Maine Tree Growth Tax Law: The Valuation Process
By Ken Laustsen, Biometrician, Maine Forest Service
The Tree Growth Tax Law (TGTL) is a current use property tax program. Current use programs value land according to actual uses, not potential. TGTL values woodland on its ability to grow commercial forest products such as pulpwood and sawtimber. (Learn how the Tree Growth program preserves Maine’s forests.)
The U.S. Forest Service, with assistance from the Maine Forest Service (MFS), continuously measures tree inventory information, including growth rates for different species groups and products, across all geographic areas in Maine.
“The Tree Growth Tax Law is very important to thousands of landowners and has done more to conserve land than any other program, including all the land acquisition bonds combined.” – Tom Doak, executive director, Maine Woodland Owners
There are several steps to the valuation process:
Step 1 – Calculate the average annual net growth percent by dividing the long-term average annual net growth by the long-term average inventory.
Step 2 – Assign TGTL forest types and acreage with a custom program using the TGTL forest type definitions. The statutory definition of the forest types is as follows:
“Softwood type” means forests in which pine, spruce, fir, hemlock, cedar and larch, singularly or in combination, comprise 75% or more of the stocking.
“Hardwood type” means forests in which maple, birch, beech, oak, elm, basswood, poplar and ash, singularly or in combination, comprise 75% or more of the stocking.
“Mixed wood type” means forests in which neither hardwoods nor softwoods comprise 75% of the stand but are a combination of both.
Step 3 – Calculate the average volumes per acre for each forest type.
Step 4 – Calculate average annual productivity by multiplying the respective Step 3 volumes per acre by the respective Step 1 growth percent to get average annual productivity.
Step 5 – Calculate the average stumpage value using the MFS Stumpage Price report figures and the respective proportions of pulpwood and sawtimber in inventory. There are four product proportions taken into account – softwood pulpwood, softwood sawtimber, hardwood pulpwood, and hardwood sawtimber.
Step 6 – Calculate annual value per acre for each forest type. The respective Step 4 is multiplied by the respective Step 5 average, producing an average annual value per acre per year. This value is discounted 10% to reflect inaccessible wood or inoperable stands, and then capitalized at 8.5%. In effect this step is answering the question, “What valuation per acre is required to provide an 8.5% annual return, a return that is 90% of the average annual value per acre per year?”
This is the final MFS calculation. The annual per acre valuations are sent to Maine Revenue Services (MRS). In order to moderate annual variations in stumpage values, MRS averages the three most recent annual valuations. Therefore the current tax year valuations are a “look-back” and are the average of the previous three annual valuations.
More details: Tree Growth Tax Law Valuation Process Expanded Explanation.