By: Braydan Roark
The Kentucky Division of Forestry (KDF) is the primary state agency charged with the management of Kentucky’s forests.[i] The KDF, created by statute, has several broad responsibilities.[ii] Among the most important responsibilities are wildfire protection and working directly with Kentucky’s landowners to promote sustainable management of forests across the state.[iii] In recent years, the KDF has suffered several budget cuts that have forced significant reductions in both staffing and forest management activities.[iv] These budgetary restraints have been spurred by reductions in federal funding and executive orders from the Kentucky Governor in both 2016 and 2018, which reduced the state’s budget.[v] Since 2012, the KDF has been forced to eliminate 31% of its full-time employees, leaving a mere 129 employees to cover the entire state of Kentucky.[vi] According to the KDF’s website, ”[T]he division struggles to provide the variety of services historically offered to Kentucky’s citizens.[vii] Despite the reduction in staffing and other resources over the past few years, the division remains committed to its mission.”[viii]
Unfortunately, budgetary limitations are not a new issue for the KDF.[ix] In 1998, Kentucky’s General Assembly passed the Kentucky Forest Conservation Act (KFCA.)[x] Broadly speaking, the KFCA required that loggers across the Commonwealth conduct timber harvests in accordance with best management practices, which are aimed at protecting surrounding land and water.[xi] The KDF was tasked as the sole enforcement body and given broad inspection and enforcement responsibilities.[xii] Additionally, the Kentucky Generally Assembly failed to allocate any additional funding to the KDF to support the division’s new inspection and enforcement tasks.[xiii] Due to budget deficiencies, the KDF was unable to fulfill many of its duties, which led to the KFCA becoming largely toothless and ineffective.[xiv]
The failed enforcement of the KFCA is only one example of the negative impact caused by the severe underfunding of the KDF.[xv] In its 2020 Forest Action Plan, the KDF noted that it would require increased funding to provide technical assistance to landowners, conservation assistance, and enhanced inspection of logging sites as mandated by the KFCA[xvi] Without a source of sustainable long-term revenue supporting operations, the KDF will be forced to continue its operations while understaffed and underfunded.[xvii] As the sole governmental division managing Kentucky’s forests, the failure to sufficiently fund the KDF will cause subsequent forest conservation plans in the Commonwealth to suffer the same fate as the KFCA[xviii]
A potential solution to the chronic underfunding of the KDF could be the implementation of a statewide timber yield tax which would be levied on landowners harvesting timber for sale or subsequent profit. Yield and severance taxes are not new ideas in Kentucky; the state currently collects such taxes on extracted coal, natural gas, and other extracted natural resources.[xix] As prescribed by relevant statutes, the state’s severance taxes are levied on any taxpayer severing and/or processing natural resources within the state.[xx] Irrespective of the natural resource extracted, the tax imposed is 4.5% of the gross value of the extracted natural resource. [xxi] In the 2019-20 tax year, the Kentucky Department of Revenue collected in excess of $88,700,000 from these taxes on extracted natural resources.[xxii] Half of the severance tax collected is to be deposited into the Local Government Economic Development Fund which generally aims to help finance industrial development in counties across the state.[xxiii]
Without developing a novel scheme of taxation for timber products, the Kentucky General Assembly could expand the definition of “Natural Resources” within Ky. Rev. Stat. § 143A.010 to include timber and forest products.[xxiv] Taxing landowners at the already established rate of 4.5% on the gross value of their timber harvest would provide a stream of previously untapped tax revenue.[xxv] The revenues derived from the expanded timber yield tax could then be allocated back to the KDF to supplement the existing insufficient state and federal funding[xxvi]. Any taxes collected in excess of the budgetary needs of the KDF could be deposited into the state general fund and the Local Government Economic Fund along with the other natural resource severance taxes.[xxvii] Increasing the KDF’s budget would allow the division to sufficiently staff its operations across the state.[xxviii] With sufficient staffing, the KDF could then revive landowner assistance programs, enhance wildfire protection, and promote the health of Kentucky’s valuable forest resources.[xxix]
Kentucky’s private forestland owners would likely be opposed to the imposition of a timber yield tax. A statewide timber yield tax would unquestionably reduce the profits of landowners harvesting timber for subsequent sale.[xxx] However, this reduction would be minimal -- most landowners would be permitted to deduct the additional yield tax from their federal income tax liability, thereby reducing the effective rate of the state timber tax.[xxxi] At the proposed rate of 4.5%, Kentucky landowners should not be dissuaded from harvesting timber, as many of the top timber producing states levy taxes on harvested timber products while still maintaining high harvests.[xxxii] While increasing taxes is certainly not the answer for solving many governmental budget issues, taxing the landowners who directly benefit from KDF’s forest management services is more than equitable in light of the substantial long-term benefits derived from KDF’s invaluable services.[xxxiii]
[i] Ky. Div. of Forestry, Ky. Energy and Env’t Cabinet, Kentucky Forest Action Plan 75 (2020).
[ii] Ky. Rev. Stat. Ann. § 149.010 (2022).
[iii] History and Planning for the Future, Ky. Energy and Env’t Cabinet, https://eec.ky.gov/
Natural-Resources/Forestry/about-kdf/Pages/History-and-Planning-for-the-Future.aspx (Last viewed Feb. 3, 2022) [https://perma.cc/542P-SV86].
[iv] Kentucky Forest Action Plan, supra note i, at 76.
[v] Id.
[vi] Id.
[viii] History and Planning for the Future, supra note iii.
[x] Ky. Rev. Stat. Ann. § 149.330, 149.355 (2022).
[xi] Ky. Rev. Stat. Ann. § 149.344 (2022).
[xii] Ky. Div. of Forestry, supra note i, at 77.
[xiii] Id.
[xiv] Id.
[xv] See, Ky. Rev. Stat. Ann §§ 149.330 to 149.350 (2022).
[xvi] Id. at 78.
[xvii] Id.
[xviii] Kentucky Forest Action Plan, supra note i, at 77.
[xix] Ky. Rev. Stat. Ann. § § 143A.020, 143.020, 137.120 (2022).
[xx] Ky. Rev. Stat. Ann. § § 143A.020, 143.020, 137.120 (2022).
[xxi] Ky. Rev. Stat. Ann. § § 143A.020, 143.020, 137.120 (2022).
[xxii] Ky. Dep’t of Revenue, 2019-20 Annual Report (2020).
[xxiii] Ky. Rev. Stat. Ann. § 42.4588 (2022).
[xxiv] Ky. Rev. Stat. Ann. § 143A.010 (2022).
[xxv] Ky. Rev. Stat. Ann. § § 143A.020 (2022); Ky. Rev. Stat. Ann. §143.020 (2022); Ky. Rev. Stat. Ann. §137.120 (2022).
[xxvi] Kentucky Forest Action Plan, supra note i, at 75.
[xxvii] Ky. Rev. Stat. Ann. §48.700; Ky. Rev. Stat. Ann. §42.4588
[xxviii] Kentucky Forest Action Plan, supra note i, at 100.
[xxix] Id.
[xxx] Taxation, Miss. State Univ. Extension, http://extension.msstate.edu/forestry/forest-economics/taxation (Last viewed Feb. 11, 2022) [https://perma.cc/8X38-7D6K].
[xxxi] Linda Wang, USDA, Tax Tips for Forest Landowners for the 2018 Tax Year (2018).
[xxxii] Nat’l Timber Tax Website, Quick Reference, Tax Tips for Forest Landowners for the 2018 tax year, (last visited Feb. 3, 2022), https://www.timbertax.org/statetaxes/quickreference/ [https://perma.cc/4UK6-7QJH].
[xxxiii] Forest Stewardship Program and Landowner Services, Ky. Energy and Env’t Cabinet, https://eec.ky.gov/Natural-Resources/Forestry/forest-stewardship-program-and-landowner-services/Pages/default.aspx (last viewed Feb. 11, 2022) [https://perma.cc/8SHS-RKHL].