Pennsylvania Eases Tax Burden on Logging Equipment

Owners of logging equipment in Pennsylvania might have thought they worked on tree farms with tree farming equipment. However, until a month or two ago, they did not. They ran tree “something-elses.”

A sales tax exemption on logging equipment will become effective July 1, 2017.

Thanks to changes in the new tax revenue law signed by Gov. Tom Wolf in July, equipment used on tree farms is considered farm equipment. That means loggers no longer are required to pay sales taxes on their purchase of equipment that is similar or even identical to tax equipment used at both farms and sawmills.

Under the bill signed into law, there is an exemption that will allow loggers to have a few more bucks in their budgets when they shop for skidders, feller bunchers, harvesters and forwarders.

“It took us three terms (of the legislature) to get this measure through,” said Paul Lyskava, executive director of the Pennsylvania Forest Products Association (PFPA).

The state sales tax is 6 percent. A few counties or cities add local sales taxes on top of that. Under the new law, a logger who purchases a $40,000 piece of equipment will save $2,400 before even starting up. Even smaller purchases (a $5,000 unit) will keep $300 in the buyer’s wallet.

“The legislation will provide loggers with the sales tax exclusion that has been available to both farmers and forest product mills related to the purchase of equipment, material and services,” said Lyskava. Farmers have long enjoyed a sales tax exemption on haying, plowing and similar equipment.

Should loggers in the market for new equipment hold off longer before investing in machinery? The big question is whether to postpone purchases until after July 1, 2017 to save the sales tax. In the short term, there may not be an advantage to that, especially if there are good tax reasons to invest in the current fiscal or calendar year.

However, at the PFPA’s next trade show (June 9-10 at the Ag Progress Days site near State College), Lyskava said PFPA will talk to loggers about putting off purchases until July 1 to take advantage of the sales tax break.

“If you are looking at making a big-money purchase around the time of the Show, wait until after our Show,” Lyskava said. “But at this point I don’t think we are calling on people to put off any purchases.”

The driving force behind this measure was 75th District Pennsylvania State Representative Matt Gabler of Elk County. Largely due to his efforts in conjunction with PFPA and the local Farm Bureau, the provision exempting logging equipment made it into the tax bill. Gabler had sponsored a stand-alone measure in the House, which was approved by the House last year and in previous legislative sessions. His measure garnered bipartisan support.

“I am proud to serve the citizens of Pennsylvania in working to enact a bipartisan budget agreement while continuing to fight to protect taxpayers from unnecessary and burdensome tax increases,” Gabler said in a prepared statement following the passage of the legislation.

“I believe the product we delivered, while not perfect, is a taxpayer-friendly package that enables us to balance our budget and pay our bills. While additional work is needed to control costs and seek savings in the coming year, it is important that we start with a budget that leaves the Commonwealth on solid financial footing,” Gabler added.

Under the new legislation, the all-important word “timbering” is added to the current definition of farming. Included under the broad heading of timbering are “the business of producing or harvesting trees from forests, woodlots or tree farms for the purpose of commercial production of wood, paper or energy products derived from wood by a company primarily engaged in the business of harvesting trees.”

The law explains what is covered in the Act: “All operations prior to the transport of the harvest product necessary to for removal of timber and forest products from the site, in-field processing of trees into logs or chips, complying with environmental protection and safety requirements applicable to the harvest of forest products, loading of forest products onto highway vehicles for transport to storage or processing facilities and post-harvest site reclamation, including those activities necessary to improve timber growth or ensure natural or direct reforestation of the site.”

Gabler said his efforts to “level the playing field for our timber harvesters” was a five-year struggle. “House Bill 1198 would exclude from sales tax the purchase of machinery, equipment and parts used in timbering. This initiative recognizes that the timber industry belongs in the same category with farming, dairy and manufacturing in receiving this exclusion, since sales tax is collected when the final product is sold at retail. This provision I fought to include in our budget package will make a positive impact on the jobs climate in our area,” Gabler said.

There seemed little hardcore resistance to the concept behind HB 1198. The real problem was the animosity on both sides of the aisle to cooperating on legislation. As a result, a year ago worthy legislation like HB 1198 moved slower than peanut butter flowing uphill. This year, it became law.

More good news

There was other good news for the forest products industry in the current budget. Just 13 agricultural line items were increased in the present budget bill. One was a boost in the Hardwoods Research and Promotion program.

The increase of this program amounts to $385,000 or a full 10 percent.

The absolute number of dollars is modest, which means the Hardwoods program got twice the average amount awarded to ag programs. Overall, the Agriculture budget saw a 5 percent increase.

This is doubly good news since, during the last budget cycle, the Hardwoods program was one of the last programs to get its money – last year’s allocated funds were not released until May.

The next step for PFPA will be to work with the Governor’s office to develop policy guidelines for the forest products and conservation industry. Look for details on that initiative sometime before the new year.

The Hardwoods Council is expected to split the bulk of the funds among three hardwood utilization groups and the rest will be allocated by the Council at its November meeting.

Cover Photo: Ramonespelt & Serjio74/istock