QUALIFIED FOREST PROPERTY
Senate Bill 912
Sponsor: Sen. Gerald VanWoerkom
Senate Bill 913
Sponsor: Sen. Tony Stamas
Senate Bill 914
Sponsor: Sen. Jason E. Allen
House Committee: Conservation, Forestry, and Outdoor Recreation
Senate Committee: Agriculture, Forestry and Tourism
Complete to 6-14-06
A SUMMARY OF SENATE BILLS 912 - 914 AS PASSED BY THE SENATE 5-23-06
Senate Bill 912 (S-3) would amend the General Property Tax Act (MCL 211.27a) to do the following:
** Exempt a limited amount of qualified forest property from taxes levied by local school districts, with some exceptions.
** Require a property owner to file an approved forest management plan, or a certificate from a third-party organization, in order to receive an exemption.
** Exempt the transfer of qualified forest property, under certain conditions, from a provision requiring the taxable value of property to be adjusted upon transfer.
The bill also would repeal Part 513 (Private Forestry) of the Natural Resources and Environmental Protection Act.
Senate Bill 913 (S-2) would create the "Qualified Forest Property Recapture Tax Act", effective January 1, 2007, to provide for the recapture of taxes owed on qualified forest property that was converted by a change in use after December 31, 2006, and no longer qualified for a tax exemption. The recapture tax would be doubled if no harvests of forest products had been conducted on the land consistent with the approved forest management plan.
Senate Bill 914 would amend the Revised School Code (MCL 380.1211) to exempt qualified forest property from taxes levied by local school districts.
The bills would define "qualified forest property" as a parcel of real property that met all of the following conditions, as determined by the Department of Natural Resources (DNR):
o Is not less than 20 contiguous acres in size, of which at least 80 percent is productive forest capable of producing wood products.
o Is stocked with forest products.
o Has no buildings or structures on the real property.
o Is subject to an approved forest management plan.
"Productive forest" would mean real property capable of growing at least 20 cubic feet of wood per acre per year. "Forest products" would include timber and pulpwood-related products.
The three bills are tie-barred to each other so that none could go into effect unless the others also were enacted into law. A more detailed explanation of each bill follows.
Senate Bill 912 (S-3)
Exemption for Qualified Forest Property. The bill would exempt a limited amount of qualified forest property from the tax levied by a local school district for school operating purposes to the extent provided under Section 1211 of the Revised School Code (which Senate Bill 914 would amend).
The amount of forest property that would be eligible for an exemption under the bill would be limited as follows:
o In the 2007-08 fiscal year, 300,000 acres.
o In the 2008-09 fiscal year, 600,000 acres.
o In the 2009-10 fiscal year, 900,000 acres.
o In the 2010-11 fiscal year and each subsequent fiscal year, 1.2 million acres.
To claim an exemption, the owner of the property would have to file an affidavit claiming the exemption and an approved forest management plan or a certificate provided by a third party certifying organization with the local tax collecting unit by December 31. An owner could claim an exemption for up to 320 acres in each local tax collecting unit. If an exemption were granted for less than that amount, the owner could subsequently claim an exemption for additional property in that local tax collecting unit if that property met the bill's requirements.
The affidavit would have to be on a form prescribed by the Department of Treasury and would have to attest that the property for which the exemption was claimed was qualified forest property, and would be managed according to the approved forest management plan.
The assessor would have to determine if the property was qualified forest property based on a recommendation from the DNR and confirmation that the acreage limit specified above had not been reached, and if so, would have to exempt the property from the collection of the tax until December 31 of the year in which the property was no longer qualified forest property.
If all or a portion of the property were no longer qualified forest property, the owner would have to rescind the exemption for that portion of the property within 90 days by filing with the local tax collecting unit a rescission form prescribed by the Department. of Treasury. An owner who failed to do so would be subject to a penalty of $5 per day for each failure beginning after the 90 days had passed, up to a maximum of $1,000. The penalty would have to be collected under the Revenue Act and deposited in the state's General Fund.
Appeals; Modification. An owner of property that was qualified forest property on December 31, for which no exemption was on the tax roll, could file an appeal with the July or December board of review under Section 53b in the year the exemption was claimed or the next year. (Section 53b permits either a taxpayer or an assessing officer to petition the board of review if there has been a clerical error or a mutual mistake in the assessment, computation, or rate of taxation. The bill would amend Section 53b to permit the board of review to hear appeals provided for in the bill.)
An owner of property that was qualified forest property on May 1, for which an exemption was denied, could file an appeal with the July board of review for summer taxes or, if there were not a summer levy of school operating taxes, with the December board of review.
If the local tax assessor believed that the property for which an exemption had been granted was not qualified forest property based on a recommendation from the DNR, the assessor could deny or modify an existing exemption by notifying the owner in writing as required under Section 24c. (That section requires the assessor to notify the owner or owners by certified mail of an increase in the tentative taxable value for the year. The notice must contain specific information on the change, including the current tentative taxable value, the net change from the preceding year, the classification of the property, and the time and place where the board of review will be meeting.) A taxpayer could appeal the assessor's determination to the board of review. A decision of the board of review could be appealed to the Residential and Small Claims Division of the Michigan Tax Tribunal.
If property for which an exemption had been granted were not qualified forest property, the property would have to be placed immediately on the tax roll by the local tax collecting unit or by the county treasurer as though the exemption had not been granted. A corrected tax bill would have to be issued for each tax year being adjusted.
Change in Use. If property exempted under the bill were converted by a change in use and were no longer qualified forest property, the property would be subject to the qualified forest property recapture tax under the proposed Qualified Forest Property Recapture Tax Act. An owner of qualified forest property would have to inform a prospective buyer of the property that if the property were converted by a change in use, it would be subject to the recapture tax.
Reporting Requirements. An owner of qualified forest property that was exempt under the bill would have to report annually to the DNR, on a form prescribed by the department, the amount of timber produced on that property and whether any buildings or structures had been constructed on the property.
Every three years, beginning in 2008, the DNR would have to provide to the House and Senate standing committees with primary jurisdiction over forestry issues a report that included the number of acres of qualified forest property in each county, and the amount of timber produced on qualified forest property each year.
Transfer of Ownership.Under the act, upon transfer of ownership of property, the property's taxable value for the following calendar year is that property's state equalized valuation (SEV) for the year following the transfer. The bill specifies that "transfer of ownership" would not include a transfer of qualified forest property, if the person to whom the qualified forest property was transferred filed an affidavit with the local tax assessor and with the register of deeds for the county where the qualified forest was located, attesting that the property would remain qualified forest property. The affidavit would have to be on a form prescribed by the Treasury Department.
If property ceased to be qualified forest property after being transferred, the taxable value of the property would be adjusted as described above, as of December 31 of the year when the property ceased to be qualified forest property. In addition, the property would be subject to the proposed recapture tax.
Forest Management Plan; Third Party Certificate. Under the bill, "approved forest management plan" would mean either a forest management plan certified by a third-party certifying organization, or a forest management plan approved by the DNR. "Third-party certifying organization" would mean an independent third-party organization that assesses and evaluates forest management practices according to the standards of a certification program that measures whether forest management practices are consistent with principles of sustainable forestry. The term would include the Forest Stewardship Council and the Sustainable Forest Initiative.
To obtain the DNR's approval, an owner could submit to the department a proposed forest management plan and a statement signed by the owner that he or she agreed to comply with all terms and conditions in the plan. The DNR could charge a maximum $200 fee for the consideration of each plan submitted. The DNR would have to review and either approve or disapprove each plan submitted. If the DNR disapproved a proposed forest management plan, the department would have to indicate the changes necessary to qualify the proposed plan for approval on subsequent review. At the request of the owner submitting the plan, the DNR could agree to complete a proposed forest management plan. An owner and the DNR could mutually agree to amend a proposed plan or an approved plan. A plan submitted for approval could not extend beyond 20 years. An owner could submit a succeeding proposed forest management plan to the DNR for approval.
"Proposed forest management plan" would mean a proposed plan for sustainable forest management, prepared by a qualified forester and that included at least harvesting, planting, and regeneration of forest products on a parcel of property. A proposed management plan would have to include all of the following:
o The name and address of each owner of the property.
o The legal description and parcel identification number of the property or the parcel on which the property was located.
o A statement of the owner's forest management objectives.
o A map, diagram, or aerial photograph that identified forested and unforested areas of the property using conventional map symbols indicating the species, size, and density of vegetation and other major features of the property.
o A description of the forestry practices, including harvesting, thinning, and reforestation, that would be undertaken, and the approximate period of time before each would be completed.
o A description of soil conservation practices that could be necessary to control any soil erosion that could result from the forestry practices described.
o A description of activities that could be undertaken for the management of forest resources other than trees, including wildlife habitat, watersheds, and aesthetic features.
"Natural resources professional" would mean that term as defined in Section 51101 of NREPA, i.e., a person who is acknowledged by the DNR as having the education, knowledge, experience, and skills to identify, schedule, and implement appropriate forest management practices needed to achieve the purposes of Part 511 (Commercial Forests).
"Registered forester" would mean that term as defined in Section 51101 of NREPA, i.e., a person registered under Article 21 of the Occupational Code. (Under Article 21, to qualify as a certified forester, one must graduate from an accredited university or college, have two or more years of experience in forestry work, and be of good moral character.)
Repeal of Part 513. The bill would repeal Part 513 of NREPA, effective September 1, 2007. Part 513 provides an exemption from all taxation for the value of private forest reservations over $1 per acre. Land may be designated a private forest reservation if it meets certain size requirements and if the owner plants at least 1,200 trees per acre, or a sufficient number of forest trees to assure a spacing of six feet by six feet on the open areas. Before removing any trees, the owner must pay a license fee of 5 percent of the appraised valuation of the cut timber. If the owner withdraws land from the classification of a private forest reserve, or fails to comply with Part 513, he or she must pay a fee of 5 percent of the appraised value of the timber on the stump. All taxes and fees collected under Part 513 that are allocated to the local school district where the reservation is located must be paid to the State Treasurer and credited to the School Aid Fund.
Senate Bill 913 (S-2)
The bill would create the Qualified Forest Property Recapture Tax Act.
Beginning January 1, 2007, the qualified forest property recapture tax would be imposed as provided under the bill if the property were converted by a change in use after December 31, 2006. "Converted by a change in use" would mean that due to a change in use the property was no longer qualified forest property as determined by the assessor of the local tax collecting unit, based on a recommendation from the DNR.
The recapture tax would be the obligation of the person who owned the property at the time the property was converted by a change in use. If a recapture tax were imposed, it would be a lien on the property subject to the recapture tax until paid. If the recapture tax were not paid within 90 days of the date the property was converted by a change in use, the state treasurer could bring a civil action against the property owner as of the date the property was converted by a change in use. If the recapture tax remained unpaid on March 1 in the year after the property was converted, the property would have to be returned as delinquent to the county treasurer of the county in which the property was located. Property upon which the recapture tax, interest, penalties, and fees remained unpaid after the property was returned as delinquent would be subject to forfeiture, foreclosure, and sale for the enforcement and collection of delinquent taxes as provided in the General Property Tax Act.
The local tax assessor would have to notify the state treasurer of the date the property was converted by a change in use. The state treasurer would have to collect the recapture tax and credit the proceeds to the state's General Fund. The Department of Treasury would have to administer the proposed act.
If property were converted by a change in use and there had been one or more harvests of forest products on that property consistent with the approved forest management plan, the recapture tax would be calculated as follows: 1) multiply the property's SEV at the time the property was converted by a change in use, by the total millage rate levied by all taxing units in the local tax collecting area where the property was located.; and 2) multiply the product of that calculation by seven.
If property were converted by a change in use and there had not been any harvests of forest products consistent with the approved forest management plan, the recapture tax would equal the product of the calculation described above multiplied by two.
In addition to the recapture tax calculated above, the tax would have to include the benefit received on that property, if property were converted by a change in use and the taxable value of the property were not adjusted under Section 27a(3)(o) of the General Property Tax Act after a transfer of ownership (under an exemption proposed by Senate Bill 912 (S-3)).
"Benefit received on that property" would mean the sum of the number of mills levied in the local tax collecting unit on the qualified forest property in each year of the benefit period multiplied by the difference in each year between the true cash taxable value of the property and the property's taxable value as determined under Section 27a of the act. "Benefit period" would mean the number of years between the date of the first exempt transfer and the conversion by a change in use, up to a maximum of 10 years immediately preceding the year in which the property was converted by a change in use.
"True cash taxable value" would refer to the taxable value the property would have had if the exemption under Section 27a(3)(o) were not in effect. (Section 27a(3) states that upon transfer of ownership of property, the property's taxable value for the following calendar year is that property's SEV for the year following the transfer. Senate Bill 912 (S-3) would exclude a transfer of qualified forest property from that provision.)
Senate Bill 914
The bill would amend the Revised School Code (MCL 380.1211). Currently under Section 1211 of the code, the board of a school district may levy a limited number of mills for school operating purposes. Principal residences and qualified agricultural property are exempt from the levied mills except as the exemption is reduced by a school board. The bill also would exempt qualified forest property from the mills.
The code permits the board of a school district that had a foundation allowance of more than $6,500 for Fiscal Year 1994-95 to reduce the exemption for a primary residence and qualified agricultural property by the number of mills required to generate sufficient revenue for the school district's combined state and local revenue to be equal to the district's foundation allowance in Fiscal Year 1994-95. Under the bill, the board also could reduce that exemption for qualified forest property.
A school district may levy additional mills on all classes of property if the Department of Treasury determines that the maximum number of mills allowed to be levied is not sufficient to generate a certain minimum amount of revenue. If the number of mills a school district is allowed to levy is less than the number allowed during the previous year, any reduction in the school district's millage rate must be calculated by first reducing any additional mills the school district had levied on all classes of property, and then increasing the mills from which a principal residence and qualified agricultural property are exempted. The bill would include qualified forest property in that provision.
FISCAL IMPACT:
Senate Bill 912 would reduce local revenue earmarked for education, although the magnitude cannot be precisely determined because the amount of qualified forest property that would qualify for the 18-mill exemption is not known. If all qualified forest property qualified, local revenue would decline by about $16 million, although the actual impact would almost certainly be less. There would be no direct impact on state revenues; however, School Aid Fund expenditures would need to increase to offset the loss of local revenue.
Senate Bill 913 would create the Qualified Forest Property Recapture Tax Act, which would be imposed on qualified forest property that was converted to another use. Any revenue generated would likely be small.
Legislative Analyst: J. Hunault
Fiscal Analyst: Jim Stansell
■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.