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To estimate the stumpage value of individual species and qualities of timber in lump-sum timber sales for excise tax purposes, an eight-step approach for constructing the relevant data set is suggested.An example uses western Washington sales data, but the basic procedure applies to any valuation of individual species in a set of lump-sum timber transactions. In addition to producing credible stumpage value estimates, the modeling process allows examination of selected sale characteristics that influence the values. The proposed approach should be considered by appraisers and forest economists who seek an accurate, simple valuation strategy.
In 1971 the Washington State legislature altered the way in which timber and timberland were taxed for property tax purposes. Timber was removed from the ad valorem tax rolls and an excise (yield) tax was imposed at time of harvest-to be paid by the timber harvester. The excise tax is collected on private and public timber. The current tax rate is 5 percent of either the stumpage values established semiannually by the Washington State Department of Revenue or, for small harvesters, the actual gross receipts from the sale of stumpage.
Under the 1971 law, the Department of Revenue is charged with establishing the "true and fair" value of stumpage for selected areas of the state having similar growing, harvesting, and marketing conditions. Semiannually, the department prepares tables that indicate the stumpage value for each species of standing timber. Stumpage values must make reasonable and adequate allowances for age, size, quality, costs of removal, accessibility, market conditions, and all other relevant factors.
The Department of Revenue can establish stumpage values using one of two methods, or both: (1) transaction evidence from stumpage sales or (2) a residual value (conversion return) approach based on the sale of logs (RCW 84.33.091). (Generally, the former approach has been used in western Washington and the latter in eastern Washington. The transaction evidence approach is generally considered more reliable because fewer assumptions are required and it is a more direct approach to timber valuation. This paper examines a transaction evidence approach for deriving stumpage values for individual species and quality classes using lump-sum sales. Readers interested in the residual value approach may consult Davis and Johnson (1987) or Klemperer (1996). Ehrenreich (1991) and Schuster and Niccolucci...