BILL ANALYSIS
SB 557
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Date of Hearing: August 4, 2004
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
SB 557 (Kuehl) - As Amended: June 30, 2004
Policy Committee: Natural Resources
Vote: 6-3
Revenue & Taxation 4-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill imposes, starting July 1, 2005, an excise tax on
timber products at the rate of two cents per board foot.
Specifically, this bill:
1)Imposes the tax on distributors of timber products, requires
the tax to be paid to the Board of Equalization (BOE) on a
quarterly basis and requires payments to be transmitted to the
Treasurer for deposit into the proposed Timber Harvest Review,
Fire Protection and Forest Restoration (THP) Account.
2)Limits use of money in the THP Account to the following
purposes:
a) BOE's related administrative costs and any necessary
refunds.
b) Review of timber harvest plans (THPs) conducted by the
Department of Forestry and Fire Protection (CDF) and other
state agencies.
c) Transfer to the Forest Resources Improvement Fund
(FRIF).
d) Grants to local fire protection agencies and voluntary
associations to undertake hazardous fuel reduction
projects.
3)Allows the CDF and other appropriate state agencies to borrow,
interest-free, against anticipated excise tax revenues to meet
cash flow needs.
4)Appropriates an unspecified amount from the THP Account to
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support the activities funded by excise tax revenue in FY
2004-05.
FISCAL EFFECT
1)Substantial tax revenue, in the range of $135 million annually
starting in FY 2005-06, generated by the excise tax on timber
products. (THP Account.)
2)Moderate costs, perhaps $2 million annually starting in FY
2004-05, to the BOE to administer the excise tax and to
provide refunds for tax overpayments. (THP Account.)
3)Substantial annual GF savings, starting in FY 2004-05, to the
extent revenue generated by the excise tax allows the
Legislature to reduce GF appropriations for support of THP
review and other forest resources-related state activities.
4)Moderate costs, in the range of $250,000 annually starting in
FY 2005-06, to the CDF to administer the grant program for
local fuel reduction activities. These costs, up to an
administrative overhead ceiling of 4%, are covered by revenue
generated by the excise tax. (THP Account.)
5)Moderate sales and use tax revenue increase starting in FY
2005-06 to the extent the excise tax is built into the price
of timber products sold to retail consumers. (GF)
COMMENTS
1)Rationale . The author believes a board-foot excise tax on
timber products is an appropriate source of new funding to
support the state's forest resources-related regulatory
activities and would allow the Legislature to reduce GF
support for these activities. The author also believes the
excise tax is a workable alternative to the governor's
proposed imposition of a timber yield fee coupled with a
relaxation of regulations governing timber harvesting. (The
governor's proposal was never adopted by the Legislature and,
while a timber yield fee adopted by the budget conference
committee, is pending at this time.)
2)Uses of Excise Tax Revenue . The $125 million in revenue
projected to be annually generated by the timber products
excise tax would cover the costs of state agency review of
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THPs, activities funded by the FRIF, and grants to local
agencies and organizations to support fuel reduction efforts
aimed at reducing the frequency and intensity of wildfires,
particularly those in the urban-wildland interface. The
Legislative Analyst estimates the annual state cost to review
THPs at $22 million, leaving over $100 million each year for
FRIF and the grant program. The bill appropriates an
unspecified amount of THP Account money for supporting these
activities in FY 2004-05. Since the excise tax would not be
imposed until July 1, 2005, it is assumed that revenue
anticipation borrowing would take place until revenue began to
be deposited in the THP Account in October 2005.
3)Current Taxes on Timber . Two different taxes are imposed on
timber property: the timber yield tax and the property tax on
timberland. The timber yield tax is a state tax, while the
taxation of timberland is part of the local property tax. The
timber yield tax rate is set annually by the BOE, based on the
countywide average property tax rate in 17 counties containing
timber resources. The rate in recent years has been 2.9% of
the "immediate harvest value" of the cut timber. The timber
yield tax is projected to generate about $15 million
in FY 2004-05 for allocation back to the 17 timber counties.
Retail sales of timber products are also subject to the state
and local sales tax.
Analysis Prepared by : Steve Archibald / APRO / (916) 319-2081