Lumber Tax Legislation Signed

Governor Jerry Brown announced September 11 that he has signed legislation imposing a 1 percent tax on the retail sale of "lumber products" and "engineered wood products," and eliminating some fees, regulations and wildfire liabilities imposed on timber companies (AB 1492, Assembly Budget Committee).

In a statement announcing his action, the governor said, "California's laws have saddled our timber industry with costly burdens while giving out-of-state competitors a free ride – but that stops today." The governor's press release did not mention the amount of revenue – estimated at $35 million – that would be raised by the new tax.

The same day the bill was signed, the California Board of Forestry and Fire Protection (CalFire) adopted 14 Cal. Code Regs. Sections 1667.1 through 1667.6 – emergency regulations that set forth procedures for implementing the new tax.

Lumber products identified in the regulations will be subject to assessment of the "lumber products assessment," as the regulation identifies the tax, on January 1. Lumber products subject to the tax include solid wood products, engineered wood products and inorganic-bonded and wood thermoplastic composites, all of which include wood or wood fiber as the "principal component part" (at least 10 percent of the total content by volume).

Products not subject to the lumber tax also are identified in the regulations. Exempted products identified in the regulations include furniture, paper products, indoor finished flooring products, decorative products, musical instruments, kitchenware, molding, and pre-fabrication housing. The regulations specifically exempt baseball bats from the tax, but do not specifically exempt toothpicks.

While the regulations provide that the list of taxed lumber products may be modified following an annual review by CalFire, the regulations also provide that the Board of Equalization may petition the executive officer of CalFire for review of a lumber product. CalFire's executive officer determines whether a lumber product is subject to the tax or not.

The legislation states that retailers must separately state the amount of the tax on their sales receipts.

Consumers of wood products could experience another increase in taxes if the governor's tax initiative, Proposition 30, is approved by voters in November. The initiative includes a 0.25 percent increase in sales tax through 2016. In some areas of California, there could be additional costs for lumber if local sales tax measures – several calling for 1 percent increases – also pass. If Proposition 30 and the local tax measures are approved, the result will be that in some areas of the state, the sales tax on lumber will be 2.25 percent higher next year than it is now.

The lumber tax increase, which narrowly won two-thirds approval in both houses of the Legislature, will not be placed on the ballot for a public vote. During his 2010 campaign, Governor Brown said that if he were elected, no tax increases would be enacted without a vote of the people.

September 14, 2012
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