Re: [greenyes] Timber firm paid no corporate taxes in 2001

["Doug Koplow" <koplow@no.address>]

I believe there are a number of firms with large timber holdings that
have adopted a REIT structure.  There is a general trend to use
corporate structures that avoid income taxation at the corporate level
whenever possible; this trend cuts across many economic sectors. 
Combined with movements of corporations into foreign tax havens and
reduced rates on corporate dividends, it is likely that governments
interested in taxing corporate wealth will need to find alternative ways
to capture taxes at the corporate level.  With natural resources, higher
excise taxes are a good way to go, as would be much higher penalties for
firms not managing the natural resources in a sustainable way.  Though
the article states that Plum Creek pays no taxes on timber holdings or
revenues, only the revenue portion is relevant as no company pays income
taxes on its asset base.  Rather, in this case, it would pay property
taxes.

Corporate structures to avoid corporate-level taxes have always
included partnerships and sub-S corporations.   In recent years, limited
liability partnerships (LLPs) and limited liability corporations (LLCs)
have come into much wider use.  Both LLPs and LLCs offer advantages in
they they provide the limitations on investor liabilities associated
with subtitle C corporations, but the tax avoidance benefits of
partnerships and sub-S corps.  REITs accomplish this same basic thing. 
Another term I've heard is PTPs, which are publicly-traded partnerships.
 These are often used for pipeline and oil/gas exploration activities,
and definitely provide enhanced liquidity for these operations (see
below), and may also enable bypassing corporate taxes as would a
standard partnership. 

Tax avoidance is but one of the benefits of REITs and PTPs.  They also
add a tremendous amount of liquidity by making pools of risky
investments accessible to smaller investors.  As with home mortgages,
the ability to diversify the risks to an individual investor through
bundling many transactions together is of great market value in making
the activity possible.  In addition, REITs and PTPs generate much more
accurate information on the value of the pooled assets than existed when
these entities were all privately held.  For example, the value of REITs
is strongly affected by prevailing rents and vacancy levels.  By
continually repricing the market value of real estate, there is better
information available to investors to stem some of the massive
overbuilding of real estate that occurred in past recessionary cycles.

I don't have detailed information on timber-holding REITs by which to
judge whether, on net, they are a good thing or a bad thing.  As
financial pressure mounted on large private forestholders in the past,
there was great risk of forced sales to raise cash, opening large swaths
of the northeastern forests, for example, to development or cutting
risks.  By expanding the investor pool, REITs may offer a mechanism to
facilitate continued holdings of forest land.  Their repricing of the
value of this land may also send more accurate market signals to
environmentalists about when forests may be under market pressure for
sale, rather than finding out too late that lands have already been
sold.

Under any corporate structure, oversight of environmental, health and
safety impacts remains a critically important government function.  When
high risk activities are segregated into smaller and smaller corporate
shells, each of which has little financial strength to make good should
there be an accident or improper environmental remediation, the risks to
both the surrounding population, and the taxpayer can be extremely high.
 A good example is the segregation of nuclear reactors owned by the same
parent company into single reactor LLCs.  This issue is also quite
important to stay on top of.

-Doug Koplow

_______________________________
Doug Koplow
Earth Track, Inc.
2067 Massachusetts Avenue - 4th Floor
Cambridge, MA  02140
www.earthtrack.net
Tel:  617/661-4700
Fax: 617/354-0463



>>> "Reindl, John" <Reindl@no.address> 06/03/03 09:38AM >>>
Here are some interesting approaches used by at least one timber firm
to
avoid paying corporate taxes. 

John Reindl
Dane County, WI 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Pioneer Press
St. Paul, MN

Posted on Sun, Jun. 01, 2003

MADISON: Timber firm paid no state corporate taxes in '01

Associated Press

A timber company with more than half a million acres in Wisconsin paid
no
corporate income tax in Wisconsin in 2001, a  newspaper said.

Seattle-based Plum Creek Timber Company, Inc. owns 550,000 acres of
mostly
timber land in Wisconsin, primarily in the state's northern half. The
Capital Times newspaper, citing state Department of Revenue records,
reported in Saturday's editions the  company pays no corporate income
taxes
on timber or land sale revenues.

Plum Creek corporate affairs specialist Robin Wood said the company
uses a
real estate investment trust structure, or REIT, which means the
company
doesn't have to pay federal income tax.

Diane Hardt, administrator of the Division of Income, Sales and Excise
Taxes
for the Wisconsin Revenue Department, said state law follows federal
law in
regard to real estate investment trusts. Plum Creek's 165,000
shareholders
pay long-term capital gains on dividends, but not income taxes, said
John
Hobbs, director of investor relations for Plum Creek.

The company does pay some taxes on business conducted in taxable REIT
subsidiaries, Hobbs said. Richard Pomp, a tax law professor at the
University of Connecticut, said REITS are usually used for commercial
and
residential real estate. "This is a creative use of the real estate
investment trust," Pomp said. "This would make sense from a corporate
standpoint. It eliminates the corporate tax and passes along tax
advantages
to the individual shareholders. This is a win-win for everyone except
the
government."

Plum Creek owns 8 million acres of land nationwide. It  increased its
holdings in Wisconsin by 306,000 acres after buying the land from the
Stora
Enso company for $142 million in December, making it the largest
private
landowner in Wisconsin. 

The company had $1.1 billion in revenues in 2002, but Hobbs wouldn't
give
out Wisconsin figures. He said the company wouldn't give out
information
that might help competitors. Plum Creek also benefits from a property
tax
break through the state's managed forest program. Companies and
individuals
who enter forest land into the program make payments instead of taxes,
pay
severance fees when they get out of the program and pay a deferred tax
when
they cut and sell timber - if they follow state rules for sustainable
timber
management and keep the land open to the public. 

Bill Gilbert, senior resource manager for Plum Creek in Wisconsin,
estimated
about 90 percent of the company's land in the state is in the managed
forest
program and the state's similar forest crop program.

http://www.twincities.com/mld/pioneerpress/news/local/states/wisconsin/59865

26.htm