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Managing Your Timber Sale

Learn the importance of having a written contract before logging and managing your timber sale. Understand the different types of timber sale contracts, tracking your money, taxes, and using performance bonds. Get references and check them out before finalizing any deals.

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Managing Your Timber Sale

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  1. Advice for Landowners Before Logging Managing Your Timber Sale

  2. Is a Handshake Good Enough ? • Importance of a written contract • Types of timber sale contracts • Tracking YOUR money • Taxes: who will pay them ? • Using performance bonds • Get references and check them out

  3. Do I Need a Written Contract? • Does the project take longer than one day to complete? • Is the value of goods/services greater than one day of my wages? • Do I really know the party I’m dealing with?

  4. Importance of a Written Contract • Clarifies communication • “You didn’t tell me I’d have to pay taxes out of the money I made” • Formalizes agreements • “I thought you said I would make a lot of money on this harvest” • Provides predetermined recourse for when things don’t go according to plan • “If only I had a performance bond to get those slash piles burned as promised”

  5. Written Contract Basics • Name and address of parties • Legal description of property to be harvested • Term of contract • Identify other parties involved in harvest • Representations and warranties / indemnification • Title, risk of loss, assignment • Compensation • Taxes and other costs • Purchaser / Contractor operations • Post harvest obligations / clean-up • Penalties / venue / arbitration • Performance security / insurance • Exhibits • Signatures

  6. “Cons” of a Written Contract • “A handshake has always been good enough for me” • “Nobody likes a lawyer” • Cost of contract development • Cost of enforcing contract terms • Has anyone read Clause 171.4 (A) (i) subsection (3)? • Excessively one-sided transactions: What do the contract terms mean?

  7. Types of Timber Sale Contracts Lump Sum Pay-As-Cut (631(b)) Sale of Logs / Contract Logging (631(a))

  8. Types of Timber Sale Contracts Lump Sum • Fixed price independent of volume • Usually paid up-front • Usually fixed period of time • Title passes before trees are cut • Capital gains treatment only for investor owners

  9. Types of Timber Sale Contracts Pay-As-Cut (631(b)) • Fixed price per unit volume actually harvested • Usually paid after log delivery • Usually fixed period of time • Title passes as trees are cut • Capital gains treatment for any class of owner

  10. Types of Timber Sale Contracts Sale of Logs / Contract Logging (631(a)) • Most common contract structure for oral deals • May actually be two (or more) contracts in place • Various compensation / payment structures (commonly % of gross or price/unit) • Usually paid after log delivery • Title remains with owner until log delivery • Generally treated as ordinary income

  11. Tracking Your Money • Know what you are selling • Demand transparency in all transactions • What party will actually be paying you?

  12. Tracking Your Money:Key Questions • Do products removed match products paid for ? • Do prices paid match prices quoted ? • Do receipts match payments ?

  13. Tracking Your Money:Chain of Custody • registered log brands • log load tickets • scale receipts • payment vouchers

  14. Taxes and Who Will Pay Them • Timber Excise Tax • Business and Occupation Tax • Real Estate Excise Tax • Federal Income Tax • Property Tax • Special Taxes • Christmas trees • short rotation hardwoods • public timber

  15. Timber Excise Tax • Nominally 5% of stumpage value • Paid by “timber harvester”, i.e., party with title when timber is scaled • Payable quarterly • Small vs. large harvester (2 mmbf/yr) • Allowable harvesting costs and credits • Personal use: DOR ETA 2005.84.3

  16. Business and Occupation Tax • 0.484% of gross receipts exceeding $100,000 in a calendar year • Paid by “the extractor” (the “timber harvester”) • Payable when ?

  17. Real Estate Excise Tax • Due on stumpage sales, i.e., title passes before timber is cut • 1.28% of sale price plus local rates • Usually paid by seller • Payable within 30 days • Allowable costs

  18. Federal Taxes • Paid by seller • Consult your accountant and forester before the timber sale

  19. Performance Bonds to Assure Compliance Forms: • Performance and payment bond • Irrevocable letter of credit • Assignment of funds • Cash • Retainage

  20. Performance Bonds to Assure Compliance • Specify measurable damage thresholds and penalties in your contract • Performance monies are in place so they don’t have to be used • Be reasonable in assessing damages • There is no free lunch

  21. GET REFERENCES (and check them out !)

  22. QUESTIONS?

  23. Presented by: John D. Gold, Principal John Gold & Co., Consulting Foresters 619 Commercial Avenue Suite 25 Anacortes, WA 98221 360/299-8166 gold@fidalgo.net

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