West Virginia’s timber severance tax, like the property tax, is value-based as opposed to the taxes imposed on mineral extraction, which are volume-based. The last sentence of the forestry amendment to the Constitution would seem to indicate that the aggregate of these two value-based taxes on the same resource should be limited, that consideration has been overlooked.

Around 1985, West Virginia’s gross proceeds tax or B&O tax was eliminated for most businesses. However, the tax on timber continued but is now known as a severance tax. In 1994, proceeds of the tax were dedicated to the Division of Forestry. The rate of tax was 3.22% until December 31, 2006. On December 1, 2005, an additional severance tax was imposed; dedicated to the retirement of the Workers Compensation Fund debt at a rate of 2.78%. That brought the total combined severance tax to 6%. Beginning in January of 2007, the rate of the original tax was reduced to 1.22% bringing the combined rate down to 4%. Beginning with the 2010 tax year, the old tax was discontinued until the new tax expires upon determination that the workers compensation fund debt has been paid or provided for. From that time to the present, the rate of tax is 2.78% when the new tax expires the old tax will be reinstated at a rate of 1.22%. It is noteworthy that the "old tax" has not been collected since 2009.

The Moss and Arano study I referred to earlier concluded that the West Virginia Severance Tax on timber is a major anti-competitive factor for the wood products industry. As Dr. Robin Capehart pointed out in a March 2007, article entitled "Why Does State Take Timber to the Woodshed? "...we also should look at the fairness of the tax. Timber companies pay income taxes, fuel taxes, property taxes and all of the other taxes imposed on businesses. Why are they singled out for an additional burden – the severance tax?" The study mentioned earlier goes on to report that "West Virginia is the only state in the central or southern Appalachians to levy a yield tax based on the value of timber production." The Report of the West Virginia Tax Modernization Project makes a different comparison stating that, "West Virginia imposes the highest Timber Severance tax per 1,000 board feet of production of any state east of the Mississippi River."

Our 44 rural counties depend greatly upon the husbanding, harvesting and processing of natural resources for their economic livelihood. Timber, wood and agricultural products are mainstays of this part of West Virginia’s economy. Many of the enterprises directly and indirectly involved are relatively small and the loss or addition of one of them is hardly noteworthy in and of itself. Nonetheless, the gain or loss of a few of these jobs in each county is the cumulative economic equivalent of winning a major new employer or losing a government installation in an urban community.

Rarely would a legislative or executive policy "wipe out" an entire industry or a community. Economic impacts are broadly acknowledged to occur at the margins – where a family-operated business or a small enterprise may succeed or fail depending on the amount of rain that falls or a few-dollar fluctuation in the price of a commodity. It is at the margins that public policy impacts are significantly felt; those activities that stand at the brink of failure can be pushed over the edge by an ill-conceived tax structure or regulations that take resources off the market or impose new costs on production. Policies that negatively impact rural enterprises, even though they are small, add to the population of uninsured, increase the rolls of unemployment and reduce local revenues.

Wood-based enterprises in WV must compete for markets in surrounding states because we simply do not have the population to support in-state markets, and to do so we must overcome high fuel costs due to difficult terrain, long-haul distances to processors and higher taxes than competitors in other states pay.  

We make no judgment about the fundamental appropriateness of severance tax per se. As a general observation, the possessor of minerals needs to make no effort to create or husband the resource and the act of extraction is a one-time undertaking. In the case of timber, the opposite is true. Creating the resource to be harvested requires decades of husbandry and risk of loss, and a series of annual property taxes. Timber harvests, rather than being a one-time occurrence are an unending series of events repeatedly subjected to taxation. Severance tax applied to the harvest of tree crops is, in reality, a yield tax on the fruits of the landowner’s labor.

We are hopeful that action can be taken in this coming legislative session so that when the additional severance tax expires, the suspension of the old severance tax that has not been collected since 2009 can be made permanent, before it is automatically reinstated.