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Rayman, you're right that tax rates are lower for timberland investors than for old timber companies (Vertically-Integrated Forest Products Companies, VIFPCs). This is because the VIFPCs are taxed as C-Corporations (see page 5), which means they are taxed at the shareholder and corporate levels. This is referred to as "double taxation." Both REITs and TIMOs avoid this double taxation.
In addition, the long-term capital gains rate is beneficial for corporations (see page 4). Basically, this rate places a cap on taxable income.
Other policies, as well, have encouraged the ownership transition, including a federal act from 1974 (ERISA) that mandates portfolio diversification for pension funds and has led many pension funds to look to timber as an alternative investment. But taxes are, indeed, a primary reason that the timberlands are changing hands.
posted 3 years, 8 months ago
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