BILL ANALYSIS
SB 557
Page 1
Date of Hearing: June 24, 2004
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Rudy Bermudez, Chair
SB 557 (Kuehl) - As Amended: June 23, 2004
2/3 vote. Fiscal Committee.
SENATE VOTE : 21-14
SUBJECT : Timber Sales: Excise Tax
SUMMARY : Imposes a two cent per board foot excise tax on
distributors for the privilege of distributing timber products,
and directs revenue raised through this tax to the Timber
Harvest Review, Fire Protection and Forest Restoration Account,
which this bill would create within the General Fund.
Specifically, this bill :
1)Directs the State Board of Equalization (BOE; the Board) to
collect an excise tax on the following timber products sold
for consumption in California at a rate of two cents per board
foot or board foot equivalent:
a) Solid wood products, including, but not limited to,
dimension lumber, posts and beams, boards, laminated beams,
edge glued materials, and timbers;
b) Veneer-based and sheeting material, including, but not
limited to, plywood, laminated veneer lumber,
parallel-laminated veneer, and composite materials; and,
c) Poles and pilings.
For purposes of this bill, a "board foot" is defined as the
cubic volume of sawn lumber equal to 144 cubic inches, and a
"board foot equivalent" is defined as the board foot volume of
wood fiber within nonsawn wood products.
2)Exempts timber products sold at wholesale or retail that
require no further manufacturing.
3)Imposes the tax on distributors of timber products, and
requires distributors to remit the tax on a quarterly basis to
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the Board. Requires the Board to deposit all excise tax
revenue into the Timber Harvest Review, Fire Protection, and
Forest Restoration Account.
4)Allocates money in the Timber Harvest Review, Fire Protection,
and Forest Restoration Account, as follows, upon appropriation
by the Legislature:
a) To administer and review operations directly connected
with the review of timber harvesting plans of a department,
board, or commission that reviews timber harvesting. For
purposes of this provision, departments that are eligible
to receive account money for reviewing timber harvesting
plans include the Department of Forestry and Fire
Protection (CDF), the Department of Fish and Game (DFG),
the Department of Conservation (CDC), and certain
California regional water quality control boards;
b) For transfer to the Forest Resources Improvement Fund
within CDF;
c) To provide grants to local agencies responsible for fire
protection and to voluntary associations, including fire
safe councils, to undertake hazardous fuel reduction
projects on forest lands; and,
d) To pay refunds of overpaid timber yield excise taxes.
5)Allows the "department" (which is unidentified in this bill
but is intended to be CDF) to borrow on an interest-free basis
against anticipated revenues in the Timber Harvest Review,
Fire Protection, and Forest Restoration Account, in order to
meet cash flow needs.
6)Provides that sawmills which gross $100,000 or less annually
are exempt from the excise tax.
7)Appropriates an unspecified amount of money from the Timber
Harvest Review, Fire Protection, and Forest Restoration
Account to BOE in fiscal year (FY) 2004-05, in order to
implement the provisions of this bill.
EXISTING LAW :
1)Provides for a timber yield tax on harvested timber, which is
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imposed in lieu of a property tax on standing timber. The
timber yield tax rate is set annually by BOE, based on the
countywide average property tax rate in 17 timber counties.
The rate in recent years has been 2.9% of the "immediate
harvest value" of the cut timber. Immediate harvest values
are not actual sales prices, but are amounts established
semiannually by BOE, by species and region, based on analyses
of market transactions. The tax is collected from timber
owners. Tax revenue, which was estimated to equal $14 million
during the 2003-04 FY, is allocated to counties based on the
location of harvest.
2)Prohibits any person from harvesting timber without a
timber-harvesting plan (THP) that has been approved by CDF.
THPs must comply with the Z'berg-Nejedly Forest Practice Act
of 1973 and forest practice rules adopted by the Board of
Forestry and Fire Protection for the area of the proposed
harvest. THPs cover matters such as harvest volume, cutting
method, erosion control, and wildlife habitat protection.
THPs are reviewed by multiple state agencies in addition to
CDF, including CDC, DFG, and the State Water Resources Control
Board.
FISCAL EFFECT : An estimate from BOE is pending. However, BOE
estimated that a one-cent per board foot excise tax would raise
approximately $64 million per year. This bill is likely to
raise approximately twice that amount. Furthermore, because the
fee would likely find its way into the retail price of lumber,
this bill would generate additional state and local sales and
use tax revenue of an as yet undetermined amount.
COMMENTS :
1)The cost of reviewing THPs is currently estimated at
approximately $22 million annually, a cost borne almost
entirely by the General Fund. In its Analysis of the 2003-04
State Budget, the Legislative Analyst's Office (LAO) advocated
that fees levied on timber operators should cover the total
state agency cost to review and enforce THPs, including the
cost of monitoring the impact of timber harvesting on natural
resources. The LAO also noted that imposing a fee on timber
operators would be consistent with the Legislature's decision
to require 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
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assessments.
The LAO reviewed a number of potential ways in which fees could
be structured to recover state agency costs related to THPs.
Among the options investigated by the LAO include the
following:
a) A Per Acre Fee : Under this option, timber operators
would pay a fee based on the number of acres proposed to be
harvested, without regard to the value of the proposed
harvest. These fees could be structured on a sliding
scale, so that the cost per acre would be reduced above a
certain minimum number of acres.
b) A Flat Fee Per THP : Timber operators would pay a flat
fee for each THP submitted, without regard to the value of
the proposed harvest or the number of acres to be
harvested.
c) A Fee for Service : A fee would be assessed based on the
costs of state agencies related to reviewing a particular
THP.
d) A Timber Yield Fee : Timber operators would pay a fee
based on the value of timber they harvest.
Of the four options, the LAO favored the timber yield fee,
because it would be directly related to the monetary gain from
the harvest. The timber yield fee was also preferable,
because it used an existing process (the timber yield tax) to
collect the fee, thereby minimizing administrative costs
associated with the additional fee.
Legislation proposed to enact the LAO's recommendation was
unsuccessful. However, the Governor has recently proposed a
$10 million timber yield fee as part of ongoing budget
negotiations.
2)This bill is sponsored by the author and is intended as an
alternative to the Governor's proposal. Senator Kuehl is
concerned that California's timber industry is facing strong
price pressures from global importers and believes that the
industry should not be subject to a substantial new fee. In
the findings and declarations portion of SB 557, Senator Kuehl
notes "it is inequitable to add $20 million or more in timber
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harvesting plan review costs to applicants, many of whom are
individual landowners. If the approximately $20 million were
evenly divided among the approximately 1,000 timber harvesting
plans applied for annually, the increase in review costs would
be $20,000 per timber harvesting plan application. which is
too onerous a burden. It is also inequitable to impose an
increase in the yield tax on timber producers that is not
broadly based and that will further add to costs of production
in California that could potentially make the price of
California timber products less competitive in the global
marketplace."
Faced with a choice of increasing the timber yield tax on timber
operators or creating a tax on those who distribute timber
products, Senator Kuehl believes that the more broadly-based
tax proposed by this bill is fairer and more equitable.
According to this bill's author, the two cent per board foot
excise tax would increase the price of an average new home by
what she considers to be a reasonable $200.
3)Unlike the Governor's proposal, which raises only $10 million,
Senator Kuehl's proposal would raise enough money to:
a) Fully fund THP review (estimated to cost approximately
$22 million per year);
b) Fully fund the Forest Resources Improvement Fund, a
program that incentivizes landowners to improve their
logging practices and was previously budgeted at a level of
$12 million per year during better budget times; and,
c) Fund a new grant program at CDF for fuel reduction
efforts on private lands (at a level of approximately $30
million per year).
4)Opponents of Senator Kuehl's bill are concerned that the
additional revenue generated by this bill will be used for new
environmental programs. Opponents also note that this bill
will increase the price of homes in a housing market that is
already one of the most expensive in the nation.
5)Although this bill's opponents have not focused on the impact
of the bill on existing homeowners, Committee staff note the
likelihood that a tax imposed on distributors will be passed
down to retailers, and ultimately to consumers. Thus, the
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incidence of this bill's excise tax will not only fall on
those who purchase new homes (already noted by the opponents),
but will also fall on individuals who purchase lumber at their
local hardware store for home improvement projects and on
homeowners who hire contractors to expand or renovate their
older homes.
6)Although a BOE analysis of this bill was unavailable at the
time this Committee analysis was prepared, BOE staff indicate
that the current version of this bill presents significant
implementation concerns for the Board. Board staff are
currently drafting extensive technical amendments to address
these implementation concerns. However, because these
amendments are unlikely to be ready by the date SB 557 is
heard by this Committee, this Committee may wish to ask
Senator Kuehl to commit to accepting the technical amendments
once they have been finalized.
Other Amendments: Amendments are also recommended to identify a
dollar amount for the FY 2004-05 appropriation to BOE and to
identify CDF as the unnamed department able to borrow money
from the Timber Harvest Review, Fire Protection and Forest
Restoration Account.
7)This bill was previously heard and passed by the Assembly
Natural Resources Committee on a vote of 6-3.
REGISTERED SUPPORT / OPPOSITION : No letters of support or
opposition were received by the Revenue and Taxation Committee.
Those listed below are on file with the Assembly Natural
Resources Committee and are listed for information purposes.
Support
Planning and Conservation League
Sierra Club California
Defenders of Wildlife
Harwood Products
Californians Against Waste
Opposition
Lumber Association of California and Nevada
Department of Forestry and Fire Protection
American Forest and Paper Association
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California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Manufacturing and Technology Association
California Retailers Association
California Taxpayers Association
California Chapter of the American Fence Contractors'
Association
California Fence Contractors' Association
Engineering Contractors' Association
Marin Builders' Association
Western Wood Preservers Institute
Novato Builders Supply, Inc.
Topanga Lumber and Hardware
Colonial Lumber Co.
Burnett and Sons Planing Mill and Lumber Co., Inc.
Bruce Bauer Lumber and Supply
Analysis Prepared by : Eileen Roush / REV. & TAX. / (916)
319-2098