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| Sawmills lobby for tax break |
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2006/4/26
Weyerhaeuser Co. is focusing on cutting more than trees these days.
The Federal Way-based company is part of an effort by U.S. forest products businesses to lobby Congress for a tax break worth up to $500 million a year.
The businesses suggest that without it they might be forced to move sawmills – and many of the industry’s 2 million jobs – to lower-cost locales outside the U.S.
The lobbying effort is coming at a time when companies such as International Paper Co., North America’s largest paper maker, sell millions of acres of timberland to Wall Street and other investors. One of Weyerhaeuser’s largest stock owners suggested last year that the company consider splitting its timber assets from the rest of the company.
The tax break could help these companies continue to own timberland in the United States. The companies seeking the tax break say that without it more and more of them might follow International Paper.
Weyerhaeuser’s lobbyists have worked on this issue, and the company supports the industry’s efforts, spokesman Bruce Amundson said.
He said he did not know how this would affect the company financially.
“The timber industry faces a much greater, much more onerous tax burden,” said Rep. Artur Davis, an Alabama Democrat who supports the break. If the tax cut isn’t passed, Davis says he has been warned by lobbyists, unions and trade groups, “companies are going to have all kinds of incentives to pull up and move.”
The companies are seeking a provision in a $70 billion tax-cutting measure that would reduce by 60 percent the capital-gains taxes they pay when they use their own trees to make paper and wood products. At present, they pay as high as 35 percent, compared with rates between zero and 15 percent paid by non-manufacturing forest owners.
Advocates of the provision say the U.S. tax code imposes the second-highest rate in the world on corporate-owned timber. That makes it impossible for companies to earn the same high returns as investors buying timber through low-taxed real estate investment trusts and so-called timber investment management organizations.
Last week, Stamford, Conn.-based International Paper sold 85 percent of its timberland to two investor groups for $6.1 billion. Companies that have owned millions of acres of timber for more than a century are increasingly either selling their trees or becoming real estate investment trusts, as Seattle-based Plum Creek Timber Co. Inc. did in 1999. To benefit from the lower tax rate, REITs can’t derive more than 10 percent of their income from manufacturing.
The tax break being sought would benefit Weyerhaeuser, the world’s biggest lumber producer, because it is one of the biggest companies with extensive land holdings, says Steven Chercover, a senior research analyst in Lake Oswego, Ore. for D.A. Davidson & Co.
Shares of Weyerhaeuser, which hit a 52-week high April 6, have risen 19 percent since November, when it first appeared the provision might be included in the larger tax measure.
“Their shareholders would benefit because presumably there would be increased dividends by having longer-term control of the land,” says Chercover, who doesn’t own shares of any of the timber companies he covers.
The companies also might see an increase in credit quality, he says, because “timberland is some of the best collateral a company can have, whether it’s pledged or not.”
The issue has grabbed the attention of 15 senators, including five Democrats from Arkansas, Washington and Louisiana, which have large swaths of corporate-owned forests. They have asked Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, to include the timber tax break in the tax-cutting measure that extends President George W. Bush’s 2003 cuts on dividends and most capital gains. The legislation is in the final stages of negotiation. |
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