BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Gilbert Cedillo, Chair
SB 557 - Kuehl
Amended: May 6, 2003
Hearing: May 7, 2003 Fiscal: Yes
SUBJECT: Imposes a timber products user forest restoration
excise tax (one cent a board foot) on every
consumer at the time timber products are
purchased for consumption in this state. Through
this tax, provides funding for the administration
and review of timber harvest plans, environmental
restoration, re-training for timber workers, and
watershed protection.
EXISTING LAW
Imposes a timber yield tax on the following:
Every timber owner who harvests his or her timber or
causes it to be harvested, and
Every timber owner of felled or downed timber who
acquires title to such felled or downed timber in this
state from an exempt person or agency, as described, and
Every person who, without authorization, intentionally or
unintentionally harvests or causes to be harvested timber
owned by another.
The timber yield tax rate is currently set at 2.9%. The
amount of tax is calculated according to the volume of
timber harvested, the established value for the species
harvested, and the tax rate.
The timber yield tax is collected by the Board and
deposited in the State Treasury to the credit of the Timber
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Tax Fund. After administrative costs are deducted,
remaining revenues are returned to local agencies, as
specified.
THIS BILL
Excise Tax
Imposes an excise tax on the consumer at the time of the
purchase of a timber product for consumption in this state.
The tax would be one cent per board foot for solid wood
products, one cent per square foot for veneer-based and
sheeting materials, and one cent per linear foot for poles
and pilings.
Administration
Requires a timber product supplier to collect the tax from
a consumer at the time it sells a timber product to the
consumer. The tax is required to be added to and stated
separately in the billing to the consumer. A consumer in
this state would be liable for the tax until it has been
paid to the state, except that payment to a timber product
supplier that is registered with the BOE is sufficient to
relieve the user from further liability.
Authorizes a timber product supplier to retain 3% of the
fee as reimbursement for any costs associated with the
collection of the tax. The remainder of the tax would be
remitted by the timber product supplier to the BOE, which
is due and payable on or before the 25th day of the
calendar month following the monthly period for which the
fee is due. A taxpayer would also be required to make out
a return for the preceding monthly period on or before the
25th day of the month following each monthly period.
Allows for a 3% administrative cap for the BOE to collect
the tax.
Requires the BOE to transmit the payment to the Timber
Products User Forest Restoration Fund, which this bill
would establish in the State Treasury.
Allocation of Funds
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Money in the fund would be spent solely for the following
purposes:
To pay for refunds of the tax, where necessary.
To assume in its entirety the existing General Fund
appropriations as they existed on December 31, 2002,
for the administration and review of all operations of
all departments, boards, and commissions that review
timber harvesting, as specified.
To provide increases above the former General Fund
appropriations for the maintenance of existing
operations of the reviewing agencies, and to provide
increases that result in programmatic improvements to
the operations of the reviewing agencies, or for any
other appropriate increases.
To provide necessary additional support to the
reviewing agencies, in order to comply with changes in
statutory law passed by the Legislature and approved
by the Governor or to comply with regulations that are
adopted by any of the reviewing agencies.
After all of the above expenditures have been appropriated,
any moneys remaining in the fund would be used to create
within the Department of Forest and Fire Protection
(Department), a cost share program with a minimum
contribution of matching funds of 20% from any project that
is funded. Projects specified in the bill include, but are
not limited to, alleviation of erosion and sedimentation
problems caused by road building activities on public and
private timberlands, undertaking the restoration of wild
salmon and steelhead streams, and developing enhanced
protections for forested watersheds.
The director of the Department could waive the requirement
of cost-share funds for projects of extraordinary
importance that are consistent with the purposes of the
Z'berg-Nejedly Forest Practice Act of 1973 (Forest Practice
Act). Any remaining moneys would also be allowed to be
used for projects that fund public education activities,
including, but not limited to, grants for natural resource
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education, natural resource research, watershed studies,
botanical studies, and wildlife surveys.
The fund would also reimburse the costs to the Department
and the State Board of Forestry and Fire Protection to
create a broad-based stakeholder group that would do all of
the following:
Explore the suitable reuse and conversion of closed mills
and other timber industry facilities in California to
productive uses.
Recommend the most efficient way to develop new milling
and processing capacity in California that is certifiable
by the Forest Stewardship Council.
Make recommendations that will develop and maintain more
"value-added" timber processing and manufacturing
facilities in California to benefit the economic status
of rural communities and workers.
The bill would become effective January 1, 2004.
Definitions:
"Board foot" means the cubic volume of sawn lumber equal to
144 cubic inches.
"Board foot equivalent" means the calculated board foot
volume of wood fiber within various non-sawn wood products
"Engineered wood products" means certain wood-based
products including, but not limited to, veneer-based
sheeting material, plywood, laminated veneer lumber (LVL),
parallel-laminated veneer (PLV), laminated beams, I-joists,
edge-glued material and composite material such as
cellulosic fiberboard, hardboard, particleboard,
waferboard, flakeboard, oriented strandboard (OSB), or any
other panel product where wood fiber is a component part.
"Non-uniform solid wood products" mean certain wood
products, including but not limited to, shakes, shingles,
split rails, bolts, pickets, and slabs.
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"Timber product" means any product sold in California in
which wood or wood fiber is a principal part including but
not limited to sawn lumber or boards, engineered wood
products, and non-uniform solid wood products.
"Timber product retailer" means a person who sells timber
products to consumers.
FISCAL EFFECT:
According to the BOE, this proposal would generate
approximately $66 million annually for the Timber Products
User Forest Restoration Fund.
COMMENTS:
A. Purpose of the bill
In its Findings and Declarations the bill states:
(a) Forested lands in California provide significant
environmental benefits, including serving as the source of
more than half the state's supply of drinking water,
habitat for numerous wildlife and plant species, some of
which are rare, threatened, or endangered, the source of
raw materials for the timber products industry, and a
source of jobs for those who are employed in that industry.
(b) Regulation of timber harvesting practices, including
timber harvesting plans, non-industrial timber management
plans, exemptions, and emergency notices has become
increasingly complex and expensive, even given the fact
that some reviewing agencies review less than 20% of the
proposed timber harvesting plans presented to them.
(c) The current budget crisis presents an opportunity to
reevaluate financing of the timber harvesting plan review
process that currently draws approximately $21 million
annually from the General Fund.
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(d) It is appropriate to support the timber harvesting plan
review process through user [taxes].
B. Amendments
The author has taken amendments to this measure to address
the concerns regarding the lack of definitions for the
imposition of this tax. Specifically, the author has
defined: solid wood products, veneer based and sheeting
materials, and poles and pilings. The author has also
provided for the computation of non-standard sizes of
timber products.
C. Retail Difficulty
Timber product suppliers already must collect and remit
sales and use tax on the retail sale of timber products in
California. Timber product suppliers most likely sell other
tangible personal property subject to sales and use tax.
Opponents note that adding an additional tax that would be
due on the sale of timber products would require retailers
to keep track of timber product sales separately from other
sales of tangible personal property.
Additionally, smaller timber product suppliers may find
collecting the fee burdensome. Larger suppliers would have
the ability to program the amount of the tax for each
product into its computer system. Therefore, the tax would
be automatically added to the purchase price once the
product code or UPC is entered at the register. Cashiers
at smaller supply stores, which are typically not
computerized, would have to determine the product category
and the board feet, square feet or linear feet (depending
on the product) for each timber product sold. As such, the
tax would be collected based on cashier judgment, which
would likely lead to reporting errors.
D. Precedent-The Tax and the Administrative Cap
Imposing varying fees on specific commodities complicates
tax administration and could set a precedent for
establishing multiple fees on other classes of tangible
personal property. This results in increasing
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administrative costs to the BOE, a further complicated tax
system and an increased record-keeping burden on taxpayers.
In addition, authorizing timber product suppliers to retain
a percentage of the tax as reimbursement for any costs
associated with the collection of the fee could set a
precedent for other taxes and fees.
Of the 29 taxes and fees currently administered by the BOE,
reimbursement is only allowed under the California Tire Fee
Law and the Cigarette and Tobacco Products Tax Law. The
California Tire Fee Law authorizes a retail seller to
retain 3% of the fee as reimbursement of collection costs.
The Cigarette and Tobacco Products Tax Law provides that
cigarette tax stamps are to be sold to licensed
distributors at a specified discount, which is intended to
help defray the cost (leasing of equipment/labor cost) to
the distributor for affixing the stamps.
E. Sales Tax and Excise Tax
The sales tax is a tax on gross receipts; the excise tax is
a per unit tax. A sales tax is generally easier to
administer as it does not require a per unit measurement,
but instead a calculation of the gross receipts. Although
this bill would be substantially easier to administer as a
sales tax, it would preclude California from participating
in the Streamlined Sales and Use Tax Agreement, if the
state chooses to conform with all the provisions of the
Agreement. Specifically, the Agreement states that no
single product can have a different tax rate than another
of which the provisions of this bill would not conform.
F. LAO Proposal
The LAO has advocated that timber harvest review costs be
entirely covered by timber operators. As that agency stated
in its 2003-04 Budget Analysis: "There is a direct link
between the THP review and enforcement and those who
directly benefit from it through their harvesting of
timber. In other words, without the state review and
approval of the THP, businesses would not be able to
harvest timber. Doing so would be consistent with the
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Legislature's actions in requiring the costs of most other
environmental regulatory programs, such as those protecting
air and water quality, to be fully or partially reimbursed
through industry fees and assessments."
The LAO reviewed a number of potential ways that fees could
be structured to recover state agency costs related to
THPs, which include the following:
Per Acre Fee. Timber operators would pay a fee
based on the number of acres proposed to be harvested
in the submitted THP, without regard to the value of
the proposed harvest. Under this option, fees could be
structured with a sliding scale so that above a
certain minimum number of acres, the cost per acre
could be reduced. The fees would be payable to CDFFP
upon submission of a THP.
A Flat Fee Per THP. Timber operators would pay a
flat fee for each THP submitted to CDFFP, without
regard to the value of the proposed harvest. The fees
would be payable to CDFFP upon submission of a THP.
A Fee for Service Basis. A fee would be assessed
based on the costs of state agencies related to
reviewing a particular THP. Under this option, THPs
requiring more state agency review time would be
assessed a higher fee. A fee would be collected at the
conclusion of the review process.
A Timber Yield Fee. Timber operators would pay a
fee based on the value of timber that is harvested.
Such a fee could be collected using the existing
timber tax collection system in which timber owners
are required to report the value of timber harvested
to the Board each quarter for payment of timber yield
taxes, based on the value of the harvested timber.
Of the various potential fee mechanisms, the LAO's
preferred fee structure would be a timber yield fee. This
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is because unlike the first three options, the timber yield
fee would be directly proportional to the monetary gain
from the harvest. The LAO is concerned with the flat
fee/tax because all timber operators would pay the same
regardless of the value harvested. Similarly, there is a
concern that under a per acre fee, timber operators
submitting the same size THP, but which represent different
harvest values, would pay the same fee. It was also found
that a timber yield fee is preferable because unlike the
other options, a yield fee would use an existing process to
collect the fee, thereby saving the administrative costs to
set up a totally new collection process.
G. A Timber Yield Fee Wouldn't Work
Proponents of the measure note that a timber yield fee
would:
Disproportionately affect smaller landowners
Does not create funds for financial incentives for
landowners such as conservation easements;
Does not pay for mitigation projects such as watershed
restoration, or fixing roads.
H. Should Producers Take Responsibility for the Impact of
the Product
Proponents of this measure advocate for market-based
policies requiring that producers take responsibility for
the impacts of their products, including offsetting the
cost of environmental regulation and enforcement. The
proponents state that "while the timber industry logs
privately held lands, the environmental impacts of timer
harvesting can go far beyond the borders of their property,
impacting watersheds, habitat, endangered and threatened
species, water quality, and in some cases, coastal
resources."
I. Competitive Disadvantage
Opponents of this measure claim that if this bill passes
"users of timber products will not only buy from
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out-of-state sources to avoid the tax, which creates a
competitive disadvantage for California's business and
economy, but also places timber products, which are a
renewable resource, at a competitive disadvantage compared
to building materials that compete with wood in the
marketplace. This could create an economic catastrophe for
lumber retailers and forest landowners who may be forced to
convert their lands to other non-forest uses." The
building industries and retailers of timber products also
state that they have been "huge contributors in helping
California's economy generate revenue and jobs since our
state's budget crisis;" they claim that this bill would
create a disadvantage for affordable housing and
California's housing market.
Support and Opposition
Support: Californians Against Waste
Defenders of Wildlife
Forest Landowners of California
Harwood Products
Planning and Conservation League
Oppose American Forest and Paper Association
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Manufacturing and Technology
Association
California Retailers Association
California Taxpayers Association (CalTax)
Lumber Association of California and Nevada
Western Wood Preservers Institute
Reliable Wholesale Lumber, Inc.
Payless Building Supply
Mead Clark Lumber Company, Inc.
Meeks
Weyerhaeuser
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Consultant: Gayle Miller
05/06/:3 09:25