fees possible, but limited by Maine tradition of “open” boundaries

Property Taxation • Ordinary taxation: • Assessed value is based on “just value” or “highest and best use” of the property • Current use taxation: • Property’s assessed value (primarily land) is based on the “current use” of the property • Not based on “highest and best use”

Current Use Attempts to match tax burden to production capability of actual use, not prospective sale Meant to encourage productive uses by reducing (not eliminating) tax burden.

Current Use Programs in Maine • Farmland(Tax Bulletin 20) • Open Space(Tax Bulletin 21) • Tree Growth(Tax Bulletin 19) • Go to Bureau Revenue Services at www.Maine.gov

Current use tax programs • Are statewide programs based on state law • Are administered locally by the town assessor • MRS in unorganized townships • Have eligibility requirements for land • Usually reduce the valuation (therefore taxes) of enrolled land • Have significant withdrawal penalties for changing the land use OR failing to meet requirements

Please Remember This… • MFS does not administer Tree Growth • Tree Growth has NOTHING to do with “Tree Farm”

Tree Growth - Snapshot • Primary intent is to grow forest products • Minimum 10 forested acres • TG is Semi-permanent • Must have a forest management & harvest plan • Must recertify at least every 10 years • Withdrawal can result in a BIG penalty

How Land is Valued Under TG • Valuations per acre for classified forest land established by the MRS, with data from MFS, adjusted each tax year • Softwood, Mixedwood, Hardwood for 16 counties—actually by mega-region • Takes into account 3 year rolling average of stumpage, growth/mortality rates from FIA, and a discount rate

Getting into Tree Growth… • Primary intent is to manage the land for the harvest of forest products with commercial value • What is considered a forest product?

Sawlogs, Firewood, and Pulpwood are Forest Products

Maple Syrup is a Forest Product

Christmas Trees and wreath brush are Forest Products

Harvesting… • Harvesting of commercial forest products in TG is required, as called for in the forest management & harvest plan • Harvesting land in TG is not prohibited or otherwise regulated differently from other land

How to apply… • For land being classified for the first time, landowner must • Have a written forest management and harvest plan prepared or signed off by an LF • Do not give this to the town • Submit a Tree Growth Application Schedule to the town • Submit a cover type map of the parcelshowing the classifed and other use acres to the town

The TG Map • The map must show the location of all classified and non-classified acres relatively accurately • The map must show the forest stand types (softwood, hardwood, and mixed wood) for the classified acres • The location of non-classified acres can’t be moved around over time, without triggering possible withdrawal • The map can be updated/revised to be more accurate if necessary

Forest Management and Harvest Plan • Must be a written document • Must be prepared or signed off by a licensed forester • Must contain all required items, listed in Tax Bulletin 19 (may have more) • The landowner’s plan is not a public document • Assessors may review plan, with written request

DON’T FORGET… • The landowner’s primary intent must be to grow and harvest commercial forest products on the classified acres • TG is semi-permanent - land enrolled in TG stays in TG until withdrawn or transferred to other current use tax program • The TG status transfers with the land • Withdrawal results in a penalty

Keeping land in… • Follow the forest management and harvest plan • Ok to amend or modify if things change—just write it down! • Must “Recertify” at least every 10 years - have the plan updated and re-file an Application Schedule and map

Ten Year Recertification • Licensed Forester inspects the parcel and certifies that: • Look back: Activities on the ground followed the plan • Look forward: Written plan in place for the next ten years • Licensed Forester signs a new TG Application Schedule • Landowner submits the new schedule and a map to the assessor

Getting out the Good Way • Option #1: Landowner transfers to Open Space or Farmland Tax programs • No penalty, as long as land qualifies • Option #2: Withdraw from TG voluntarily and pay a penalty

Getting out the Hard Way • The assessor withdraws the land because Landowner fails to meet requirements: • Created parcels less than 10 acres • Failure to follow the FM&HP • Failure to recertify--long process, supplemental assessments • Landowner pays a penalty

Transfer of Ownership • For parcel that is enrolled in Tree Growth and sold to a new landowner: • Tree Growth parcel >/=10 acres stays enrolled in Tree Growth at transfer; new LO decides within 1 year from transfer. • Sale results in a subdivision leaving < 10 acres in a parcel= automatic withdrawal

Options for the New Owner • Stay in TG by filing a new “Application Schedule” and map within one year of transfer • Plan requirements: adopt or get new • Roll over to Farmland or Open Space • No penalty • Withdraw some or all of the land • One time penalty on withdrawn acres

Penalty for Withdrawal • Penalties can be large • Based on a percentage of the difference between the acre-specific “just value” and the Tree Growth Valuation at date of withdrawal • The percentage is linked to # of years enrolled • The details of the formula are in Bulletin 19. • Minimum = difference in taxes paid, TG vs. JV, for last 5 years, plus interest

Best TG Advice • Do NOT listen to your friends, family, neighbors, folks at the diner, overheard in line at the supermarket, etc., when it comes to Tree Growth. • For the best information contact ME Revenue Services, Town Tax Assessor, Maine Forest Service, or a Licensed Forester.

Test (T/F) • The town office keeps a copy of your forestry plan. • False • Land can be withdrawn from TG every ten years without penalty. • False • Timber harvesting is allowed on TG land. • True

Woodland Stewardship Steps • TGTL is one of many… • Acquisition • Inventory & management planning • Property lines • Articulating goals & objectives • Getting out on the land—recreation & wildlife • Sustainable timber harvesting to meet landowner goals • Legacy planning • Etc.

COMMONLY HEARD QUESTIONS FROM LANDOWNERS, FORESTERS, AND ASSESSORS: From the phone logs and e-mail files of the MFS Landowner Outreach Forester…

TGTL-Common Landowner Questions: Q-I am considering buying land that’s in “tree tax.” What does it mean? I just want to leave everything the way it is! A- TGTL requires a primary purpose of growing trees for commercial harvest, so give serious thought to whether this fits your objectives. -Withdrawing a parcel from TGTL will result in financial penalties that can be significant. -Read Tax Bulletin #19 carefully to understand your responsibilities if you purchase this parcel. Call MFS for assistance.

TGTL-Common Landowner Questions: Q- I have just purchased/inherited/started paying attention to a woodlot that’s in “a forest program.” What do I do now? A-Assuming the “program” is TGTL, determine next recertification date. -Find/read/develop/amend your FMP -Implement the recommended activities in your FMP, with licensed forester assistance as needed -Read Tax Bulletin # 19 carefully to understand your responsibilities. Call MFS for assistance.

TGTL-Common Landowner Questions: Q-I got a letter from the town about 6 months ago, the deadline is coming up next week. What do I do now? A-Call your licensed forester ASAP, to see if you are ready to recertify. If not, be prepared to pay the 1st $500 supplemental assessment. You will have six months to complete the recertification process, or pay another $500, which gains you another 6 months before the parcel is fully withdrawn.

TGTL-Common Landowner Questions: Q-I have had my lot in TG for over 12 years and have heard nothing from the town about any kind of renewal, but my cousin over in the next county says he’s been re-doing his plan and paperwork for the town every 10 years like clockwork. What is my liability if my town says I owe them something? A-The town must send you a certified letter with a deadline of at least 120 days, but not more than 180 days, to recertify. But, why wait for the town? Start the Forest Management Plan update process now!

TGTL-Common Landowner Questions: Q- My family has owned our woodlot since the 1960’s. The town just recently did a revaluation, and now my taxes are going through the roof! What about this Tree Farm Program, can I get a rebate on my taxes? A-Tree Farm is not the same as TGTL, although there are some similarities. Be sure that TGTL is a good fit, and be sure to read TB # 19 carefully. Call MFS for assistance. You may be able to lower your property tax burden going forward.

TGTL-Common Landowner Questions: Q-I’ve been in Tree Growth for decades, we’ve cut wood 3 times, worked with a forester and followed our management plan faithfully. Just got my tax bill and it’s gone up! What’s going on? A-TGTL valuations rates are adjusted annually by the Maine Revenue Service, based on a formula that includes latest FIA growth figures and 3 year rolling avg. stumpage values for the county/region. There have been some years when the formula yields a noticeable change in valuation, which is still likely more favorable than “just value.” TGTL values are not a % reduction, like Open Space. TGTL values are a bona fide effort to calculate the value of woodlands that are used primarily for growing and harvesting commercial forest products.

TGTL-Common Landowner Questions: Q- Do I have to cut a certain amount of wood every 10 years? A-No. However, you need to follow the schedule in the FMP, for both frequency and intensity of harvesting.

TGTL-Common Landowner Questions: Q- Can you send me a copy of my FMP? A-No. [We don’t have it. And neither should the town.]

TGTL-Common Landowner Questions: Q- I need a forester. The one who did my plan last time has retired. A-MFS can help. The statewide Stewardship Forester List can be found on-line, or we can mail you a copy. You can also check with your local District Forester for further referrals. You can also look up individuals on the Licensing Board web-site to make sure their licenses are current and in good standing. Remember to check forester references, and ask to see examples of their work.

TGTL-Common Landowner Questions: Q- The town wants me to give them a copy of my plan to keep on file. Do I have to do that? A-No. Your plan is designated confidential by law. The town can request, in writing, a copy of your plan to review, but they must return it after a reasonable time. The town should not keep a copy of your plan on file.

TGTL--Common Licensed Forester questions: Q- How do I fill out this @#$%^&*+ TG Application? There’s too many boxes, and some just don’t make any sense. (LOs ask this too) A- MFS foresters or your consulting forester can help walk you through the form as needed. The TGTL Application Schedule has improved over time, and could probably be improved a little more, but generally, there is a reasonable best choice. Call MFS for assistance.

TGTL--Common Licensed Forester questions: Q- I have worked with this particular TG client for over 30 years, always updating the FMP to say the harvest should happen in the next 10 years, trying to give them the benefit of the doubt and some flexibility, but so far nothing has been cut. What do I do? A-Use professional ethics and judgment, the straight-face test, and have a frank discussion with client, including option of transfer to Open Space, if possible. Sometimes “no” is the right answer.

TGTL--Common Licensed Forester questions: Q-I have worked with this particular TG client for about 10 years. I recommended a partial harvest/thinning/selective cut, but he went ahead with a harvest without my involvement, and the harvest did not follow the plan, looks more like a liquidation cut. But at least he cut some wood! Should I recertify his TG App? A-Use professional ethics and judgment, the straight-face test, and have a frank discussion with client, if possible. Sometimes “no” is the right answer.

TGTL--Common Licensed Forester questions: Q- A new client came to me with a plan written by a different forester. The LO had the lot cut, in a way that I don’t believe follows the plan. Can I do a plan update for the LO and sign off on that part, without certifying the past compliance? A- TGTL recertification involves both a look back and a look forward, which cannot be separated on the Application Schedule. If LO wants to re-enroll after being withdrawn for lack of recertification, you could put your name on the new Application Schedule for a new plan.

TGTL--Common Licensed Forester questions: Q- It has come to my attention that a LO has used my LF # and forged my signature on a TG application. I once walked the guy’s woodlot but I never wrote him a plan or had any further involvement. What is my recourse? A-Notify town that LO has made a fraudulent claim on his TGTL Application. Consider legal action against the LO, for forgery, etc.

TGTL--Common Licensed Forester questions: Q- I see that in the Open Space Tax Bulletin there is no mention of commercial forest products but there is mention of following a forest management and harvesting plan under “managed forest” open space land. Can a landowner manage a forest and leave the wood on the ground and qualify? I just want to make sure I am not providing wrong information. A- MFS will defer to MRS for questions about the Open Space Tax Law.

Assessor Questions Q- I’ve got a landowner in TG whose plan called for a harvest during the planning period. They didn’t cut any wood, saying the markets were so bad they’d have lost money. What do I do? A- Assessors have the authority to withdraw land for non-compliance with a Forest Management & Harvest Plan. MFS may be able to provide assistance, but does not make decisions regarding withdrawal. Suggestion: Encourage the landowner to obtain a written statement from their consulting forester documenting the market conditions and the likelihood of a loss on the harvest, and include it as an addendum to the current plan. Plan should be updated to re-schedule the harvest.

Maine’s Tree Growth Tax Program: Basics & Benefits