BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.20.701, 42.20.705, 42.20.715, 42.20.720, 42.20.725, and 42.20.745 relating to forest land property

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT

 

TO:  All Concerned Persons

 

1.  On November 23, 2009, at 9:30 a.m., a public hearing will be held in the Reception Area (Third Floor) Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the amendment of the above-stated rules.

Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.

 

2.  The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice.  If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., November 9, 2009, to advise us of the nature of the accommodation that you need.  Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-3696; or e-mail canderson@mt.gov.

 

3.  The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

42.20.701  DEFINITIONS  The following definitions apply to this subchapter:

(1)  "Capable of producing timber that can be harvested in commercial quantity" means:

(a)  forest land that can produce 25 cubic 100 board feet or more of stem-wood lumber per acre per year in live softwood trees 1.0 inch in diameter at breast height as measured using the Scribner Log Rule, at the culmination of the mean annual increment (the point of maximum wood production) for fully stocked, natural stands; and

(b)  is at least 10% stocked with softwood timber of any size on an area at least 120 feet in width; or

(c)  has been converted from another use and exhibits a minimum stocking rate of 300 seedlings and/or saplings per acre (12-foot average spacing); or

(d)  does not meets the stocking requirement specified in (1)(b) and (c), but has had the trees removed by man through timber harvest or by fires and other natural disasters, and has been, or will be, naturally or artificially regenerated within ten years.

(2)  "Board foot" means a block of wood equivalent to one inch thick by 12 inches long by 12 inches wide.

(2)(3)  "Contiguous parcels of land" means separately described parcels of land under one ownership that physically touch one another or would have touched one another were the acreages not separated by deeded roads and highways, navigable rivers and streams, meandered and returned as navigable by the surveyors employed by the government of the United States, rivers and streams that have been adjudicated as being navigable, railroad lines, or federal or state land that is leased from the federal or state government by the taxpayer whose land is physically touching the federal or state land.

(4)  "Cubic foot" means a block of wood equivalent to 12 inches thick by 12 inches long by 12 inches wide.  There are approximately three to five board feet of finished lumber in one cubic foot of wood.  The midpoint of this board foot to cubic foot conversion range is approximately four.  The precise ratio varies with tree diameter, form, taper, and defect.  In the productivity model developed by the University of Montana – College of Forestry and Conservation, the conversion factor is one cubic foot will equal four board feet.

(5)  "Culmination of mean annual increment" means the point of maximum mean annual volumetric yield production in a tree or stand of trees.  This point is also referred to as the biological rotation age.

(3) remains the same but is renumbered (6).

(4)(7)  "Forest site productivity class" means the range of site quality which expresses the timber production potential of a site expressed in terms of cubic- board foot volume growth per acre per year at the culmination of mean annual increment (the point of maximum wood production) in fully stocked natural stands.

(5) remains the same but is renumbered as (8).

(9)  "Hardwood Species" means a taxonomic group of species commonly referred to as broadleaf trees.  Examples of hardwood species that are native to Montana are alder, Rocky Mountain maple, birch, aspen, and cottonwood.  Native hardwood species are generally considered to be noneconomical to process into lumber products in Montana and are not classified as commercial timber species for the purpose of this rule.

(6) remains the same but is renumbered (10).

(7)(11)  "Mean annual increment (MAI)" is a measure of the average yearly increase in volume growth produced on one acre in a tree or a stand of trees.  This increment can be calculated by dividing total tree or stand volume growth by the total age.  Mean annual growth changes during different growth phases of a tree or stand of trees.  MAI typically increases as during the tree or stand's matures juvenile developmental stage, attains a maximum growth increment at a later age point in the stand's middle development, then decreases as the growth rate decreases tree or stand becomes more mature.  Volume is expressed in cubic feet.

(8) remains the same but is renumbered (12).

(9)(13)  "Noncontiguous parcels of land" means parcels of land under one ownership that are physically separated from one another by land in a different ownership other than deeded roads and highways, navigable rivers and streams, meandered and returned as navigable by the surveyors employed by the government of the United States, rivers and streams that have been adjudicated as being navigable rivers and streams, railroad lines, or federal or state land that is leased from the federal or state government by the taxpayer whose land is physically touching the federal or state land.

(10)(14)  "Nonforest land" means land that is at least 120 feet in width and at least five acres in size, which does not meet the requirements of ARM 42.20.705.  Nonforest land can include rivers and streams, roads, highways, power lines, and railroads, and noncommercial tree species.

(11) through (15) remain the same but renumbered (15) through (19).

(20)  "Scribner Log Rule"  means a forest industry recognized mathematical formula that estimates the net board foot lumber volume that can be sawn from a log that is scaled to a specific diameter and log length.  Volumetric yields are based on softwood trees at least 8.0 inches in diameter at breast height (outside bark).  Tree volume is measured from a one-foot stump to a six-inch inside bark minimum top.  Board foot estimates using the Scribner Log Rule are based on 16-foot nominal log lengths with five percent hidden defect.

(21)  "Softwood species" means conifer species that can be economically processed into lumber.  Some examples of softwood species that are native to Montana are ponderosa pine, Douglas-fir, larch, lodgepole pine, spruce, and alpine fir.

(16) remains the same but renumbered (22).

(17)  "Stem-wood" means the bole or trunk of the tree, excluding the roots, branches, and needles.

(18) remains the same but renumbered (23).

(24)  "Timber" means softwood species that can be economically processed into lumber.  Whitebark pine, limber pine, and Rocky Mountain juniper are generally considered to be noneconomical to process into lumber products in Montana and are not classified as commercial softwood species for the purpose of this rule.

(19) and (20) remain the same but are renumbered (25) and (26).

(27)  "Volume" is expressed in net board feet as measured by the Scribner Log Rule.

 

AUTH: 15-44-105, MCA

IMP: 15-1-101, 15-44-101, 15-44-102, 15-44-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.20.701 to comply with the statutes implemented for the 2009 reappraisal of forest land. 

            The new definitions redefine:

            (1) the productivity associated with forest land to utilize board feet per acre measurements as board feet per acre is an increasingly common standard of measurement within the forest industry;

            (2) board feet per acre is the unit of measure used in the University of Montana - College of Forestry and Conservation productivity model;

            (3) the need to further define cubic feet per acre and to provide a description of the associated conversion factors used to convert cubic feet per acre to an expression of board feet per acre; and

            (4) provide a description of the Scribner Log Rule used in the determination of board feet per acre productivity formulas.

            Specifically the productivity models implemented for the 2009 reappraisal of forest land are based on a board foot productivity estimate.  Other rule changes are for clarification of the existing practices regarding the determination of productivity and value of forest land.

 

            42.20.705  FOREST LAND ASSESSMENT  (1)  The department shall assess land as forest lands according to the following basic determinations.

(a)  Forest lands are:

(i)  contiguous forested land of more than 15 acres or more, that is at least 120 feet in width in the same ownership that and is capable of producing timber that can be harvested in commercial quantity;

(ii)  land that is producing timber or land in which the trees have been removed by man through harvest, including clear-cuts, or by natural disaster, including, but not limited to fire;

(iii)  land that is not classified as nonforest land.  Nonforest land is used for agricultural, nonqualifying agricultural, industrial, commercial, or residential purposes.

 

AUTH: 15-44-105, MCA

IMP: 15-44-101, 15-44-102, 15-44-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.20.705 for clarification of the existing practices regarding the determination of productivity and value of forest land.

 

42.20.715  FOREST SITE PRODUCTIVITY CLASSES  (1)  The department shall assign a weighted mean volumetric average expressed in the number of board feet per acre to all forest land to one of the following forest site productivity class designations:

(a)  forest site productivity class IV (25 through 44.9 cubic feet of wood per acre per year);

(b)  forest site productivity class III (45 through 64.9 cubic feet of wood per acre per year);

(c)  forest site productivity class II (65 through 84.9 cubic feet of wood per acre per year);

(d)  forest site productivity class I (85 and over cubic feet of wood per acre per year).

 

AUTH: 15-44-105, MCA

IMP: 15-44-101, 15-44-102, MCA

 

          REASONABLE NECESSITY:  The department is proposing to amend ARM 42.20.715 to comply with the statutes implemented for the 2009 reappraisal of forest land and supported by advice from the 209 Legislative Select Sub-Committee on Reappraisal.  The weighted mean volumetric average replaces the grading system used in the past and is also supported by the University of Montana productivity model.  Classification of the forest remains the responsibility of the department.          Specifically the productivity models implemented for the 2009 reappraisal of forest land are based on a board foot productivity estimate.

 

42.20.720  FOREST LAND VALUATION ZONES  (1)  The department shall divide the state into forest valuation zones, with each zone designated to recognize the uniqueness of marketing areas, timber types, growth rates, access, and other pertinent factors that affect value.  The designated forest valuation zones and the counties contained within each zone are:

(a)  Zone 1 - Northwest:  Flathead, Lake, Lincoln, and Sanders counties;

(b)  Zone 2 - West Central Southwest:  Beaverhead, Deer Lodge, Granite, Jefferson, Lewis and Clark, Madison, Mineral, Missoula, Powell, and Ravalli, and Silver Bow counties;

(c)  Zone 3 - South Central:  Blaine, Beaverhead, Deer Lodge, Jefferson, Lewis and Clark, Madison and Silver Bow Broadwater, Cascade, Chouteau, Fergus, Gallatin, Glacier, Golden Valley, Hill, Judith Basin, Liberty, Meagher, Park, Pondera,  Teton, Toole, and Wheatland counties;

(d)  Zone 4 - Central:  Blaine, Broadwater, Cascade, Chouteau, Fergus, Gallatin, Golden Valley, Glacier, Judith Basin, Meagher, Park, Pondera, and Teton counties; and

(e)  Zone 5 4 - Eastern:  Blaine, Big Horn, Carbon, Carter, Chouteau, Custer, Daniels, Dawson, Fallon, Fergus, Garfield, Golden Valley, Hill, Judith Basin, Liberty, McCone, Musselshell, Petroleum, Phillips, Powder River, Prairie, Richland, Roosevelt, Rosebud, Sheridan, Sweet Grass, Stillwater, Toole, Treasure, Valley, Wheatland, Wibaux, and Yellowstone counties.

 

AUTH: 15-1-201, 15-44-105, MCA

IMP: 15-44-101, 15-44-102, 15-44-103, 15-44-104, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.20.720 to comply with the statutes implemented for the 2009 reappraisal of forest land.  More specifically, the forest land zones better represent the common forest market areas within the state.  This determination was based on an analysis of the market conditions in different areas of the state conducted by Dr. David Jackson, Professor of the University of Montana, College of Forestry and Conservation.

 

42.20.725  FOREST LAND VALUATION FORMULA  (1) and (2) remain the same.

(3)  The valuation of forest land shall be based on a five-year the average of income, and expenses, and capitalization rate for the most recent five-year period ending in the calendar year immediately preceding the year published by the department in ARM 42.18.124 and the capitalization rate identified in (5)(c)(i).

(4)  Income and expense data is expressed in real dollars using Gross Domestic Price (GDP) indices.  Real dollars are brought forward to the closest quarterly calendar date published by the department in ARM 42.18.124.

(4)(5)  The department shall determine the forest potential productivity value for each forest valuation zone using the formula V=I/R, where:

(a)  V is the per-acre forest potential productivity value of the forest land;

(b)  I is the per-acre net income of forest lands in each valuation zone and is determined by the department using the formula, I = (M x SV) + NAI - C, where:

(i)  I is the per-acre net income;

(ii)  M is the per-acre mean annual net wood production expressed in board feet per acre;

(iii) SV is the per-acre stumpage value;

(iv)  NAI is the per-acre agricultural related income; and

(v)  C is the per-unit cost of the forest product and agricultural product produced, if any; and

(c)  R is the capitalization rate.

(i)  For the appraisal cycle beginning after December 31, 2008, and concluding on December 31, 2014, the capitalization rate used in the determination of value for all forest land in Montana is statutorily established at 8%.

(5) remains the same but is renumbered (6).

(6)(7)  The mean annual net wood production (M) shall be determined by using the following formula M=RA x MAI where: in board feet using the Scribner Log Rule.

(a)  RA is the cubic foot to board foot ratio which converts cubic feet to board feet; one cubic foot will equal 4.1 board feet; and

(b)  MAI is the arithmetic midpoint weighted mean volumetric average of each forest productivity site class in each forest valuation zone.

(7) through (7)(d) remains the same but renumbered (8) through (8)(d).

(8)  The capitalization rate is the 15-year annual average interest rate on agricultural loans as reported by the northwest farm credit services, agricultural credit association of Spokane, Washington, or its successor, plus the effective tax rate.

(9) remains the same.

 

AUTH: 15-1-201, 15-44-105, MCA

IMP: 15-44-101, 15-44-102, 15-44-103, 15-44-104, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.20.725 to comply with the statutory change enacted by the 2009 Legislature in the passage of House Bill 658 (Ch. 483, L. 2009), regarding the use of a specific 8% capitalization rate for determining the per-acre value of forest land.

 

42.20.745  FOREST LAND  (1)  The following is the schedule for forest land productive capacity values for each year of the reappraisal cycle beginning January 1, 2003:  Forest land productivity values are calculated by using the formula defined in 15-44-103, MCA.

(a)  Productive capacity Forest land productivity values are calculated by using the formula defined in 15-44-103, MCA.  For forest land with an increase in value as a result of the 2009 reappraisal, the department will apply the phase-in percentage as defined in 15-7-111, MCA, and ARM 42.20.503 to the full reappraisal productivity values for forest land for the reappraisal cycle beginning January 1, 2009.

            (b)  The department will apply a phase-in percentage as defined in 15-7-111, MCA, and ARM 42.20.503 to the full reappraisal productive capacity values for forest land for the reappraisal cycle beginning January 1, 2003.  For forest lands with a decrease in value as a result of the 2009 reappraisal, the lower value will be fully implemented immediately and will not be phased in.

            (c)  The department will not apply a phase-in percentage calculation to the full reappraisal productive capacity values for forest land values for the reappraisal cycle beginning January 1, 2003, if the values are lower than the base values in effect for tax year 2002.  If the full reappraisal productive capacity values for forest land are lower than the base values in effect for tax year 2002, the full reappraisal productive capacity values for forest land will be fully implemented on January 1, 2003, and remain in effect for each year of the reappraisal cycle.

            (i)  2003 forest valuation zone phase-in schedule:

 

Grade                      Zone 1           Zone 2           Zone 3           Zone 4             Zone 5

 

1                               1259.05          1145.39          799.49           1006.84           530.98

2                               969.92           882.57           623.64           787.05            416.01

3                               680.79           619.74           447.78           567.26            301.04

4                               391.66           356.92           271.92           347.48            186.08

 

            (ii)  2004 forest valuation zone phase-in schedule:

 

Grade                      Zone 1           Zone 2           Zone 3           Zone 4             Zone 5

 

1                               1259.05          1145.39          836.04           1039.26           547.07

2                               969.92           882.57           651.91           812.64            428.07

3                               680.79           619.74           467.79           586.03            309.06

4                               391.66           356.92           283.66           359.41            190.06

 

            (iii)  2005 forest valuation zone phase-in schedule:

 

Grade                      Zone 1           Zone 2           Zone 3           Zone 4             Zone 5

 

1                               1259.05          1145.39          872.59           1071.68           563.17

2                               969.92           882.57           680.19           838.24            440.13

3                               680.79           619.74           487.80           604.79            317.08

4                               391.66           356.92           295.40           371.34            194.04

 

            (iv)  2006 forest valuation zone phase-in schedule:

 

Grade                      Zone 1           Zone 2           Zone 3           Zone 4             Zone 5

 

1                               1259.05          1145.39          909.13           1104.11           579.27

2                               969.92           882.57           708.47           863.83            452.18

3                               680.79           619.74           507.81           623.55            325.10

4                               391.66           356.92           307.15           383.27            198.02

 

            (v)  2007 forest valuation zone phase-in schedule:

 

Grade                      Zone 1           Zone 2           Zone 3           Zone 4             Zone 5

 

1                               1259.05          1145.39          945.68           1136.53           595.36

2                               969.92           882.57           736.75           889.40            464.24

3                               680.79           619.74           527.82           642.32            333.12

4                               391.66           356.92           318.89           395.21            202.00

 

            (vi)  2008 forest valuation zone phase-in schedule:

 

Grade                      Zone 1           Zone 2           Zone 3           Zone 4             Zone 5

 

1                               1259.05          1145.39          982.23           1168.96           611.46

2                               969.92           882.57           765.03           915.02            476.30

3                               680.79           619.74           547.83           661.08            341.14

4                               391.66           356.92           330.63           407.14            205.98

(2)  The phase-in formula for each year of the reappraisal cycle is as follows:

(a)  Change in value = full reappraisal value - value before reappraisal;

(b)  Phase-in value (year 1) = value before reappraisal + (change in value x .1666);

(c)  Phase-in value (year 2) = value before reappraisal + (change in value x .3342);

(d)  Phase-in value (year 3) = value before reappraisal + (change in value x .4998);

(e)  Phase-in value (year 4) = value before reappraisal + (change in value x .6664);

(f)  Phase-in value (year 5) = value before reappraisal + (change in value x .8330); and

(g)  Phase-in value (year 6) = value before reappraisal + (change in value x 1.000).

(3)  The following examples demonstrate how the phase-in formula calculates the per-acre assessed value for forest land:

(a)  For tax year 2009:

(i)  the 2008 full reappraisal value for forest land is $518.63 per-acre;

(ii)  the full reappraisal value for the same forest land in 2014 is $553.51 per-acre; and

(iii)  the change in value is $34.88 ($553.51 - $518.63).

(b)  The 2009 phase-in value per-acre = $518.63 + (34.88 x .1666) = $518.63 + $5.81 or $524.44 per-acre.

(c)  For tax year 2013:

(i)  the 2008 full reappraisal value for forest land is $518.63 per-acre;

(ii)  the full reappraisal value for the same forest land grade in 2014 is $553.51 per-acre; and

(iii)  the change in value is $34.88 ($553.51 - $518.63).

     (d)  The 2013 phase-in value = $518.63 + (34.88 x .8330) = $518.63 + $29.06 or $547.69 per-acre.

 

AUTH:  15-1-201, 15-44-105, MCA

IMP:  15-44-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.20.745 to address the determination of the change in the per-acre value of forest land and the implementation of the phase-in provisions of Montana law. 

            The amendments shown in the rule strikes references to the grades associated with forest lands as grades will no longer be used in the determination of the productive value.

 

4.  Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing.  Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-3696; or e-mail canderson@mt.gov and must be received no later than December 4, 2009.

 

5.  Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

6.  An electronic copy of this Notice of Public Hearing is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this Notice of Public Hearing conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

7.  The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters.  Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to the person in 4 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

 

8.  The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled.  The primary bill sponsor was contacted on July 22, 2009, by regular mail.

 

 

 

/s/ Cleo Anderson                             /s/ Dan R. Bucks

CLEO ANDERSON                          DAN R. BUCKS

Rule Reviewer                                   Director of Revenue

 

Certified to Secretary of State October 19, 2009