Alabama first adopted a forest products “severance” tax in 1945. The purpose of this tax was to “provide for the conservation of the natural resources of the state by protection of the forest products and development of the forestry program.” As such, the proceeds of the tax were earmarked for the Alabama Forestry Commission. The severance tax was based on the volumetric amount of wood products produced from trees severed in Alabama and was intended to be paid by the landowner.
In 1973, the statute was amended to include a second tax, referred to as the “processors” tax and was levied against the “processor of the forest products or the manufacturer using the forest products in an amount equal to 50% of the tax on the severer.” The tax was intended to be paid by the manufacturer and not the land owner.
Therefore, when most people refer to “severance” taxes, they are really intending to include both the severance tax and the processors tax.
Over the course of time, the forest industry has changed dramatically. In 1993, the legislature, recognizing these changes, once again changed the statute to allow taxpayers an election to either pay the tax based on the weight of wood received or to continue to pay based upon the volume of wood products produced. The clear intent of the legislature was to allow this election for all forms of produced wood products, but unfortunately the actual statutory language (by the placement of a “period” instead of a “comma”) technically excluded sawmills from the election to use weight.
Recent interpretations of the statute have highlighted the need to remove the ambiguities and vagueness created by the archaic language of the law. As such, the Association has drafted changes to the statute that will hopefully clear up the current confusion.
The proposed changes are intended to be revenue neutral; tax rates are not changed. The language is updated to reflect current products and practices, retains the option for taxpayers to elect to remit taxes based upon volume or by weight, and simplifies compliance.
AFA plans to continue meeting with constituent groups, legislators and the state with the hope to introduce legislation in the next couple of weeks. If you have any questions with regard to the proposed changes or desire to become involved in the process, please contact an AFA staff member.