"Collecting the Timber Severance Tax: Are We Getting Cheated?"

by Sandy Fisher

According to the latest report from the West Virginia Highlands Conservancy’s Timber Research Project, the answer to this question is "yes". A series of severance tax loopholes are drastically reducing the timber severance tax collections.

Although the West Virginia timber industry is alive and well, it is not paying enough severance tax to enforce the Logging and Sediment Control Act. The timber industry is not paying the cost of insuring that streams aren’t choked with silt, and mountain state hillsides are not criss-crossed with the scars of erosion.

"Safe harbors", or loopholes in the severance tax, are supposed to credit timber companies for expenses. Tax Department figures say that safe harbors reduce the amount of timber severance tax revenue to the state by two-thirds.

Supertax credits, when combined with safe harbors, have reduced severance tax collections from 9 million to 3 million dollars in recent years. Additionally, all severance taxpayers receive a deduction of $500. The result of the loopholes is a loss of 73% of severance tax revenue.

The severance tax funds the Division of Forestry, which regulates logging in West Virginia. West Virginia taxpayers now foot the bill for half the DOF budget because of severance tax loopholes.

The Highlands Conservancy Report explains the recent ruling of the West Virginia Supreme Court that held all loggers must be registered with the Division of Forestry -- even those making less than $16,000 in timber sales. This ruling will not increase timber severance tax collection, because these small loggers will fall under the $500 exemption. However, small operators will have to comply with Best Management Practices and will receive more help from the Division of Forestry. This should prevent many bad logging jobs.

The Timber Research Project gave legislators their findings at a meeting of the Legislative Interim Committee on Timber Reform on January 9. Randy Dye, Director of the Division of Forestry, told legislators that his agency needs at least 25 new employees, at a cost of 1.2 million dollars a year. Dye said that these new Division of Forestry foresters would be assigned to oversee logging jobs in a "hands on" way, and the result will be 95% compliance with Best Management Practices.

Instead of using general tax revenue to hire these additional foresters, the Timber Research Project Report suggests that the "safe harbors" should be eliminated from the severance tax. The entire tax should be paid at the point of milling by the company that processes the timber. Logs that are now going out of state should be taxed before they leave.

The Timber Research Report was presented to the Interim Committee Co-Chair, Senator Walt Helmick. Also present were Delegates Stemple, Mahan, Caputo, Williams and Schadler and Senators Menear, and Mitchell. Absent were Senators Caldwell, Fanning, and Plymale, and Delegate Butcher.