Financial Analysis of the Virginia Riparian Buffer Tax Credit

Financial Analysis of the Virginia Riparian Buffer Tax Credit

Costs and Benefits of the New
Streamside Management Zone Tax Credit

A new law has been passed in Virginia that gives landowners a tax credit if they preserve a proper Streamside Management Zone (SMZ) during a forest harvest operation. For complete information on the law and how to file for the tax credit see the Virginia Department of Forestry’s web site.

Many people have expressed interest in looking at the economic advantage of the tax credit and asked the question “After I take the time and expense to file the application…Is it worth it?” The SMZ tax credit is straightforward yet it leaves landowners and foresters wondering will it pay to do the work?

The purpose of these examples is to illustrate that it is cost effective in many cases to amend the Landowners’ Forest Stewardship Plan and to perform the application requirements outlined by the Virginia Department of Forestry for the Tax Credit. These examples are only for demonstration; users may download a MS Excel™ version of these spread sheets and input their own set of conditions to apply them to their specific situation. The values included in all of these examples are rough estimates and users need to verify all input items.

Except for this mention, one big item purposefully not included is help in the determination to harvest the SMZ in total, 50% of it, 10% of it, or none of it. The objectives and financial/forest management of the SMZ as land-capital is your business. I would be happy to perform a discounted-cash-flow to assist you, but the decision is yours. This example assumes that the landowner is doing the right thing and leaving a proper SMZ, and after considering all the management strategies, has determined the one that is most beneficial.

Virginia Riparian Forest Buffer Tax Credit Harvest Value Method
Values in Bold will be dependent on your specific job situation.

Inputs and Assumptions
Timber Sale Revenue Per Acre	$900
Number of Acres in SMZ	7
Consulting Labor Rate: $/Hour	$40.00
Mileage Rate for Consultants Travel $/Mile	$0.32
Landowner's Federal Capital Gains Tax Rate	20.00%
Landowner's State Tax Rate	5.75%
Landowner's Effective Combined Tax Rate	0.246

Timber Sale Revenue and SMZ Tax Credit			Un-Cut SMZ	Cut-in SMZ
Timber Sale Revenue Per Acre			$900	$900
SMZ Value Per Acre (Based on Sale Revenue)			$900	$450
SMZ 25% Tax Credit Per Acre			$225	$113
Total SMZ Tax Credit (Tax Credit Per Acre X Number Acres)			$1,575	$788

Cost of the SMZ Application
Labor Cost	Hours	Dollars
Logistics: Communication, Preparation, Travel	3	$120
GPS Field Work	5	$200
Differential Correction, Edits, Metadata	2	$80
Addendum to Management Plan	2.5	$100
Sub Total of Labor	12.5	$500

Mileage Expense (Miles)	100	$32
Equipment cost (GPS depreciation $3400 / 100 uses)	34	$34

Total SMZ Application Cost - Before Tax		$566
Tax Savings (If Deducted as a Cost of the Timber Sale)		-$139
Total SMZ Application Cost - After Tax		$427

			Un-Cut SMZ	Cut-in SMZ*
Landowner Benefit From Tax Credit (Maximim of $10,000)			$1,148	$361

* Total benefit would be the tax credit plus the sale revenue from the SMZ				$3,510.74

Virginia Riparian Forest Buffer Tax Credit SMZ Inventory Method
Values in Bold will be dependent on your specific job situation.

Inputs and Assumptions
SMZ, Value Per Acre as Determined From Inventory	$4,800
Number of Acres in SMZ	14
Consulting Labor Rate: $/Hour	$40.00
Mileage Rate for Consultants Travel $/Mile	$0.32
Landowner's Federal Capital Gains Tax Rate	20.00%
Landowner's State Tax Rate	5.75%
Landowner's Effective Combined Tax Rate	0.246

Timber Sale Revenue and SMZ Tax Credit			Un-Cut SMZ	Cut-in SMZ
SMZ Value Per Acre (Based on Inventory)			$4,800	$2,400
SMZ 25% Tax Credit Per Acre			$1,200	$600
Total SMZ Tax Credit (Tax Credit Per Acre X Number Acres)			$16,800	$8,400

Cost of the SMZ Application
Labor Cost	Hours	Dollars
Logistics: Communication, Preparation, Travel	3	$120
GPS Field Work	6	$240
Differential Correction, Edits, Metadata	2	$80
Addendum to Management Plan	2.5	$100
Sub Total of Labor	13.5	$540

Mileage Expense (Miles)	100	$32
Equipment cost (GPS depreciation $3400 / 100 uses)	34	$34

Total SMZ Application Cost - Before Tax		$606
Tax Savings (If Deducted as a Cost of the Timber Sale)		-$149
Total SMZ Application Cost - After Tax		$457

Cost of the SMZ Inventory
Labor Cost	Hours	Dollars
Logistics: Communication, Preparation, Travel	3	$120
Inventory Field Work	10	$400
Inventory Analysis & Report	2	$80
Subtotal of Labor	15	$600

Mileage Expense (Miles)	100	$32

Total SMZ Inventory Cost - Before Tax		$632
Tax Savings (If Deducted as a Cost of the Timber Sale)		-$155
Total SMZ Inventory Cost - After Tax		$477

			Un-Cut SMZ	Cut-in SMZ
Landowner Benefit From Tax Credit (Maximim of $10,000)			$15,867	$7,467

Work Sheets Provided by Foresters Incorporated 10/23/2000 Britt A. Boucher Email: Britt@Foresters-inc.com

Home Tax Credit Information

forinc@foresters-inc.com

PO Box 11750 Blacksburg, VA 24062-1750 (540)-951-2094