WOODLOTS FINAL

Types of buisness structures in forestry

1. Sole propietoship

2. Partnership

3. Corporation

4. Limited liability company

5. Cooperative (uncommon)

Sole proprietorship

1. Single person (owner of business)

2. Easiest and cheapest way to start

3. complete control of the business

4. business assests and liabilites are NOT sperate from personal (you and buisness are one)

5. may be harder to raise money because you dont have stock or cant get a buisness loan

Partnership

2 or more people

1. limited partnerships

2. limited liability partnerships

For groups that want to test before becoming a more formal buisness

Limitied partnerships

one partner with unlimited liability (personal liability tied to buisness), all others are limited

• partners with limited liability tend to have limited control of company

Limited liability partnerships

every person has limited liability and management roles

Corporation

C or S corp (have different tax payments - C corp pays taxes twice)

• legal entity thats separate from owners but can make a profit, have to be taxed and held legally liable

• strongest protection from personal liability but $$$

• required recrod keeping and reporting

• investors are made aware of buisness doings

• pay taxes on profits

Limitied Liability Company (LLC)

Takes advantage of benefits of corporation and partnership

protection from personal liability

profits and losses passed through personal income without facing the corporate taxes

Cooperative

• Business owned by and operated for benefit of those who use services

• profits and earning are distributed among members

• elected board of directors and officers run in cooperative while members only have voting power

Buisness license and taxes

registration is required in every state

tax certificate can be in addition to or in lieu of license

• self-employed (you are responsible for making regular tax payments)

• Company (coporation where taxes such as $$ and medicare come out of paycheck)

Commercial general liability insurance

cover injury or property damage due to negligence or negligence of someone you hired

Errors and Omissions insurance

protects you if a client sues you when you provided a service that a client said was inadequate

Workers compensation insurance

covers medical costs and lost wages for work related injuries and illnesses (required for 3-5 employees)

• worker can still sue for negligence, you have to have a safe work environment

Insurance certificate

provides evidence of active insurance policy

contractor has their company send it

Costs associated with runing a consulting buisness

• operation expenses

• advertising

• payroll

• benefits - retirement

• reinvestment in new technologies

• continuining education and licesing fees

• loss is built into model (someone is going to not pay you at some point)

Hourly price rate

(time and materials rate) = least risky

get paud for every hour of work

Commission

Percentage of timbersale revenue

• might have to wait to get paid

• hard to estimate your time contribution in advance or if payment will match up

Fixed rate (price per plot or per plan)

estimation at first but gets more consitent in long run

Independent contractor

self-employed, in charge of how/when they want to complete work

work for multiple people

bill for their hours

Property taxation

• town or state level, sometimes county

• tax level assessed on value of land

Estate taxation

• when property changes hand

• taxed based on inheritance

• no federal tax withhled if spuse inherits

• if kids or anyone else, no tax on first $5.5 M per person who is giving, no tax per $10.9M per couple

Yield taxation

tax on value of harvested timber; collected at harvest

Severance taxation

tax on volume (MBF); collected at harvest

Income taxation

Variations on how its assessed

some intermediate expenses can be deducted annually from income tax

Hobby land owernship type

primary purpose is for personal enjoyment or hobby

• limited tax deductions

• can make income but not primary goal

• can only deduct expenses if in year of income

Investment land ownership type

primary goal is for profit, dont rise to level of business

• tax deductions are somewhat limitied

Business land ownership type

primary goal is for profit and activities that are conducted as buisnes

• more options for tax deductions

• have to prove its a buisness and activites are treated this way

• only for industrial

• can adjust for depreciation on equipment and land improvement

Basis timber tax deduction

measure of owner investment in an asset like timberland

• Determine value of property (land value (comps) + timber value (market prices))

• Calculate percentage of total market value that the asset represents 

• Subtract from capital gain 

Timber depletion allowancce deduction

deduction of a portion of the timber basis from net proceeds of timber sale, based on portion of timber that was sold

Operating expenses deduction

may be deducted from property taxes

• any money you spend for your land

Timber tax

tax paid on two types of income

• ordinary and capital gains

Ordinary income

• this is whats paid if you cut and take trees to the mill yourself

• value based on fair market value of timber on jan 1st of year you sold it

  • gain (loss) is determined by subtracting FMV of standing timber (1), harvesting and processing costs and selling expenses from sale proceeds pay taxes of that difference

Capital gains

from sale of capital assets - land itself or trees (stumpage)

sale of standing timber

• must have been held for more than one year

• determine the value by finding fair markey value of timber on january 1 of tax year and then subtract it from next income you made on it (long term)

Stumpage price

value of standing timber, represents net worth of trees before harvesting, transport, and milling costs

Why do we have tax incentives?

owing land and keeping it forests, provide ecosystem services + they contribute to economy by managing land

highest and best use land tax

taxed at its highest and best use regardless of what its used for (current use)

disentivies keeping forests as forests

Current tax programs

enrollment in current use allows landowners of forested parcels to pay a lower tax rate

Current use; what property is being used for now

Current use criteria

1. Minimum acreage - varies by state 

2. Management plan - usually a requirement to actively manage 

3. Commitment period - can't just pay low tax rate until you're ready to build a development on it

4. Penalty for change in use - back taxes based on higher use 

VT UVA program requirements

requires a management plan written by a licensed forester

Minimum acreage: 25 + contiguous acres (20 must be managed and productive)

o Size of exclusion for dwelling: not within 2 acres of surrounding dwelling, can enroll portions)

o Limits on land developments: no private or commercial development (gravel pits and mines included)

o Management requirements: forest (farmland or land owned by a qualifying conservation org.)

Forest land UVA program

productive sites must be enrolled in productive forestland subcategory managed for long-term production of forest products in accordance with established forest practices

loopholes if you dont want to manag

Ecologically significnat treatment areas (ESTAS)

manage for protection of signifcant ecological sites including riparian areas

• have to mention what youre going to do with land

Site IV

soils that are incapable of growing minimum amount of wood may be enrolled as site IV and (non-productive soils)

open/idle agricultural land

land not eligible for agricultral UVA is not to be reforested within two years

Reserve forestland

forested land managed with primary purpose of accural and protection of old forest functions, values, and assosiated characterists - cannot be whole property and must be smaller than 100

Economics

study of choices about the use of scarce resources

extractive value

timber value (lumber) + non-timber value (fruits, nuts)

Non-extractive value

ecosystem services (soil and water protection) + preservation value (existence)

Stand rotation

length of time from stand establishment until final removal of trees in stand

EX: year 2000, thin a few times, harvest at 2050 - 50 year rotation age

NOT years you thin, year of FINAL regen/harvest

biological rotation age

max volume growth; Max MAI where PAI and MAI intersect

Economic rotation age

age that forests must be grown to yield max economic return, includes wood volume and value and how that changes with age

rotation at which there is a greatest difference between present value of benefits - present value of costs (greatest net benefit)

physical rotation age

species lifespan

• life of species of a tree

  • disturbance can shortne life

  • harder to manage rotation for a multi-age stand

technical rotationa age

grow to dimension

• length of time required to grow a stand of trees to a certain dimension to best met needs of various commercial markets

silvicultural rotation age

max seed production

• age at which the max seed production is obtained to facilitate natural regeneration

income generation ratio age

highest income over time

• one that produces highest average income, determined by potential revenue in each time period/age of stand

value growth percent rotation age

stand value growth vs alternate rate of return)

rather than looking at relative change in growth rate, it looks at how stand value changes each eyar and harvest when it drops beyond the ALTERNATE RATE OF RETURN

Accretion

measuring exisitng tree growth

ingrowth

measure new trees that grow into a measurable size

mortality

measures tree death

Gross growth

total wood put on by trees between measurement periods

net growth

(wood at end of period) - (wood at beginning)

gross growth - total volume of trees that died

yield table

total cubic ft in stand based on stand age and site index

Current annual increment - CAI

volume now - volume 1 year earlier - current

Periodic annual incremenent - PAI

volume now - volume of (years earlier)/ same number of (years earlier)

periods

Mean annual increment - MAI

volume now / age of stand - right now

MAX = where MAI and CAI cross

What kind of curve is growing wood/tree growth

sigmodial

Financial rotation

max value growth

*relative to alternative of money in the bank

Vn = V0 * (1 + i^n)

if % your stand is increasing in value is great than % interest then what you would earn in the bank from you harvst income, keep it standing

• otherwise cut

Compound interest formula

FV = PV * (1 + r)^n

FV = future value 

PV = present value 

r = annual interest rate

500 bd ft growing at a rate of 4% per year, what is volume of tree if it grows at this rate for another 20 years?

Future volume = present volume (1 + i)^n = 1,095.5 bd ft

current volume is 50 MBF/ac, a forester had measurd that it grew at 3% a year over the last 10 years, what was volume of stand 10 years ago?

Past volume = present volume/(1 + i)^n = 37.2 MBF

current bd ft is 800, it was measured 7 years ago at 550 bd ft, what was the interest rate?

rate of growth = n square root (present/past volume) -1 = 5.5%

A stand had 20 MBF/ac at some time, great at a rate of 5%, and reached 55 MBF, how many years ago?

N = ln(FV/pV)/ln(1 + i) = 20.7 years

Value growth percent rotation age

estimates value increase from one year to next, divides that by previous vlaue of stand

(Value increase t - 1/ Value of stand) * 100

If stand is valued at $906.71 per acre at age 19, valued at $1031.39 per acere at age 20, whats the increase in value?

(1031.39 - 906.71) * 100 =12,468 = 13.75%

Stocks

own a share of a company, over time the shares increase in value

you dont get principal back (you must sell stock to other buyers in order to get money)

if a company goes bankrupt, the share is worthless

however if a company does a good job and the shares go up you get money (high risk = great reward)

Bonds

loans made by an investor to a company (government or company) for a set amount of time

• longer terms = higher interest

if company goes bankrupt, you get all the money or at least some back + bonds dont increase if company does well but dont drop in value (low risk = low reward)

Company pays a fixed interest to investor and will pay back the original loam amount upon the maturity date

Forest type

overstory and understory species composition

Natural community

interacting aseemblage of organisms, their environment and nautrla processes

• may or may not align with site potential

Management unit

divisionn of forested landholding, not necessarily linked with forest or community type

Stand

contigous group of trees that are unfirom in species composition, age, and structure

Inclusion

irregularity within a stand too small to map separately but worth mentioning because of its value

Things that make the site type a different stand

• times since last harvest, stand age, development stage

• presence of invasives

• use of the area

• land use history

• stocking level

• species composition

• non-contingous site

Gross income

total amount of money thats earned before any deductions like taxes or retirement contributions

Adjusted gross income

gross income - “above the line” deductions (student loan interest, IRA contributions)

Taxable income

portion of gross income used to calculate federal taxes; adjusted gross income - higher of the standard deduction or itemized deductions

General differences between current use in VT, MA, and CT

VT - 25 acres, management required, 10 year plan, reserve category

MA, 10 acres, management required, 10 year plan, reserve category

CT , 25 acres, management optional, foresters report, no reserve category

General differences among Doyle, Scribner, and International ¼” Rule Volume Tables

Doyle - least accurate, underestimates small logs, overestimates long longs used in south

Scribner -underestimates logs, particularly longer ones, used in west

International ¼” rule - most consistent, used in northeast 

MAI and site quality relationship

higher site quality == faster MAI culmination

Agroforestry defenition

intentional integration of trees and shurbs into crop and animal production systems (environmental, social, and economic benefit)

Major types of agroforestry systems

Silvopasture, windbreaks, riparian buffers, forest farming, alley cropping 

Reasons to use agroforestry practices

Enhancing yield by creating microclimates and increase production, diversify risk reduction, conserve land while keeping it in production, plants support soil health, enhance water quality, and provide wildlife habitat

Mark to cut

measure and mark every tree that you want logger to cut, different marks for uses

Mark to leave

only mark trees that are NOT being cut down, not measuring/tallying each tree that is cut 

Loggers choice:

give prescription, let logger pick

Stumpage reports

Provide value of standing timber before its harvests, list avg prices for species per product type based on surveys from participants, can get it from state forestry agencies or forestry consultants 

Pro: offer a way to analyze market trends, baseline for landowners to estimate the value of standing timber , are accessible 

Con: general indicators, not good for specifics, don't reflect current market conditions as they are changed quarterly or yearly, survey response is low 

Mill price sheets

Standard documents used by mills to communicate requirements and prices they pay for different grades of logs, (represent price delivered to mill, not stumpage prices)distinguish between veneer logs, standard logs, and lower grade tie logs, different by species, diameter, and volume is usually calculated by international ¼” 

Mill scale

(pay as cut), each load is harvested, tracked to mill, and paid for based on rates determined by grade, species, and scale 

• Less intensive inventory, tracking where wood goes

• Uses mill prices

Lump sum

all timber is harvested is paid in one lump sum fee (regardless of what mill pays) 

• Requires a down payment, periodic payments, ACCURATE and PRECISe tally, dont need to track wood

• Based on stumpage prices 

Bid sale

multiple buyers can walk sale, send a sealed bid of a price they'll pay for the timber 

Can sell to highest bidder but also choose based on equipment, timing, and quality of work 

Individual buyer

direct outreach to buyer, can negotiate price and terms

Permits related to harvest

Some states, logging is “as of right”

Even if blanket permit, you might still need permits for stream crossing and, as the forester you need to obtain these