TAX NEWS - 2010

Timber Value Areas (TVA) - California Tax

Proposed Repeal of California Code of Regulations, Title 18, Section 471, Timberland, and

Proposed Amendment of California Code of Regulations, Title 18, Section 1020, Timber Value Areas


SPECIFIC PURPOSE AND NECESSITY

Current Law

Proposition 13 was adopted by the voters at the June 1978 primary election and added article XIII A to the California Constitution to limit taxation, including the taxation of real property. The Board originally adopted California Code of Regulations, title 18, section (Rule) 471, Timberland, as an emergency regulation in July 1978 because the adoption of Proposition 13 raised concerns about how timberland zoned under the provisions of Government Code section 51110 or 51113 should be assessed for property tax purposes. Rule 471 was subsequently amended in October 1978 and became a permanent regulation in 1979, and Rule 471 has not been amended since.

The Board originally adopted Rule 1020, Timber Value Areas, in 1976 in compliance with Revenue and Taxation Code section 38204, which requires the Board to "designate areas containing timber having similar growing, harvesting, and marketing conditions to be used as timber value areas for the preparation and application of immediate harvest values" after consultation with the Timber Advisory Committee (TAC). Rule 1020 designates 9 Timber Value Areas (TVAs) comprised of counties with similar growing, harvesting, and marketing conditions, and Rule 1020 has not been amended since 1977.


Proposed Repeal of Rule 471

During the May 26, 2010, Board meeting, the Board determined that Rule 471 is duplicative of statutory provisions, including Revenue and Taxation Code section 52, subdivision (b), and article 1.7 of chapter 3 of part 2 of division 1 (commencing with section 431) of the Revenue and Taxation Code, Valuation of Timberland and Timber; and that there is no longer any controversy or confusion regarding the assessment of timberland zoned under the provisions of Government Code section 51110 or 51113 due to the statutory provisions and the passage of time. As a result, the Board determined that it was reasonably necessary to repeal Rule 471 for the specific purpose of deleting the duplicative and unnecessary regulatory language from the California Code of Regulations.


Proposed Amendments to Rule 1020

In the fall of 2008, the TAC requested that Board staff reevaluate the existing TVAs because the TAC was concerned that California's timber marketing conditions had changed since 1977 and that these changes may warrant amendments to the TVAs. The TAC's concerns were due to the fact that the number of California sawmills decreased from approximately 200 sawmills in 1977 (when the TVAs were originally established) to approximately 30 sawmills in 2008.

As a result, Board staff reviewed the state's timber growing, harvesting, and marketing conditions and determined that the first two conditions were stable. However, staff found that a number of counties' marketing conditions had changed dramatically in the past 33 years because:

- The reduction in the number of sawmills requires logs to be hauled further for processing then they were in 1977, which increases the cost of producing timber; and

- The sources of the state's timber shifted from predominantly United States Forest Service land to privately owned timberland between 1977 and the present.

Therefore, Board staff recommended that Rule 1020 be amended so that:

1. TVA 1 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Eureka, California, and Oregon.

2. TVA 2 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Ukiah and Cloverdale, California.

3. TVA 3 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in the Davenport area of Santa Cruz County, California.

4. TVA 4 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Redding and Anderson, California.

5. TVA 5 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Redding, California, and Oregon.

6. TVA 6 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Redding, California, and Oregon.

7. TVA 7 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Lincoln and Quincy, California.

8. TVA 8 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Camino, California, and Sonora County, California.

9. TVA 9 includes counties with similar growing and harvesting conditions whose timber markets are centered around sawmills in Sonora and Kern counties.

And, Board staff recommended that the following counties (or portions thereof) be deleted from one TVA and moved to another TVA that best fits its current timber marketing conditions.


Trinity County

Board staff recommended deleting "Trinity County south and west of that part of the exterior boundary of the Shasta-Trinity National Forest between Humboldt and Tehama Counties" from TVA 1 and amending TVA 4 so that it includes all of Trinity County because all of Trinity County's timber markets are now similarly centered around sawmills in Redding and Anderson, California.

Alameda County, Contra Costa County, Monterey County, San Francisco City and County, San Mateo County, Santa Clara County, and Santa Cruz County

Board staff recommended deleting Alameda County, Contra Costa County, Monterey County, San Francisco County, San Mateo County, Santa Clara County, and Santa Cruz County from TVA 2 and amending TVA 3 to include all seven counties, including the City and County of San Francisco, because whatever marketing there is of any timber remaining in these seven counties will be centered around sawmills in the Davenport area of Santa Cruz County, California.


Napa County

Board staff recommended deleting Napa County from TVA 5 and amending TVA 2 to include Napa County because Napa County's timber markets are now centered around sawmills in Ukiah and Cloverdale, California.

Siskiyou County West of Interstate Highway No. 5

Board staff recommended deleting "Siskiyou County west of Interstate Highway No. 5" from TVA 3 and amending TVA 4 to include Siskiyou County west of Interstate Highway No. 5 because this section of Siskiyou County's timber markets are now centered around sawmills in Redding and Anderson, California.


Colusa County, Glenn County, Lake County, Solano County, Tehama County West of Interstate Highway No. 5, and Yolo County

Board staff recommended deleting Colusa County, Glenn County, Lake County, Solano County, "Tehama County west of Interstate Highway No. 5," and Yolo County from TVA 5 and amending TVA 4 to include all 5 counties and the portion of Tehama County west of Interstate Highway No. 5 because their timber markets are centered around sawmills in Redding and Anderson, California.


Shasta County between Interstate Highway No. 5 and State Highway No. 89 and Shasta County East of State Highway No. 89

Board staff recommended deleting "Shasta County between Interstate Highway No. 5 and State Highway No. 89" from TVA 7 and deleting "Shasta County east of State Highway No. 89" from TVA 6 and amending TVA 5 to include all of "Shasta County east of Interstate Highway No. 5" because that portion of Shasta county is a Fir area and its timber markets are centered around sawmills in Redding, California, and Oregon.


Siskiyou County East of Interstate Highway No. 5

Board staff recommended deleting "Siskiyou County east of Interstate Highway No. 5" from TVA 6 and amending TVA 5 to include that portion of Siskiyou County because it is a Fir area and its timber market is centered around sawmills in Redding, California, and Oregon.


Sacramento County

Board staff recommended deleting Sacramento County from TVA 5 and amending TVA 8 to include Sacramento County because its timber markets are centered around sawmills in Camino, California, and Sonora County, California.


Alpine County, San Joaquin County, and Stanislaus County

Board staff recommended deleting Alpine County, San Joaquin County, and Stanislaus County from TVA 9 and amending TVA 8 to include all three counties because their timber markets are centered around sawmills in Camino, California, and Sonora County, California.


Authority and Reference Notes

Furthermore, Board staff realized that the authority note for Rule 1020 cites Government Code section 15606, which generally authorizes the Board to adopt regulations concerning property taxes and the Board's own business, rather than Revenue and Taxation Code section 38701, which specifically authorizes the Board to adopt Timber Yield Tax regulations, such as Rule 1020. Therefore,

Board staff recommended that the Board amend Rule 1020 so that the authority note correctly cites Revenue and Taxation Code section 38701.

In addition, Board staff realized that the reference note for Rule 1020 generally cites all of chapter 1 (commencing with section 38101), General Provisions and Definitions, and chapter 3 (commencing with section 38202), Determination of Rates, of part 18.5, Timber Yield Tax Law, of division 2 of the Revenue and Taxation Code, as the statutes being implemented, interpreted, and made specific by Rule 1020. However, Board staff determined that Rule 1020 specifically implements, interprets, and make specific the provisions of Revenue and Taxation Code section 38109, which defines the term "immediate harvest value," and section 38204, which requires the Board to designate TVAs for use in the preparation and application of immediate harvest values. Therefore, Board staff also recommended that the Board amend Rule 1020 so that the reference note more specifically cites Revenue and Taxation Code sections 38109 and 38204.

During the May 26, 2010, Board meeting, the Board agreed that staff's proposed amendments would ensure that each TVA listed in Rule 1020 includes the appropriate counties with similar growing, harvesting and marketing conditions, and that Rule 1020's authority and reference notes cite the correct provisions of the Revenue and Taxation Code. As a result, the Board determined that it was reasonably necessary to amend Rule 1020 for the specific purposes of re-designating the counties assigned to each of the nine TVAs to reflect the changes in the counties' marketing conditions since 1977 and ensure that the regulation's authority and reference notes cite the correct provisions of the Revenue and Taxation Code.


DOCUMENTS RELIED UPON

The Board relied upon Formal Issue Paper 10-005 and comments from Board staff made during the Board meeting on May 26, 2010, in deciding to propose the repeal of Rule 471 and propose amendments to Rule 1020. The formal issue paper is available on the Board's Website at boe.ca.gov/proptaxes/pdf/10-005.pdf. The audio and video from the Board's May 26, 2010, meeting are available on the Board's Website at http://www.visualwebcaster.com/event.asp?id=65393.


ALTERNATIVES CONSIDERED

The Board did not consider any alternatives to the proposed repeal of Rule 471 and the proposed amendments to Rule 1020.


NO ADVERSE ECONOMIC IMPACT ON BUSINESS

Rule 471 is duplicative of provisions in the Revenue and Taxation Code and its proposed repeal should not have any effect on the assessment of timberland. Rule 1020 does not impose any reporting or other requirements and does not directly effect the Timber Yield Taxes imposed upon any specific timber owners because their taxes are dependent upon the "yield tax rate" the Board is required to adopt during December of each year pursuant to Revenue and Taxation Code sections 38202 and 38203 and the "immediate harvest values" the Board is required to adopt by June 30 and December 31 of each calendar year pursuant to Revenue and Taxation Code section 38204. Furthermore, the proposed amendments to Rule 1020 merely re-designate the counties assigned to each of the nine TVAs for the preparation and application of immediate harvest values, and correct the citations in the rule's authority and reference notes. Therefore, the Board has made an initial determination that the proposed repeal of Rule 471 and the proposed amendments to Rule 1020 will not have a significant adverse economic impact on business.

The proposed regulation may affect small business.