TAXATION AND FOREST LAND
By Bill Cook- MSUE Upper Peninsula

It costs money to own land. For many. there are mortgage payments. For almost all, there are property taxes. For those that sell timber, there are taxes on that income.

 There are ways to reduce property taxes and income taxes from timber sales. Forest management and timber harvesting are very productive tools in not only achieving ownership objectives, but in also paying off the mortgage. For the savvy forest owner, tax burdens can be significantly reduced.

First, any timber sale income received in 2006 is subject to taxation. Reporting timber sale income as ordinary income (like salaries and wages) on your 1040 form is the easiest route but you'll end up paying a much higher tax. The better route is through capital gains and using the IRS codes specifically designed for timber sales. Get to know Form T. The federal capital gains tax rates are lower. Also, under capital gains, the timber sale income will be exempt from self-employment taxes (e.g. social security). These procedures, alone, can potentially save thousands of dollars.

The gross timber sale income can be reduced through a series of allowable deductions. Dig out those receipts for out-of pocket expenses associated with the timber sale. You can deduct them from the gross income. Something called "timber basis" can also be used to reduce taxable income.

Your basis is the monetary value of the timber at the time of acquisition. A portion of that basis can be deducted from timber sale income based upon the percentage of total wood volume harvested. So, if you harvest half your wood volume; then half the basis value can be deducted from the timber sale income. If the entire forest was harvested, then the entire basis value can be deducted from the timber sale income. Working with a professional forester and tax preparer can fine tune the IRS rules to your best advantage.

Second, property taxes can be significantly reduced by enrolling forested property into programs offered through the State of Michigan. The legislature recognizes the importance of keeping as much forest land as forest, so it has enacted two programs to help accomplish this. The Commercial Forest Program (CFP) has been around in one form or another for decades. The Qualified Forest Program (QFP) is new in 2007. Both programs "buy" sustainable forest management on private land through property tax reductions.

If you're not genuinely interested in forest management, then neither program should be considered.

The CFP was updated for 2007. The program description is available on the DNR website [www.michigan.gov/dnr] in the Private Forest Lands section. For eligible forest property, there's a tax rate of $1.10 per acre with regular nickel increases every five years. The major barrier for many forest owners is the requirement of allowing public access (foot only) for hunting and fishing. The new QFP does not require public access. The tax reduction comes in the form of an exemption from public school taxes.

Both programs require forest management plans, have eligibility rules, application procedures, various fees, and withdrawal penalties. There are also important differences. DNR Service Foresters are good contacts for more information. Many forestry consultants and Conservation Districts have working knowledge of the programs. In the U.P., MSU Extension offices have current information. Make sure that you do your homework.

For lands currently enrolled in the CFP, there is a short penalty-free window to allow conversion to the QFP. The application deadline is the end of September. However, because the QFP is a new program, the administering agencies have yet to finalize the application procedures. For forest owners considering conversion, the QFP may involve a re-assessment of the land. Re-assessments generally result in a higher taxable value and therefore higher taxes.

Forest lands are tremendous assets for a wide range of reasons. Managing them provides more of each of those reasons. Benign neglect may be one of the most damaging options available. Both the federal and state governments recognize the value of forest management and timber production. These policies and programs help forest owners minimize expenses and maximize benefits. They're worth considering.

CAPLE RANCH, LLC, A TREE FARM SUCCESS
by Lynn Stephens, Registered Forester East Jordan, MI

A buff colored business card had been wedged under the wiper blade on the windshield of the Jeep so I slid off the driver's seat and out of the truck to retrieve the message. The back side carried a simple request, "I need to talk with you, please give me a call". The flip side of the card indicated the request was made by Charles Caple, owner of Northland Ranch located in Hayes Township of Otsego County about 8 miles west of Gaylord. Working as a consulting forester in Otsego, Antrim and Charleviox counties my truck is often parked outside small convenience stores and the vinyl signs stuck to the rear windows proudly proclaim the name of the consulting business with the bullet lines FOREST MANAGEMENT- TIMBER MARKETING - WILDLIFE PLANS listed under the title Registered Forester. It is not uncommon for someone to be waiting by the truck to ask, "What does a consulting forester do?" Having worked the northern Lower Peninsula as an industrial procurement forester for 25 years I knew Northland Ranch was one of the largest family owned contiguous parcel of land in the state. Back in the late 80's and 90's I remembered driving the three mile stretch of Old Alba Road, flanked by second growth maple, as an east-west sand trail short cut to County Road 42. The timber seemed short and of low quality but the mere fact of driving on the same property for nearly ten minutes impressed me very much. Signs along the trail warned of free grazing cattle in between a network of three strand wire fences enclosing hundreds of acres of grass meadows.

The first guided visit on the ranch with Chuck Caple during the summer of 1997 was most interesting. A lengthy network of two tracks wound in and around six sections of meadows and woodland stacked along the Otsego/Antrim county line in Hayes Township. Northland Ranch is 3700 acres in an area that was once part of the northern edge of the David Ward timber holdings of 1880-1900. While the first field inspection was intended to perform a windshield cruise of the Ranch assets it also provided an opportunity for Chuck Caple and I to exchange ideas in dialog of landowner objectives, forest management theory, wildlife habitat goals and a lot about our personal philosophy of life and living. During that two hour visit we discovered that we were both committed believers of the Christian Faith and proper stewardship of natural resources carried special influence in our role as land owner and land manager. It became quite obvious that this landowner was interested and motivated to establish a forest plan for the Ranch. His initiative had resulted in contracting with a couple wood chipping programs in 1994-96 but a serious bout with cancer had interrupted that progress and the effort to sustain or expand the forestry objectives did not prove to be reasonable while receiving medical treatment so the decision was made to "find a forester". Nine years later, the challenge of managing over 2400 acres of woodland on Northland Ranch has produced a true Tree Farm success story.

The first major harvest plan under the new management program was scheduled in October of 1997 and operated into the winter of 1998. A 210 acre block in section 19 was marked for selection harvest with the management objective to remove low grade stems of hard maple, soft maple, black cherry, iron wood and aspen. The production target was to generate 50 tons of clean wood chips per acre and an additional "unknown" volume of bark to be marketed as biomass fuel. A residual stand of high quality hard and soft maple stems was desired at a stocking level of 60 square feet of pole size in the 5" to 15" inch size group. Systematically, the woodland acreage of the Ranch was treated in 180 to 220 acre units over the next 7 years until the last harvest was completed in December of 2005. The forestry plan had involved three different major wood using markets for chips, saw bolts and bark. Five different wood producing companies were contracted depending on market availability and specific harvesting capability which resulted in nearly 100,000 green tons of chips and bark being marketed as the long term objectives of the plan has been addressed. Along the way, the grazing of livestock on the Ranch was stopped in the year 2000 and by 2002 membership in the Michigan Tree Farm Program had encouraged the establishment of a tree/shrub planting program to reforest selected meadows which complimented the natural regeneration established in the commercial harvest woodlands. The annual tree and wildlife planting program has grown to 50,000 seedlings and is scheduled to continue through 2010. Commencing in 2007 a more detailed inventory will be made of saw log growing stock in the pre-2000 harvest units and projections for the next five year plan will include the marketing of grade saw timber over 300 to 500 acre units as the exceptional quality stocking of hard maple on Northland Ranch grows toward market maturity. Selection harvest of high grade northern hardwood is the long term goal of the forest plan with three to five year entry intervals anticipated by the year 2020. Northland Ranch continues to be a family owned enterprise and was recently recorded as Caple Ranch. LLC. In addition to the aggressive forest management program developed by the Caple family, an integrated plan of oil and gas development and hunting lease agreements are part of the Ranch business plan. Northland Ranch was nominated for the Outstanding Tree Farmer of 2006 and was subsequently awarded the northern Lower Peninsula Regional Tree Farmer for 2006. Congratulations to Charles and Jane Caple and their family for their outstanding example of forest and land stewardship.

MICHIGAN STATE UNIVERSITY EXTENSION
By Bill Cook MSU Extension Service Forester

NEW FOREST LEGISLATION PACKAGE

Michigan forest owners interested in sustainable forest management on their properties may be eligible for some property tax relief. A recent forestry legislative package revised the existing Commercial Forest Program (CFP) and introduced a pair of additional opportunities.

To enroll in these programs, a forest management plan is required, along with the payment of application or processing fees. There are a number of other eligibility requirements that must also be met, depending upon the particular program. Not all forests will be eligible. There are penalties for withdrawals and violations. Procedures and forms for some of the new programs are still being developed. Administrative delays shouldn't be ruled out considering some of the new program elements.

Forest owners interested in property tax relief need to review these programs carefully before enrolling. If timber production and forest management are not a primary ownership goal, then this legislation should not be used to simply obtain property tax relief.

The CFP (Commercial Forest Program, formerly Commercial Forest Act-CFA) has been around for a longtime. Eligible properties are subject to a tax of $1.20/acre beginning in 2007. That rate increases by a nickel every five years. An owner must enroll a minimum of forty acres. Timber harvest schedules are required and must be followed. This option requires public access for hunting and fishing. Application deadline is 1 April.

Lands enrolled in the CFP and under an eligible conservation easement will pay the CFP rate minus $0.15 per acre. The easement must include the provision that the property is certified under a sustainable forestry certification program that uses third-party independent auditors and must be accepted by the Michigan DNR. Application deadline is 1 April.

The new "Qualified Forest Program" (QFP) exempts forest owners from annual local school taxes. Forest area must be from 20 acres to 320 acres in any local taxing unit and cannot be enrolled in the CFP. This option does not require public access, an important difference from the CFP. Affidavits must be filed by 31 December.

Each of these program options has more to know than what has been described in this article. For more complete information, contact the regional DNR Service Forester; Gary Willis (Baraga), Ernie Houghton (Escanaba), Rich Stevenson (Newberry), Tom Stone (Indian River). Steve Kalisz (Cadillac), or Mike Hanley (southern LP).

The legislation enabling these programs can be found on the website www.legislature.mi.gov and using the bill numbers 912, 913, 914, 917, 5454 and 5455. Also, watch for clarifications from MSU Extension and the Michigan Forest Association. These programs may be helpful for many people who are interested in tax relief for their managed forest properties.

DEFORESTATION
By Bill Cook

America losing its forests is a myth. The same is true for Michigan and across the Lake States. In fact, dozens of countries around the world are experiencing increases in forest area. Some of this growth is due to plantations, which some folks would argue isn't really forest. However, most of the increase is due to natural forest recovery.

Granted, much of North America's forest was rolled back two hundred years ago, after rebounding from indigenous human deforestation of centuries before that. Europe lost much of its forest by the fourteenth century; with the Mediterranean, China, and much of Asia several centuries earlier. So, any increases might be better called recoveries.

This newish trend of increasing forest area in many countries has occurred in the past, but it's contrary to the norm. Globally, forest area has ebbed and flowed over time, but it's usually ebbed. Our planet continues to see overall declines in forest area, but recently at a much reduced rate. If it weren't for losses in Brazil and Indonesia, we'd actually be in the black.

What is deforestation?

Essentially, it's a change in land use from forest to something else. Historically, agriculture has been and still is, by far, the major cause of deforestation. We all need to eat, so that's probably an acceptable reason. Yet, here in the Lake States, agricultural acreage has declined. Like elsewhere across the continent, forests lie in wait for the opportunity to re-take acreage that was once taken away. Of course, growing crops for energy might reverse the reforestation trend, again.

Deforestation also occurs with urban sprawl and urban splatter, now the major cause in the Lake States. Each new home, business, road, golf course, and other development involves deforestation when the development is placed in a forest. Historically, ship-building, fuelwood, mining, railroads, and other activities contributed to deforestation. Over the centuries. humans have not been particularly kind to forests. We could do better. Today land use issues are growing increasingly important. After all, it's the future that's at stake.

Harvesting timber. through forest management. does not cause deforestation. Many folks Find this surprising. If you think about forests having economic value, which they do, it makes sense to maintain those timber resources. Without wood, we'd be in a world of hurt. Countries with better economies are also better with their forests. Naturally. there are many non-economic values. These also contribute to maintaining forest area.

Even an aspen clearcut cannot be called deforestation. In the same breath that you say "cut" . . . nature is saying "regeneration." That clearcut harvest not only provides fiber that we all use, just like food, but it also provides the environmental conditions for many of our forests to better reproduce themselves. Harvest and regeneration are two sides of the same coin. If that sounds odd, remember that forest management didn't make up the rules of nature. Forestry simply uses them. It's pretty interesting stuff.

An increase in forest area is good news, but it's hardly the whole story. Forest values are not evenly distributed. Some areas are more critical. There is also a long list of other forest characteristics that should be used to determine the "goodness" and "badness" of forest use or deforestation. Forests vary by species mix, age, stand structure, site protection, distance to water, presence of rare ecological aspects, recreation use, visual quality, and many other criteria.

We are fortunate, here in the Lake States, to live in a forest-rich part of the world. Perhaps, too many of us take that for granted. It's easy to do, and it's easy to let those benefits slip through our fingers. History shows that happening over and over again, often to the demise of a culture. As Arthur Standish observed about England in 1611, ". . . no wood, no kingdome . . ." Being forest-rich provides a greater incentive to manage and maintain these resources better. Forest management will help guarantee a better future, not work against it.