If you own five acres or more of forested property in Washington, you might want to know about something called “designated forest land”. This is a property tax assessment option for forest landowners in our state that can lower your taxes.
Normally, real property is taxed based on an estimate of its fair market value. This should reflect what is called the “highest and best use”, which is the most economically advantageous use of the land (often real estate development). With the designated forest land option however, the taxable value of forested land is assessed for forestry use, which is a much lower value. This option was established by the State Legislature in the 1970’s.
The purpose of a designated forest land tax option is to encourage forest landowners to maintain their land as forest. The Legislature recognized that productive forest lands provide a multitude of essential public benefits, such as:
- supplying us with clean water and clean air
- protecting the soil
- reducing flood damage
- slowing storm water
- providing habitat and food for wildlife
- beauty and recreational opportunities
Forested Land Can be Taxed for Less
The assessed value of designated forest land was set in state statute, and in 2014 ranged from $1/acre to $189/acre, based on soil productivity and the ease/cost of timber extraction. Current values can be found on the State Department of Revenue website at: http://dor.wa.gov/content/findtaxesandrates/othertaxes/timber/forst_lvs.aspx.
In contrast, assessed fair market value could be thousands of dollars per acre. So, designating your land as forest can reduce your tax burden by up to 99 percent on the forested portion of your property. The tax assessment for the residential portion of your property and any structures would not see a reduction.
Details of a Forest Land Designation
To be designated as forest, the land must be at least five contiguous acres of forest (which can comprise multiple adjacent parcels), not including any residential portion. If there is a residential portion, typically a minimum of one acre is excluded. Thus, landowners living on their property should have at least six acres total, five of which must be forest.
The law specifies that land designated as forest must be “devoted primarily to growing and harvesting timber”. Landowners who are primarily interested in aesthetics, recreation, habitat, etc. or otherwise don’t intend to use their land for timber production should not enroll in this option.
While designated forest land is a state law, it is administered at the county level by the county assessor’s office. At the assessor’s discretion, a written timber management plan may be required when enrolling your forest land, or when you sell it. WSU Extension’s Forest Stewardship Coached Planning classes (http://forestry.wsu.edu) are designed to help landowners write their own qualifying timber management plan. Landowners can also pay a consultant to write their plan.
‘Forest Land’ versus ‘Open Space Timber’
Twenty acres used to be the minimum for designated forest land. However, in 2014 it was reduced to five acres. A separate but similar program, the “open space timber designation”, was available to landowners with five or more acres. The law was changed to streamline and simplify things by not having two separate programs.
Counties aren’t required to eliminate the open space timber program designation, but they’re given the option to do so. Many counties are currently doing this, so you may receive a notice from the county assessor that your land is being transferred from open space timber to designated forest land. This doesn’t change your tax benefit or otherwise have negative impacts, so if you receive this notice, don’t be concerned.
Applying for Forest Land Status
Applications must be received by December 31 for consideration the following year. If the county doesn’t make a decision about your application by May 1 that following year, it is automatically considered approved. If your application is approved that following year, your property will be assessed that year at the new lower rate, for taxes payable the year after that.
For example, if your application is received before December 31, 2016 and it’s approved, your forest property will be assessed at the lower value in 2017 for taxes payable in 2018. The first year of lower tax payments would be 2018.
Removing Your Forest from this Status
If you decide to remove the forest land designation at some point, a significant tax (called a compensating tax) must be paid. This tax is calculated by taking the difference between the designated forest land tax assessment and the full value tax assessment in the year of removal and multiplying by nine years (or however, many years your forest land was enrolled, if fewer than nine).
Selling Your Forest under Designated Status
Designated forest land can be sold and can still retain its lower tax status as long as the buyer agrees - in writing - to continue managing it for timber production. This is called a continuance. Your county assessor may require the buyer to submit a new timber management plan if signing a continuance. If the buyer declines a continuance, you must pay the compensating tax before the sale can be recorded.
Is This Special Designation Fair?
Some people have raised objections to this lower tax status program, claiming that it’s not equitable to decrease the tax burden on forest land, because that increases the tax burden on other land. Others, however, note that forestland owners are expected to provide public benefits with no compensation, and also have many regulatory constraints imposed upon them by the public.
Eighty studies nationwide by the American Farmland Trust and others on the cost of community services have found that forest lands contribute far more in taxes than they require in public services (37 cents in services needed for every $1.00 of tax revenue produced). Residential lands, on the other hand, require more in public services than they contribute in taxes ($1.19 in services needed for every $1.00 of tax revenue produced).
You should carefully consider your long-term plans before applying for designated forest land status. If you aren’t committed to managing the land for timber production for at least ten years, this designation might not be a good option.
By Kevin Zobrist, WSU Extension Forester