Tax Break for Forest ManagementSeptember 22nd, 2011
On its face, the Qualified Forest Properties (QFP) tax exemption makes sense. It allows the owner of any property between 20 and 320 contiguous acres to receive a tax break for managing the forest. Enrolled property owners pay are exempt from tax levied by a local school district for school operating purposes (18 mills), in exchange for having a forest management plan. Encouraging forest management is designed to not only boost Michigan’s sagging forest product industry, but they also have the happy side benefit of improving habitat for wildlife.
Unfortunately, landowners in Michigan have chafed under the state’s Qualified Forest Property rules. They’re certainly willing to manage their land for forestry and its associated wildlife benefits, but current QF rules place too many limitations on landowners to provide much incentive for joining the program.
For one thing, current QFP rules do not allow any structures on a qualifying property regardless of how much land there is or what benefits would be gained by managing them. For example, if a small pole barn sits on a cleared acre at roadside on a 160-acre parcel of forest, that parcel cannot qualify for QFP status, regardless of the fact that there are 159 perfectly suitable wooded acres there that could be improved for forestry and wildlife.
Making matters worse, if a landowner has property in the QFP program and decides to withdraw for any reason, the penalty for doing so is steep. In fact, it’s so steep that many landowners simply steer clear of the program, which of course defeats the purpose for its very existence. Those two factors, among others, have conspired to keep a lot of acres out of the QFP program. The program currently has approximately 70,000 acres enrolled, out of about 9 million potentially eligible acres of non-industrial private forestlands (NIPF) in Michigan. The cap in the existing law is set at 1.2 million acres, so we still have significant room for enrollment.
Fortunately, several bills introduced this year aim to right those problems and hopefully make the Qualified Forest Property program more enticing for Michigan’s landowners. MUCC and a diverse team of partners, including statewide affiliate club Michigan Forest Association, Michigan Farm Bureau, Michigan Forest Products Council, Michigan Association of Timbermen, and Michigan Townships Association and through Rep. Frank Foster’s leadership, have been working to turn these ideas into legislation.
HB 4302—Sponsored by Rep. Ed McBroom (R-Vulcan) would change the tax recapture penalty for people who withdraw from QFP. This is currently referred to the House Committee on Tax Policy.
- The bill as introduced would only require repayment of the 18 mills, multiplied by 7. If no harvest is conducted prior to withdrawal, the repayment would be multiplied by 14.
- MUCC will be requesting an amendment so that properties that are enrolled in the program for less than 7 years will only have to repay the tax benefit received, i.e. the 18 mills multiplied by 3 (or 6 for no harvest) for someone enrolled for only 3 years. This would make the QFP program more comparable to Qualified Agricultural Property.
HB 4969—Sponsored by Rep. Frank Foster (R-Pellston) would make major amendments to the Qualified Forest Properties Act as well as the Commercial Forest Act. This has been referred to the House Committee on Natural Resources, Tourism, and Outdoor Recreation’s Subcommittee on Forestry and Mining.
Commercial Forest Act Amendments
- Gives a one year amnesty from the date of the new law to allow existing CFA landowners to switch to QFP with no penalties. While this could reduce the amount of acreage in CFA available for public hunting and fishing, it will likely only affect small properties that aren’t very accessible or are already in violation of the CFA rules. The tax exemption under QFP is not as attractive as CFA, which is only a flat payment of $1.25/acre, so we hope that most CFA landowners would stay in that program.
- For new CFA enrollments, would require that the landowner have at least 160 acres or more enrolled in the program (in parcels of a minimum of 40 contiguous acres in size). This is an increase in the previous minimum requirement of a 40 acre parcel per landowner. This minimum size will reduce administrative burden of the program, however some stakeholders think the 160 acre minimum should be reduced further.
- Allows existing CFA landowners (regardless of parcel size) to stay in the program under the existing requirements if they are in compliance with the Act. If a transfer of title causes the owner to fall below the 160 acre minimum, they would not be subject to CFA withdrawal penalties if they enrolled the property in QFP.
Qualified Forest Property Act Amendment Highlights
- Allows certain structures on the property, such as unimproved hunting shacks, small cottages, or pole barns for example. If the structure exceeds certain size and amenity criteria in the law, the property would not be eligible. If the property with a structure is eligible, then the 18 mills tax would only be assessed on one acre and the structure itself.
- Continues to require a forest management plan, completed by a “qualified forester” and an initial application fee of $200. A qualified forester can be from the public or private sector, as approved by the state forester.
- Requires QFP landowners to have a qualified forester audit the plan and property every 10 years, submitting this as a reassessment to the DNR with a program fee of $200. This will ensure that property owners continue to manage according to their forest plan and are not in violation of the law. The bill also authorizes DNR to conduct random audits for compliance and enforcement purposes.
- Requires a commercial harvest at least once in the first 30 years of the program enrollment. This may be extended to 40 years based on a recommendation from the qualified forester.
- Requires the approved tax exemption to be filed with the appropriate register of deeds. This will flag this designation for new property buyers so they can research the QFP requirements before they purchase the property.
HB 4970—Sponsored by Rep. Matt Huuki (R-Atlantic Mines) would amend the general property tax act to reflect the changes proposed in HB 4969 as well as allow landowners that have a certain mix of qualified agriculture land and qualified forest property to qualify for the tax exemption under qualified agriculture. This has been referred to the House Committee on Natural Resources, Tourism, and Outdoor Recreation’s Subcommittee on Forestry and Mining.
We here at MUCC will continue to follow these three bills through the process and keep you apprised of their progress.