By Ken Ward Jr.
Would you like to pay income taxes on just half the money you earn?
That's basically what West Virginias timber severance tax law could allow some loggers to do, according to longtime critics of the way the state taxes natural resource property.
"It's insidious," said former state Sen. Mike Withers of Taylor County. "The public is getting screwed and these guys are skating."
The Tax Department agrees there are some problems and that the severance tax rules are too confusing. The department has proposed some changes, but none has been implemented so far.
Tax Department officials have increased their policing of possible timber severance tax evaders.
They give that effort part of the credit for the fact that annual severance tax collections tripled to more than $2.4 million since 1988.
But that increase could also be caused by the doubling of logging statewide since 1987 and the increase in severance tax rates from 2.5 percent to 3.22 percent in March 1989.
West Virginia legislators created a timber severance tax in 1987. Prior to that, timber companies had to pay business and occupation taxes on the trees they cut down.
Under the severance tax program, companies would pay taxes of 3.22 percent of the gross sales prices of timber.
State law defines gross sales prices as the gross value at the point at which the tree is severed and delimbed. Because a timber sale does not always take place at the physical point of severing and delimbing, the state Tax Department has created a complicated scheme for estimating these sales.
Dick Waybright, lobbyist for the West Virginia Forestry Association, outlined these estimations in a 1992 memo to Withers:
* A landowner contracts with a logger to cut timber and deliver the logs to a mill where the landowner is paid for them. The landowner is responsible for the severance tax and would pay the tax on 50 percent of the money received for the logs.
* The landowner sells timber to a logger who delivers the logs to a sawmill. The logger is responsible for the severance tax on 50 percent of the money received.
* The landowner sells timber to a sawmill, which then has its logging crew or a contract logger cut and bring the logs to the mill. The sawmill is responsible for the severance tax and pays on 25 percent of the money received.
Under the old scheme, sawmills paid business-and-occupation tax on the other 50 percent or 75 percent of the timber price, said deputy state Tax Commissioner Lydia McKee. Now, no one pays severance or B&O taxes on that share, McKee said.
McKee said sawmills now pay corporate net income and business franchise taxes instead. But she said no one is sure whether this amounts to less tax being paid in the end.
"It's hard to compare," McKee said. "Its a whole different tax structure."
Waybright said he believes West Virginia timber operators are already overtaxed.
Ohio, for example, has no severance tax, Waybright says. Virginia has a timber end-users tax that manufacturers pay, but it is much smaller than West Virginias severance tax, Waybright said.
The Tax Department, however, sees some problems.
A department study released last month found large numbers of logging companies not properly registered with state tax officials. The department estimates that perhaps a third of loggers arent properly registered to pay severance taxes.
The report said some operators may be simply trying to avoid paying.
"The loggers are extremely mobile to the point that they have no permanent business location beyond their homes," the report said. "There are some out-of-state companies that come into the state, cut the timber and then take the timber out of state."
The report also said the current severance tax law is too complicated. The law makes it hard to figure out which companies owe severance tax and which dont, the report said.
The Tax Department suggested four ways the state could improve its severance tax program:
* Make sawmills responsible for paying the severance tax. This might encourage some loggers to take trees out of state for milling. But it would improve compliance by taking the burden off mobile logging companies.
* Don't issue Division of Forestry licenses to any company that has outstanding severance tax bills.
* Require a bond for out-of-state timber companies. If proper taxes were not paid, the bond would be forfeited to the Tax Department.
* Allow the Tax Department to seize and impound equipment of loggers who do not pay their taxes or comply with licensing requirements.
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