The Effects of the New Hampshire Timber Yield Tax on Potential Financial Returns from Forest Management on Private Land

Abstract

The USDA Forest Service Forest Vegetation Simulator was used to model the application of a three-cut shelterwood and a diameter-limit cut on a 118-acre private forest in New Hampshire to quantify the effects of the New Hampshire timber yield tax on potential financial returns. The yields at each cutting were combined with stumpage values, logging costs, log prices, forestry costs, and capital gains tax to develop net cashflows and to compare the financial returns with and without the tax. The internal rate of return would be 66 and 105 basis points higher without the tax, representing a 31 percent and 138 percent increase for the three-cut shelterwood and diameter-limit prescriptions respectively. Nondiscounted cashflows would be 137 percent higher for the diameter-limit cut and 38 percent higher for the three-cut shelterwood without the timber yield tax. The three-cut shelterwood produced total returns of 135 and 96 basis points higher than the diameter-limit harvest with and without the tax respectively. The findings from the study make a strong business case for eliminating the timber yield tax.