1. (a) Adoption of the Manual for the Appraisal of Timberland. The Comptroller of Public Accounts adopts Manual for the Appraisal of Timberland. This document is published in booklet format by and is available from the Comptroller of Public Accounts, Property Tax Division, P.O. Box 13528, Austin, Texas 78711-3528.

2. (b) Introductory comments concerning the timber manual.

   1. (1) In 1978, voters approved a constitutional amendment, Article VIII, §1-d-1, permitting appraisal based on the productive capacity or "productivity value" of timberland. The new constitutional amendment took effect in 1979. In enacting the Property Tax Code that year, the 66th Legislature, 1979, adopted Property Tax Code, §§23.71-79, implementing §1-d-1 for land qualified for timber productivity appraisal.
   2. (2) The Property Tax Code assigns most qualified timber appraisal responsibilities to the chief appraiser. However, the Property Tax Code, §23.73 and §23.75, direct the comptroller to develop a manual for appraising qualified timber and an application form and distribute them to appraisal districts. Property Tax Code, §23.73, also directs the comptroller to develop procedures for verifying that land qualifies for timber use appraisal.
   3. (3) This manual sets out both the eligibility requirements for timberland to qualify for productivity appraisal and the methodology for appraising qualified timberland. Appraisal districts are required by law to follow the procedures and methodology set out in this manual.

3. (c) The qualification of timberland for productivity appraisal.

   1. (1) In this manual, the word "timber" refers to standing trees that are grown to produce commercial wood products, such as sawtimber, pulpwood, poles, and chips. "Timberland" refers to forest land that is capable of producing commercial wood crops.
   2. (2) Timberland in Texas varies in many ways. A pine plantation may have trees just over a year old, while another pine plantation may have much older and taller trees. Hardwoods may be the only timber on one tract, while other tracts may have pine trees or a mixture of hardwoods and pine. In addition, soil productivity--a key determinant of timber growth--often varies dramatically from one timber tract to another, even within the same county.
   3. (3) The degree of intensity with which timber producers manage the land also differs. Some owners practice custodial care, which means the owner does nothing to manage the land, while other owners manage their land intensively. Timber plantations are usually managed intensively. However, some plantation land may require little management for a few years, then need sophisticated, intensive management for several years. For example, a timber plantation that is between thinning activities and prescribed burning may need little management, but final harvest and preparation for replanting require intensive management.
   4. (4) These variations among timber tracts and timber growing operations make determining eligibility for timber productivity appraisal a challenge for a chief appraiser. The chief appraiser must be familiar with timber activities in the immediate area and the forest region of which the appraisal district is a part.
   5. (5) A valuable source of information about timber activity and timberland use in the area is the "agricultural appraisal advisory board." The Property Tax Code, §6.12, requires the chief appraiser to appoint, with the advice and consent of the appraisal district's board of directors, an agricultural appraisal advisory board consisting of three or more members as determined by the board of directors. The law requires that one of the members must be a representative of the county agricultural stabilization and conservation service. The other members must own land in the district that qualifies for productivity appraisal and must have been residents of the district for at least five years. The function of this board is to advise the chief appraiser on the valuation and use of land qualified for productivity appraisal, including agricultural land and timberland.
   6. (6) If chief appraisers plan to seek the advisory board's advice on timber characteristics and timber management activities within their respective appraisal districts, they should appoint individuals who are knowledgeable about the area's timber.
   7. (7) The Texas Constitution permits timber productivity appraisal only if the property and its owner meet specific requirements defining timber use. Land will not qualify simply because it has timber standing on it. In addition, timberland that is used principally for aesthetic or recreational purposes will not qualify.
   8. (8) The Property Tax Code, §23.72, sets the standards for determining whether land qualifies: "Land qualifies for appraisal . . . if it is currently and actively devoted principally to production of timber or forest products to the degree of intensity generally accepted in the area with intent to produce income and has been devoted principally to production of timber or forest products or to agricultural use that would qualify the land for appraisal . . . for five of the preceding seven years."
   9. (9) To qualify land for timber productivity appraisal, a property owner must show the chief appraiser that the land meets the Property Tax Code, §23.72, standard. To do so, the property owner must apply for the appraisal and give the chief appraiser the information necessary to determine if the land qualifies. The owner also must notify the chief appraiser of any changes in the land's status.

   10. (10) To qualify for timber productivity appraisal, landowners must meet each of the following six eligibility requirements.

       1. (A) The land must be currently and actively devoted to timber production.
       2. (B) The land must be used principally for timber production.
       3. (C) The land must be devoted to timber production to the degree of intensity generally accepted for the area.
       4. (D) The owner must have an intent to produce income.
       5. (E) The land must have been dedicated principally to agriculture or timber production for any five of the preceding seven years.
       6. (F) The property owner must file a timely and valid application form.

   11. (11) Timber appraisal applies only to land and its potential for growing timber. It does not apply to improvements on land or to minerals. If the land is qualified for timber productivity appraisal, the timber standing on it may not be taxed separately.

       1. (A) Improvements. Buildings and structures such as barns, sheds, or other outbuildings must be appraised separately at market value. Fences, however, are appurtenances and are not appraised separately. Land beneath out-buildings and other improvements related to timber use qualifies for the special appraisal because the owner uses it in the timber producing operation.
       2. (B) Minerals. Oil, gas, or any hard mineral must be appraised separately at market value.
       3. (C) Harvested timber. Harvested timber in the owner's hands on January 1 is personal property and taxed separately from the land.
   12. (12) Some man-made alterations of, or additions to, timberland are appraised as part of the land. These appurtenances to the land--canals, water wells, roads, stock tanks, and other similar reshaping of the soil--are included in the value of the land and are not separately appraised.
   13. (13) Under the Property Tax Code, §23.72, land must be "currently and actively devoted to timber use" to qualify for timber productivity appraisal. Unlike other types of property, the land may not have visible physical characteristics of qualification on January 1, but may still qualify. If timber use is not evident on January 1, the chief appraiser should investigate further to see if the owner can show that the land will be devoted to active timber production for the calendar year for which he or she is applying, by reason of other indications or evidence of current and active devotion.

   14. (14) Determining if the owner is currently and actively devoting land to timber production is often a difficult and complicated task. Consider the following situations.

       1. (A) The chief appraiser may not be able to see signs of activity when a timber operation is young, even though the owner may have spent a great deal of time, money, and effort to start the operation and is currently and actively devoting the land to timber use.
       2. (B) A chief appraiser may not be able to see any management activity at the time of inspection if the owner has not harvested for some time.
       3. (C) The chief appraiser may not be able to find evidence of active devotion if the size of the tract means that management activities take place away from the roads that give the chief appraiser access to the land.

   15. (15) However, the absence of visible physical timber activities on the land does not mean that the land is not currently and actively devoted to timber production. The chief appraiser should look for other indications of current and active devotion. The following are some indications of current, active devotion.

       1. (A) Timber activity records. Is the owner able to produce records showing timber management activity? Some records that show timber management activity are documents showing the timber has been harvested, canceled checks for services, contracts of sale, and land leases.
       2. (B) Forest management plan. The owner operates under a current, written forest management plan. A forest management plan must be developed for the present time. An outdated plan is of no use as a management document. The plan also should be in writing and signed by the individual who prepared it. However, the existence of a current management plan does not always mean the owner is following the plan. The owner should be able to show that he or she is using or intends to use the plan for timber production. Knowledgeable timberland owners may prepare their own plans. If the owner of a marginal tract cannot afford a privately developed forest management plan, is on a waiting list to have a plan developed by a public agency, or lacks the expertise to develop his or her own plan, the chief appraiser should look for other evidence of current and active devotion.
       3. (C) Timber cost-sharing programs. The owner receives Texas Reforestation Foundation (TRe), Forestry Incentive Program (FIP), Agricultural Conservation Program (ACP) or Stewardship Incentive Program (SIP) cost sharing funds for reforestation and timber stand improvement. The Texas Forest Service coordinates the federal FIP, ACP and SIP programs. TRe is a privately funded cost-sharing program.
       4. (D) Efforts to sell timber. The owner has letters or other documents showing efforts to sell the timber.
       5. (E) Salvage activity. The owner has documentation showing that he or she has attempted to salvage damaged or dead timber that continues to have value.
       6. (F) Registered tree farm. A registered tree farm is privately owned, protected, and managed timberland. Timberland must meet several qualifications for certification as a registered tree farm: private ownership, management for growth and repeated timber crop harvests, adequate protection from fire, insects, disease, and destructive grazing. In addition, the owner's harvesting practices must assure prompt reforestation with desirable trees. A registered tree farm is inspected by professional foresters before it may qualify for the program. Each registered tree farm is reinspected periodically. Most registered tree farms are easily recognized by the green diamond-shaped "TREE FARM" marker placed in front of the property.
       7. (G) Memberships in associations. The owner is a member of the Texas Forestry Association or a county or local timber growers association.
       8. (H) Assistance programs. Does the owner participate in a forest industry landowner assistance program? Many firms in the forest products and the pulp and paper industry have entered into agreements with private timberland owners to manage their timber in exchange for first chance to buy the timber when it is ready to harvest.
       9. (I) Participation in forestry extension activities. The Texas Agricultural Extension Service offers periodic programs for timberland owners. These programs cover timber management practices. The Service also offers a correspondence course to show timber owners how to prepare a timber management plan.
       10. (J) Consulting foresters. Has the owner contracted with or hired a private consulting forester to help manage his or her timber? What were the results of this collaboration? Is the owner operating on the written advice of a consulting forester?
   16. (16) Land that is currently and actively devoted to timber production will not qualify for productivity appraisal unless timber production is the land's primary use. If the owner uses the land for more than one purpose, the principal use must be growing timber. Although the distinction between "currently and active devotion" and "primary use" may be subtle, there is a difference between the two criteria.
   17. (17) While timber production must be the primary use of the land, other compatible uses do not prevent land from qualifying if timber production remains the primary use. For example, an owner may use land principally to grow timber and lease it for hunting. However, if hunting activities are the primary use of the land, and the timber is used to create an environment for wildlife production, then the land would not qualify.
   18. (18) The chief appraiser must determine all the uses to which the owner puts the land and decide which use is the primary one. If any use is incompatible with timber production, or if it replaces timber production as the primary use of land, the land is not principally devoted to timberland use and cannot qualify for productivity appraisal.
   19. (19) There are situations where timber production may not be the land's primary use. The primary use test is particularly important for timberland because the kind of intensive management required to grow agricultural crops is not necessary to grow timber. This less visible management activity can make determining the land's primary use a difficult job.

   20. (20) The following situations are intended to illustrate situations in which timber production may not be the land's primary use, although the land appears to be currently and actively devoted to timber production. In these or comparable situations, the chief appraiser should use the situation as a trigger for further, careful investigation of the application.

       1. (A) Presence of deer-proof fences on the property. Although this is not always the case, the existence of deer-proof fences around the property may indicate that the property is being used for wildlife production. The chief appraiser must then determine if the owner's principal use is timber production, hunting or wildlife production.
       2. (B) Presence of stock or wildlife ponds on the property. Ponds are not normally necessary for the conduct of timber management activities or timber harvesting. The existence of ponds may trigger further investigation of the land's primary use.
       3. (C) Land being readied or held for development. Some timber harvests may indicate that the land is being prepared for housing development rather than used principally to grow timber. (These are commonly referred to as "real estate cuts.") Another possible indication that land is being used principally for development is a sign offering the land for development or one indicating it is zoned for industrial or residential use.
       4. (D) Presence of homes, vacation facilities, retreats, and recreational facilities on the property. The existence of dwellings and recreational facilities, such as retreats, camps, lodges, and similar facilities, may indicate that the timberland is being used to provide an aesthetic environment for these facilities. If this is indeed the case, timber production is not the land's primary use and the land would not qualify for productivity appraisal.
   21. (21) A chief appraiser may establish a policy to follow reasonable and carefully developed guidelines for determining primary use. Establishing guidelines requires the chief appraiser to become familiar with timber activity in the area. The chief appraiser may also rely on the expertise of the agricultural appraisal advisory board in establishing primary use guidelines.
   22. (22) Guidelines, however, should serve only as a trigger for more investigation--they should not be arbitrarily or automatically applied. For example, a chief appraiser whose guidelines require a management plan should not automatically deny timber appraisal to an owner who does not have a plan. A property owner with no forest management plan may actually be managing the land more actively and intensely than other owners who have management plans. This land should qualify for productivity appraisal if its use meets all other eligibility qualification requirements. Instead, the chief appraiser should use the lack of a plan as a trigger to investigate the application more closely.
   23. (23) Guidelines that are applied arbitrarily or by rote can produce incorrect results. An application for timber productivity appraisal should not be denied outright because the chief appraiser discovers deer-proof fences, wildlife ponds, dwellings or recreational facilities on the property. The presence of these structures is an indication, not proof, that timber production may not be the land's primary use. In these situations, the chief appraiser should carefully investigate the land's primary use.
   24. (24) To qualify for productivity appraisal, timberland must be used to the degree of intensity generally accepted for prudent timber growers in the area. The degree of intensity test is intended to exclude from productivity appraisal land on which token timber activity occurs simply to get tax relief.
   25. (25) The law doesn't set degree of intensity standards. The chief appraiser must develop standards after carefully investigating the area's typical timber operations performed by prudent landowners. After thoroughly studying the area, the chief appraiser should set minimum degree of intensity standards. The chief appraiser may also rely on the expertise of the agricultural appraisal advisory board in determining the typical degree of intensity for the prudent timber grower.
   26. (26) To set degree of intensity standards, the chief appraiser should analyze the major types of timber operations in the area. This analysis should break down the typical steps in producing timber and attempt to specify how much time, labor, equipment, etc., is typical for each type of timber operation. The sources listed in subsection (f) of this section may help the chief appraiser determine how much of these items are typically used.
   27. (27) Degree of intensity standards will vary from one timber growing area and operation to another. In general, there are three different levels of management intensity: custodial, minimal, and intensive.
   28. (28) Custodial management is "hands-off" management. The only activities the owner conducts are payment of property taxes and occasional visits to the site. However, it is highly unlikely that a timber property that shows no indication of management activity for two or more decades is being actively devoted to timber production.
   29. (29) Minimal management may fall anywhere between custodial management and intensive management. The owner may undertake some activities, such as periodic thinning, regular site visits, or maintenance of an access road.
   30. (30) Intensive management can involve many activities, including careful soil preparation for replanting, regular thinning and/or prescribed burning to reduce competing vegetation, removal of undesirable trees, following a program to check for and control insects and disease, prompt actions to control insects and disease, and building and maintaining all-weather roads to the site.
   31. (31) Large timber plantations owned by corporations may receive intensive management; small operations owned by individuals may receive custodial management. The chief appraiser's degree of intensity standards should recognize these different levels of management activity and differences among timber operations.
   32. (32) In most cases, property owners must prove that they are following the common production steps for their type of operation and using typical amounts of labor, management, and investment. However, a timber growing operation is not disqualified simply because it differs from the typical operation in some respects. Appraisers should not, for example, disqualify a custodial timber operation because many comparably sized operations are more management intensive. Nor should an owner who is clearly meeting the degree of intensity test be disqualified because the operation has some element of the degree of intensity test missing. The total effort finally determines whether a given timber growing operation qualifies, not the level of each separate "input."
   33. (33) The degree of intensity test applies to the year of the appraisal only-it does not apply to the historical use (time period) requirement. Land used principally for timber for five of the preceding seven years may qualify although it was not used to the typical degree of intensity during those years.
   34. (34) The chief appraiser should not apply minimum degree of intensity standards arbitrarily--they are a trigger for a more careful review of the application. For example, if the minimum standards require regular thinning of competing vegetation, the application should not be denied simply because the land is not thinned regularly. The chief appraiser should instead carefully review the application and inspect the property to determine if the land qualifies.
   35. (35) The owner must use the land with an intent to produce income. Like the degree of intensity test, this test excludes those owners who aren't producing timber and who are trying to use productivity appraisal to avoid paying property taxes on the land's market value. In Texas Attorney General Letter Opinion LO-88-89, the attorney general stated that land used solely for cutting wood to build fences for ranch operations does not qualify for timber appraisal. Whether the owner has an intent to produce income is a fact question for the chief appraiser to decide.
   36. (36) To qualify, the owner is not required to prove that the land has produced income in the current year. Timberland does not produce income regularly because the time between harvests is long. At the time of qualification, however, the owner must show evidence of an intent to produce income.
   37. (37) Land that does not produce income (in this context, income means net income) during the time in which a prudent manager would have produced income may not qualify. Further, an owner probably has no real intent to produce income if he or she has had no expenses directly related to the timber operation within the last two decades.
   38. (38) The chief appraiser may use expense receipts, canceled checks, or current accounts of expenses, labor, and revenues to determine if the owner has expenses directly related to timber production. An owner seeking to produce income usually will keep these types of records.

   39. (39) Some examples of evidence of intent to produce income are:

       1. (A) receipt of revenues through sale of timber;
       2. (B) letters or other documents showing that the owner has attempted to sell the timber;
       3. (C) a contract of sale;
       4. (D) receipts, canceled checks, and other evidence that the owner has had expenses or income related to the timberland's use;
       5. (E) investments in improvements to enhance the value of the existing timber;
       6. (F) purchase of easements to allow loggers access to land-locked tracts;
       7. (G) investments in substantial amounts of reforestation or smaller amounts if other parts of the tract are already in commercial timber;
       8. (H) attempts to salvage timber that has value but that is damaged or dead;
       9. (I) using a consulting forester to help manage the land;
       10. (J) hiring someone to conduct a timber sale; and
       11. (K) seeking recommendations of a public forester before making a timber sale.
   40. (40) Land used primarily for either timber or agricultural production during any five of the previous seven years may qualify for timber productivity appraisal. A landowner may point to a history of agricultural use that would qualify the land for productivity appraisal in meeting this requirement.
   41. (41) As long as either timber or agriculture was the principal use in the preceding years, the land qualifies although that use may not have met the degree of intensity requirement in all or some of those years. This historical use requirement attaches to the land. It is not a requirement for the landowner to show a history of timber production activities.
   42. (42) The Property Tax Code, §23.75(b), requires the comptroller to prescribe the application form for timber productivity appraisal. The comptroller's application form has been adopted by §9.402 of this title (relating to Special Use Application Forms) and is available from the comptroller's Property Tax Division.
   43. (43) The appraisal district may copy the comptroller's form and offer it to local property owners. An appraisal district may use a form that substantially complies with the comptroller's form--that is it has the same language in the same order as the comptroller form if the district has written approval from the comptroller.
   44. (44) The comptroller will not approve an appraisal district form unless the form has the same elements and asks for the same information as the comptroller form. The comptroller will not approve a form that asks for any information not required by the agency's form.
   45. (45) These rules do not permit appraisal districts to add additional questions to the initial application. If, however, the initial application is valid but does not contain all the information the district needs to rule on an application, the chief appraiser may require the applicant to give additional information. This procedure is described later in this section.
   46. (46) Where the district offers its own form, the applicant may choose between the comptroller application form and the district's form. An applicant may not be denied the appraisal because he or she chooses to use the comptroller form. The applicant must completely provide all information requested by the comptroller form-an incomplete application is not valid.
   47. (47) Property owners must file applications with the chief appraiser in the appraisal district where the land is located. Taxpayers whose land is appraised by more than one appraisal district must file an application in each district.
   48. (48) The law requires chief appraisers to share appraisal information on properties within overlapping areas. Chief appraisers are also required to coordinate appraisal records and appraisal activities relating to properties in overlapping areas by written agreement. Appraisal districts must send a comptroller prescribed advisory notice to affected property owners informing them that required reports and other documents must be filed with or sent to each appraisal district. This advisory notice must also inform affected property owners that they should consider sending any other document relating to the property to each appraisal district.
   49. (49) A property owner may file a single application form covering all tracts within an appraisal district. Owners need not file a separate form for each tract as long as they provide sufficient information to show that all tracts qualify under the law.
   50. (50) The chief appraiser should encourage owners to file a single form if they are managing several tracts as a unit. The chief appraiser must view the entire timber growing operation as a unit--not with respect to the activities on each individual parcel. The single application form notifies the appraisal district of the operation's unity.
   51. (51) An application must be postmarked or filed no later than midnight, April 30. For good cause and only on the property owner's request, the chief appraiser may extend the filing deadline in individual cases for not more than 60 days. The property owner must request an extension before the filing deadline.
   52. (52) The Property Tax Code does not define "good cause." However, it is commonly something the applicant cannot control. Illness or injury or an inability to transact normal business for a period that effectively prevents filing on time is usually good cause. Travel out of town on business or vacation or simply forgetting about the filing deadline is not good cause.
   53. (53) A property owner who misses the deadline may file a late application until the appraisal review board approves records for that year (usually about July 20). However, there is a penalty for late application. An application filed after April 30 is subject to a penalty equal to 10% of the difference between the tax if imposed at market value and the tax imposed at the timber productivity value. If the chief appraiser extended the deadline for that property owner, this penalty does not apply.
   54. (54) Chief appraisers must note imposition of the penalty in the appraisal records. They also must send the property owner written notice of the penalty and explain the reasons. The tax assessor adds the penalty amount to the tax bill and collects the penalty along with the annual tax payment.
   55. (55) A lien attaches to the property until the penalty is paid. If the penalty remains unpaid on February 1 of the following year (or a later delinquency date if tax bills are mailed late), penalty and interest on the penalty amount accrue as if it were a delinquent tax.
   56. (56) If a person does not file a valid application before the appraisal review board approves the appraisal roll, the land is ineligible for productivity appraisal in that tax year.
   57. (57) Once the application is filed and approved, the land continues to receive productivity appraisal every year without a new application unless the ownership changes, the land's eligibility changes, or the chief appraiser requires a new application. The chief appraiser may require a new application if he or she has good cause to believe that the land's eligibility for productivity has ended. If the chief appraiser requires a new application, the property owner must meet the deadlines that apply to a new applicant. To better inform the taxpayer, the chief appraiser may wish to state in writing the reason for a new application.
   58. (58) If the land's eligibility ends or its ownership changes, the property owner must notify the appraisal office in writing before the next May 1. New owners are not eligible for timberland productivity appraisal unless they apply. If the owner fails to do so, one or more penalties will apply.
   59. (59) If the land remains under the same ownership and the owner fails to inform the appraisal district that the land is no longer eligible for productivity appraisal, either because the land is no longer in timber use or because the degree of intensity has fallen below that typical for the area, the property owner must pay a penalty equal to 10% of the difference between the taxes imposed under the timber use and the taxes that would have been imposed under the new use. This penalty applies for each year the property received the incorrect appraisal, but for no more than five years.
   60. (60) If the property erroneously receives productivity appraisal because a new owner failed to file an application or because an owner's use of the land no longer qualifies, the chief appraiser must calculate the difference between the land's market value and its productivity value. The owner must pay taxes and penalties on the difference between these values for the time that the land erroneously received productivity appraisal, plus a 10% penalty on these taxes. This additional tax and penalty may not cover a time period exceeding five years. In the year the chief appraiser discovers the change, the chief appraiser should add this value to the appraisal roll as property omitted in a prior year.
   61. (61) For example, if a timber producer reduces the scale of the operation and timber is no longer the land's principal use, the land will not be eligible for productivity appraisal. If the landowner fails to notify the appraisal district and, therefore, receives productivity appraisal, the land is back assessed. For each year in question (not to exceed five years), the owner must pay the difference between the taxes based on productivity appraisal and the taxes based on market value, plus a 10% penalty on that difference. Because the land has not been taken completely out of timber use, it is not subject to rollback taxes. (Rollback procedures are discussed in detail in subsection (d) of this section.)
   62. (62) When a penalty is imposed, the chief appraiser must notify the property owner. This notice must explain the procedures for protesting the penalty. The chief appraiser notes the imposition of the penalty in the appraisal records, and the tax assessor adds the amount of the penalty to the property's annual tax bill.

   63. (63) The chief appraiser must review each application and decide whether to:

       1. (A) approve it and grant productivity appraisal;
       2. (B) disapprove it and ask for more information; or
       3. (C) deny the application.
   64. (64) The chief appraiser must determine the validity of all timely filed applications before turning all appraisal records over to the district's appraisal review board. The deadline is May 15 or as soon afterward as is practicable.
   65. (65) The chief appraiser usually gives the appraisal records to the appraisal review board (ARB) by May 15. Property owners who were denied productivity appraisal may file a protest with the ARB. In addition, taxing unit officials who believe productivity appraisal was erroneously granted to any property owner may seek to remove that grant by filing a challenge with the ARB.
   66. (66) The chief appraiser must rule on all late-filed applications before the appraisal review board approves the records for the year. The chief appraiser must notify the applicant in writing within five days of an application's denial. This notice must explain the procedures for protest.
   67. (67) The chief appraiser may request additional information. If the initial application form is valid but the chief appraiser does not have all the information needed to determine if the land qualifies, the chief appraiser may request additional information. The chief appraiser may request only additional information that is necessary to determine if the land qualifies for productivity appraisal.

   68. (68) In determining whether an application is valid, the chief appraiser should take care to consider the application as a whole. If the chief appraiser determines that the omission of a piece of information on the original application was a mistake, the chief appraiser may, at his or her discretion, either:

       1. (A) extend the filing deadline for 60 days; or
       2. (B) send a form requesting additional information.
   69. (69) Information contained in income statements and income tax returns, land lease rates, and lease agreements is not necessary to determine whether the land qualifies--other less invasive evidence of qualification exists. If the chief appraiser asks an owner for this type of information, the request should clearly state that the owner is not required to give the information to qualify for productivity appraisal.
   70. (70) The applicant must provide additional information within 30 days after the date of the request or the application will be denied.
   71. (71) If there is good cause, the chief appraiser may extend the deadline to allow additional information. An extension cannot exceed 15 days.
   72. (72) If a chief appraiser denies an application, a notice of the denial must be delivered to the applicant within five days. The notice must explain the procedures for protesting to the appraisal review board. To better inform the taxpayer, the chief appraiser may wish to explain the reasons for denying the application.

   73. (73) Even if land meets all the preceding conditions, some situations may block approval of an application. Land within the boundaries of a city often will not qualify. Land located within an incorporated city or town must meet all the criteria for productivity appraisal and, in addition, must meet one of the following:

       1. (A) the city must not provide the land with general services comparable to those provided in other parts of the municipality having similar features and population; or
       2. (B) the land must have been devoted principally to production of timber or forest products continuously for the preceding five years.
   74. (74) Property Tax Code, §23.77(2) and (3), provide that some kinds of foreign ownership make the land ineligible for productivity appraisal. Under the law, if the property owner is a non-resident alien (a non-United States citizen who does not reside in the United States), the land can't qualify. Similarly, the law states that a corporation can't qualify its land if a non-resident alien, foreign government, or both control the corporation.
   75. (75) The Texas Supreme Court has held, however, that Property Tax Code, §23.56(3), barring foreign corporate and governmental ownership from qualifying land for agricultural appraisal, unconstitutionally violates the Texas Constitution's guarantee of equal protection. Although the Court's opinion did not address the ineligibility of non-resident aliens (Property Tax Code, §23.56(2)), its reasons for holding subsection (3) of that statute unconstitutional also applies to the non-resident's eligibility for timber productivity appraisal. The HL Farms case did not address timber appraisal, but the law making productivity appraisal unavailable to foreign owners is identical to the agricultural appraisal law. Property Tax Code, §23.77(2) and (3), is identical to Property Tax Code, §23.56(2) and (3). Because of the similarity between the agricultural appraisal and the timber appraisal sections, a court is likely to hold that HL Farms applies to timberland. Therefore, a chief appraiser should seek the advice of an attorney if the appraiser is confronted with an application for timber appraisal submitted by a foreign owner.
   76. (76) When the Texas Legislature adopted timber productivity appraisal, the law was written to create a minimum taxable value on timberland. Property Tax Code, §23.78, provides that the minimum taxable value of qualified timberland is the market value assigned to the land by the taxing unit in 1978. The purpose of this section was to ensure that a taxing unit with a large amount of timberland would not suffer a serious decrease in its tax base after implementation of productivity appraisal. This means that timberland qualified for productivity appraisal will not be taxed on its productivity value if that value is less than the 1978 value.
   77. (77) The Tax Code requires a unit's tax assessor to compare the total productivity value for the parcel with the unit's 1978 value for the parcel. If the total productivity value is less than the total 1978 value, the unit's assessor must substitute the 1978 value for the entire parcel.
   78. (78) If the nature of the parcel has changed, the assessor must use historical value to reconstruct what the entire parcel's value would have been in 1978. For example, if a parcel includes more land in the current year than it did in 1978, the assessor may not substitute a 1978 per acre average for the new acreage. Instead, a unit's assessor must use historical data to determine what the 1978 value for the entire tract would have been for the unit.
   79. (79) A unit that did not exist in 1978, or that did not levy an ad valorem tax in 1978, may not substitute a 1978 value for the land's productivity value. The law permits only substitution of the 1978 value "for the unit." A unit that did not exist or that had no property tax in 1978 has no market value to substitute for the productivity value.
   80. (80) The tax assessor must determine or reconstruct a 1978 value for each unit for which the assessor collects taxes. Each unit's 1978 value must be applied separately from that of other units. The law does not provide for an average 1978 value that is applied for all units that had a 1978 value. Nor does it provide for a historical reconstruction that combines the taxing units having a value in 1978.
   81. (81) An owner may waive his right to productivity appraisal. By barring the land from receiving productivity appraisal, the waiver insures that a taxing unit may depend on a certain level of tax revenue. This certainty may be critical to the survival of small taxing units or those that are in debt.
   82. (82) A waiver is effective for 25 years. Land may not qualify for productivity appraisal for the duration of the waiver. A change in ownership does not revoke the waiver. An owner may file a waiver on land that does not qualify for productivity appraisal. A waiver may be filed with some or all the units that tax the property.
   83. (83) A waiver filed before May 1 becomes effective when it is filed. For good cause, the chief appraiser may extend the May 1 deadline for 60 days. These waivers become effective the year following the filing year.
   84. (84) To revoke a waiver, the owner must file an application for revocation with the governing body of each taxing unit where the waiver is effective. The unit's governing body must vote to approve the revocation and make a finding the unit's debt obligations will not be affected.

4. (d) Rollback procedures that relate to timberland.

   1. (1) State law imposes an additional tax on qualified timberland each time it is taken out of timber use and is no longer eligible for productivity appraisal. For the purposes of this manual, this additional tax plus accrued interest is referred to as a "rollback."

   2. (2) The rollback recaptures the taxes the owner would have paid if his or her property had been taxed at market value each year of the preceding five-year period plus accrued interest. The rollback has two parts:

      1. (A) back taxes; and
      2. (B) accrued interest on those back taxes. The tax portion of the rollback equals the difference between the total taxes the owner actually paid in the five years preceding the change in use and the total taxes the owner would have paid on the property's market value. The interest portion of the rollback is calculated from the dates on which the differences would have been due. A rollback is applicable only if the land was receiving productivity appraisal before its change of use.
   3. (3) A property owner may take land out of timber use either by ending timber operations or by diverting the property to a non-timber use. This "change of use" is the only event that triggers a rollback on timberland. If the property owner diverts only part of a timber property to a non-timber use, the rollback applies only to the changed portion.
   4. (4) Technically, the tax is an additional tax imposed by law on the date the cessation of timber production or change of use occurs. The rollback tax bill has its own delinquency date different from the delinquency dates of other tax bills.
   5. (5) A change of use is a physical change. The owner must stop using the land to produce timber. For example, a timber grower who has been receiving timber use appraisal may decide to stop timber operations entirely. The grower has the timber cut, does not plant new trees and shows no intention of replanting. Because the owner has stopped all timber activity, productivity appraisal will be lost and the land will incur a rollback tax.
   6. (6) Reduced intensity of use at the owner's option will cause a loss of productivity appraisal. For example, if the owner decided to use the land primarily for recreational purposes and timber is no longer the land's principal use, the land would no longer be eligible for productivity appraisal. However, as long as the land is used for some kind of timber production, a rollback will not be triggered.
   7. (7) Reduced intensity resulting from acts of nature and financial hardships also will not prompt a loss of timber productivity appraisal. For example, severe fires, droughts or freezes may extend the normal time land can remain out of timber production. In such cases, the land remains eligible for productivity appraisal until the owner clearly shows an intent to give up timber operations permanently.
   8. (8) This principle also applies when damage is done to part of a tract. If a fire destroys 500 acres of a 3,000 acre forest--forcing the owner to temporarily cease timber operations on the 500 acres--the owner should continue to receive productivity appraisal on the destroyed part of the tract. In years of severe drought, many timber growing operations fail. Because the owner invested money in the failed operation, planting may be delayed because money to start an new operation may not be available. Here as well, the land should continue to qualify until the owner clearly shows that timber production will no longer take place on the land.
   9. (9) Filing documents to plat land does not trigger imposition of a rollback. Only evidence that the actual use of the land has changed triggers the rollback. Plat documents provide some evidence of an intent to change use, but a physical change must occur, such as ceasing timber operations or installing utilities. Even in that case, the change of use may affect only part of the platted land. If the owner ceases timber operations on part of the platted land, only that part of the land is subject to rollback taxes.
   10. (10) An owner who is required to reapply for productivity appraisal but who fails to do so may lose his or her eligibility, but will not suffer a rollback. Rollback requires an affirmative change of use. Failure to reapply alone does not signal an affirmative use change.
   11. (11) Some changes to a different type of use do not trigger imposition of a rollback. Changing from timber use to an agricultural use that qualifies land for 1-d or 1-d-1 appraisal does not trigger a rollback. Property condemned or sold for right of way is not subject to a rollback even if its use changes. Filing a waiver of timber use appraisal with the appraisal district will not trigger a rollback if the use does not change.
   12. (12) Chief appraisers must use great care in determining when a change of use triggers a rollback. The imposition of a rollback is a serious economic penalty that should not be imposed when circumstances beyond a property owner's control cause an abnormally long but temporary suspension of timber production. Chief appraisers must keep in mind that change of use issues are often unclear and require a delicate balance between fair applications of the law and good decisions based on the facts of each situation.
   13. (13) The chief appraiser determines if and when the change of use occurs and must send the owner written notice of the determination. The notice must explain the owner's right to protest the determination.
   14. (14) The owner may protest the change of use decision by filing a protest with the appraisal review board within 30 days after the notice is mailed. The appraisal review board must hear a timely protest even if appraisal records have been approved for the year.
   15. (15) There are a number of ways for a chief appraiser to determine if a change of use has occurred. He or she may learn of a change of use from the owner's written notification, other filed transactions (such as a sale, issuance of a building permit), field observations, or word of mouth.
   16. (16) The rollback covers the five calendar years preceding the year in which the change in use occurred. For example, if the use changed in 1995, the rollback covers 1994, 1993, 1992, 1991, and 1990. The preceding years are based on the use from January through December and not on the tax collection periods.
   17. (17) The tax portion of the rollback is the difference between the taxes paid under productivity appraisal and the taxes that would have been paid on the market value of the land each year. For example:
       Attached Graphic
       
   18. (18) The assessor for each taxing unit must add 7.0% annual interest on these amounts from the date these taxes would have become due each year. The due date for each year is the date tax bills were mailed that year, which is normally October 1. Discounts for early payment do not apply to rollback taxes--discounts apply only to ordinary property taxes. The assessor must compute interest from the date the difference would have become due (normally October 1) to the date the change of use occurs.
   19. (19) Assuming that the use changed November 1, 1995, and that the assessor mailed tax bills on October 1 each year, the interest is calculated as follows:
       Attached Graphic
       
   20. (20) The five-year rollback period may cover one or more years when the property did not qualify for timber use appraisal. If the property used in the example in paragraph (19) of this subsection had been taxed on market value in 1993, the rollback tax would have been computed for 1994, 1992, 1991, and 1990.
   21. (21) The rollback is due when the rollback tax bill is mailed. It becomes delinquent if not paid before the February 1 that is at least 20 days after the tax bill is mailed. For example, if the rollback tax bill is mailed on January 9, 1996, it becomes delinquent on the February 1, 1996, because there are 20 days between February 1 and January 9. However, if the bill is mailed January 30, 1996, it becomes delinquent February 1, 1997. On the delinquency date, the entire amount begins to draw penalty and interest at the same rate as other delinquent taxes.
   22. (22) A tax lien attaches to the land on the date the use changes. The lien is imposed on behalf of all taxing units that levy taxes on the timberland. The lien covers payment of the additional tax, interest, and any penalties.
   23. (23) The sale of timber property does not trigger a rollback tax. If land is sold and also changes use at the same time, the buyer and seller may dispute liability. Under the law, the person who has title to the property on the date the use changes is personally liable for the rollback, but the lien may be foreclosed against the land regardless of who is liable for taxes. Tax certificates on land that receives productivity appraisal must note the appraisal and state that the land may be subject to additional taxes.
   24. (24) Organizations that are exempt from ordinary property taxes are not exempt from the rollback. If qualified timberland is sold to an exempt organization and the organization continues timber use on the land, it continues to be exempt from property taxes. However, if the organization takes the property out of timber use, the rollback is triggered. In most cases, the tax lien can be enforced against the property.
   25. (25) Where the state or a political subdivision buys the land and changes the use, the rollback will be triggered but the lien cannot be foreclosed. The rollback cannot be collected unless the governmental entity chooses to pay it. However, the lien against the land continues and could be enforced against a later buyer.
   26. (26) If land changes from a qualifying use to a non-qualifying use after the appraisal review board has approved the appraisal records, the land is assessed for the difference between the property's market value and its timber use value for the current year's taxes. This assessment is in addition to the rollback taxes and interest due.
   27. (27) The tax-assessor sends a supplemental bill for current taxes on the added value. This amount becomes delinquent on the same date as the original tax bill for the property. If those original taxes have been paid, the supplemental bill becomes delinquent on February 1 of the year following the date the bill is mailed or the first day of the next following month that allows the property owner 21 days to pay the tax, whichever is later.
   28. (28) A property owner who willingly ceases timber production on land that is receiving timber use appraisal or diverts his timberland to non-timber use must notify the appraisal district in writing of this change in use before May 1 after the change. If the property owner fails to notify the appraisal district of this change in use, the chief appraiser must impose a penalty on the property equal to 10% of the difference between the taxes levied on the property in each year it was erroneously allowed appraisal and the taxes that should have been levied. This penalty is in addition to the rollback and is similar to the penalty for property left off the roll (omitted property). The chief appraiser must notify the landowner in writing of the imposition of a penalty and explain the procedures for protesting the penalty.

   29. (29) The period for back assessing taxes for erroneously granted productivity appraisals is limited to five years. Landowners may incur other liabilities in addition to the penalty for failure to notify. For example, if qualified timberland was taken out of timber use in January, 1990, but the chief appraiser did not learn of this until 1995, the landowner would owe the following:

       1. (A) the rollback taxes and interest, computed on the five years covering the 1985-89 period;
       2. (B) regular delinquent penalty and interest under the Property Tax Code, §33.01, for the rollback tax bill that became delinquent February 1, 1991;
       3. (C) additional "omitted" taxes equal to the difference between the taxes actually paid (or assessed) and the taxes due for the tax years 1990-1994 as omitted property value, required by Property Tax Code, §23.75(j) and §25.21;
       4. (D) interest at 1.0% per month for each year of the 1990-1994 period on the additional "omitted" taxes as required by Property Tax Code, §26.09(d); and
       5. (E) a "no notice" penalty equal to 10% of the additional "omitted" taxes due for the 1990-1994 period as required by Property Tax Code, §23.75(h).
   30. (30) Therefore, taxpayers should take great care to notify their chief appraisers as soon as they permanently cease timber operations. Otherwise, they may face heavy liabilities for failure to notify.

5. (e) The appraisal process for timberland.

   1. (1) The productivity value of an acre of timberland equals the average annual net income a prudent manager could earn from growing timber over the five-year period preceding the appraisal's effective year, divided by a statutory capitalization rate. Net income has two parts: gross income and production cost.
   2. (2) Gross income is calculated by computing potential average annual timber growth per acre and multiplying this amount by timber's average annual market price for that year. This computation is performed for each year of the five-year period.
   3. (3) The average annual cost of producing timber in each of the five years is subtracted from gross income to find net income for the year.

   4. (4) Average annual net income is computed by averaging net income for each year of the five-year period. This five-year average annual net income is then divided by the statutory capitalization rate to produce the productivity value of timberland. Timberland's productivity value is determined in ten basic steps:

      1. (A) classify timberland into three forest types;
      2. (B) classify timberland into four soil types;
      3. (C) estimate average annual timber growth;
      4. (D) convert timber growth into units for estimating gross income;
      5. (E) estimate average annual timber prices;
      6. (F) estimate average annual potential gross income of timber growth;
      7. (G) estimate average annual costs of producing timber;
      8. (H) estimate net income of timber growth;
      9. (I) capitalize net income by statutory rate to develop per acre timber values; and
      10. (J) apply timber values to timber acreage within the district.
   5. (5) The law requires chief appraisers to estimate timber productivity values for three forest types and four soil types, and apply these values to the different classes of timber within their respective districts. (At most, an appraisal district may have 12 classes of timber--four soil types for each of three forest types. Some districts may not have 12 classes of timber. For example, a district that contained only pine forest might have four classes of timber: pine soil class 1, pine soil class 2, pine soil class 3 and pine soil class 4.)
   6. (6) Figure 6: 34 TAC 9.4011(g) through Figure 36: 34 TAC 9.4011(g) illustrate this methodology, and the text frequently refers to these Figures.
   7. (7) The Property Tax Code, §23.71, requires chief appraisers to use "the land's potential average annual growth" in computing timber's gross income. In this context, the word "potential" does not mean actual--it means "possible." Consequently, the gross income of an acre of timberland is equal to the value of an average year's worth of possible growth. Chief appraisers must apply the value of a year's worth of possible growth to all timber in each forest and soil type category, irrespective of the size of trees on any one tract.
   8. (8) The result of defining gross income as the value of potential growth often confuses many timber growers, because trees of dramatically different ages and sizes may have the same values. Assume, for example, two tracts of timber, both planted in loblolly pine and both having the same soil type and other characteristics. One tract has pine seedlings six inches high from a recent replanting; the other has pine trees 80 feet high and ready for harvest. If the chief appraiser is following the law's requirements on timber appraisal, both tracts should have the same appraised values per acre.
   9. (9) The law uses the land's potential income because the tax is a property tax. If individual tracts were appraised on their individual incomes, the tax would be an unconstitutional income tax.

   10. (10) The Property Tax Code, §23.71, requires chief appraisers to use information from five different sources to determine forest types, soil types, average growth and timber prices. These are:

       1. (A) United States Department of Agriculture (USDA) Forest Service;
       2. (B) United States Department of Interior Geological Survey;
       3. (C) United States Department of Agriculture (USDA) Natural Resources Conservation Service (formerly the Soil Conservation Service);
       4. (D) Texas Forest Service; and
       5. (E) Texas colleges and universities.
   11. (11) These sources are mandatory and are described in subsection (f) of this section. The one exception to this requirement is discussed below in paragraph (18) of this subsection.
   12. (12) As noted earlier in subsection (c) of this section, the Property Tax Code, §6.12, requires chief appraisers to appoint an "agricultural appraisal advisory board." The function of this advisory board is to advise the chief appraiser on the use and valuation of timberland and agricultural land within the district. However, the board's advice on the appraisal of timberland does not take precedence over the law's requirements on data sources or the appraisal methodology set out in this subsection.
   13. (13) Before using data from any of these mandatory sources, chief appraisers should check with the relevant agency for updates. For example, the USDA Forest Service may periodically revise its published Texas timber survey numbers. The agency makes these revisions available to the Texas Forest Service. Chief appraisers should check with the Texas Forest Service for revisions to the Texas timber survey numbers before they use the survey data. In addition, chief appraisers should not use data from any of these sources in any manner different from that shown in this manual without first checking with the relevant agency to be sure they are using the data properly.
   14. (14) Texas has two timber regions: northeast and southeast. Figure 6: 34 TAC 9.4011(g) contains a map of east Texas counties showing the boundaries of the northeast and southeast timber regions. Chief appraisers must use regional data that correspond to their county's location when using USDA Forest Service survey data and Texas Forest Service price data. Although the USDA Forest Service reports its Texas survey data at the county level, this agency cautions that the county data are not reliable because of large sampling errors. In its 1992 survey of Texas timber, the USDA Forest Service used sampling methods designed to achieve reasonable sampling errors and reliable estimates at the state level. Future USDA Forest Service surveys of Texas timber may be designed to produce growth estimates that are reliable at the county level. If USDA Forest Service states that its data are reliable at the county level, the comptroller will work with appraisal districts and taxpayers to develop standards for use of county level growth data. The Texas Forest Service reports forest product price data at the region level but not at the county level.
   15. (15) The comptroller may revise this map if updated data become available. Chief appraisers will be notified if an updated map becomes available.

   16. (16) The Property Tax Code, §23.71, requires chief appraisers to estimate timber productivity values for three forest types and four soil types. Chief appraisers should begin the appraisal process by classifying the timberland within their districts according to forest type. There are three basic forest types in Texas: pine, hardwood and mixed. These are as follows.

       1. (A) Pine (and other softwood) timberland includes all forested areas in which the trees are predominately green throughout the year and do not lose their leaves. These trees are called evergreens. Forested areas where pine and other softwoods make up more than two-thirds of the trees free to grow are in this category.
       2. (B) Hardwood timberland includes all forested areas with a predominance of deciduous trees. These trees lose their leaves at the end of the frost-free season. Stands where hardwoods are more than two-thirds of the trees free to grow are in this category. Trees free to grow are those that are not covered by brush or other trees that prevent them from getting the sunlight necessary to grow.
       3. (C) Mixed timberland includes all forested areas where both evergreen and deciduous trees are growing and neither predominates. An area is classified as mixed when evergreen and deciduous trees each make up more than one-third of the trees.
   17. (17) The Texas Agricultural Experiment Station at Texas A&M University in College Station has developed maps of forest types for Texas timber counties. These maps are available upon request for a nominal fee to cover reproduction costs.
   18. (18) In addition, chief appraisers may use aerial photographs, forest type maps and soil class maps from any governmental source that is recognized as competent to determine soil type, soil capability, general topography, weather, location and any other pertinent factors necessary to classify commercial timberland by forest type and soil type. If the chief appraiser elects to use maps from a data source not listed in subsection (f) of this section, the chief appraiser should exercise great care to be certain that the maps are the most current and reliable maps available and that the data source of the maps is a competent governmental source.
   19. (19) The law requires chief appraisers to classify all timber-producing areas in their districts into four soil types. The chief appraiser should use data from the USDA Natural Resources Conservation Service (NRCS) soil surveys to develop soil type maps for his or her district. The NRCS does not publish soil type maps that the chief appraiser may use in appraising timberland. However, the Texas Agricultural Experiment Station at Texas A&M University has used the soil surveys to develop soil type maps for timberland within most timber-producing counties in Texas. These maps are available upon request for a nominal fee to cover reproduction costs. Before using soil type maps, chief appraisers should be certain that the data used to develop the maps are appropriate for classifying soil for timber appraisal purposes.
   20. (20) Where soil maps based on appropriate NRCS data are not available, or if the chief appraiser chooses to develop his or her own soil-type map, the chief appraiser may use NRCS detailed soil surveys, if available, to develop soil-type maps. These detailed soil surveys show the site index (discussed later in this section) for each specific soil. A soil-type map can be derived using this information.
   21. (21) The NRCS's soil classification system is based on the concept of site index. Site index is a measure of the productive capacity of a forest site based on the average height of the tallest trees on the site at an arbitrarily chosen age. For example, if the average height of the five tallest loblolly pine trees in a fully stocked stand at the age of 50 years is 75 feet, the site index for loblolly pine trees on that forest site is 75. The NRCS publishes site index information in its soil surveys of Texas counties.
   22. (22) The NRCS soil surveys provide site index information for all land capable of growing commercial trees within each county. The NRCS site index data must be grouped into types that are generally comparable to the USDA Forest Service site classes, and this information should then be used to generate soil type maps. This is necessary because the USDA Forest Service reports timber growth data by site class, which is also a measure of soil productivity. However, the USDA Forest Service growth data by site class cannot be mapped since they were derived from a sample of selected sites in Texas.

   23. (23) The USDA Forest Service classifies all commercial timberland into five site classes based on the land's potential capacity to grow commercial wood crops. Site class is a measure of timber growth in cubic feet per year. The USDA Forest Service determines site class by measuring the height of the three tallest trees at a particular site, and then selecting the tree providing the highest estimate of site class. The USDA Forest Service has defined these five site classes as follows:

       1. (A) land capable of producing more than 165 cubic feet per acre per year;
       2. (B) land capable of producing 120-165 cubic feet per acre per year;
       3. (C) land capable of producing 85-120 cubic feet per acre per year;
       4. (D) land capable of producing 50-85 cubic feet per acre per year; and
       5. (E) land capable of producing less than 50 cubic feet per acre year.
   24. (24) To comply with the law's requirement to use four soil types, chief appraisers must reduce these five site classes to four. The over 165 cubic feet site class should be combined with the 120-165 cubic feet site class to produce the mandatory four soil types, because this produces a classification scheme that works well with NRCS site index data discussed below. The site index data compiled by the Natural Resources Conservation Service show virtually no trees with a site index of 110 and above, which is the equivalent of site class 165 and above. Consequently, if the top two USDA Forest Service site classes were kept separate and the two lower site classes were combined, there would be no NRCS data for the "over 165 site class" in most of Texas. As explained below, the NRCS data are necessary to develop soil type maps. In this manual, this combined site class is called the over 120 cubic feet site class.
   25. (25) As noted earlier, the NRCS site index data must be grouped into ranges that are roughly comparable with USDA Forest Service's soil types. This grouping produces the following ranges: USDA Forest Service Site Classes: Over 120 cu. ft.; 85-120 cu. ft.; 50-84 cu. ft.; Under 50 cu. ft. USDA NRCS Site Index Range: Over 95 ft.; 80-95 ft.; 60-79 ft.; Under 60 ft.
   26. (26) Chief appraisers must use growth data from private timberland that is the most current and reliable data available from one of the sources required by law. (See subsection (f) of this section for a discussion of these sources.) At the time this manual was written, the most current and reliable growth data available was the 1992 survey of Texas timber conducted by the USDA Forest Service. When the USDA Forest Service revises the published data, it makes the revisions available to the Texas Forest Service for distribution upon request. Before using any of the Texas survey data, chief appraisers should check with either the USDA Forest Service, Southern Forest Experiment Station, Forest Inventory and Analysis Unit in Starkville, Mississippi, or the Texas Forest Service in College Station for revisions. Figure 7: 34 TAC 9.4011(g) contains summary growth data for private timberland from the 1992 Texas survey. These data, which were prepared by the Texas Forest Service, show the average annual growth of Texas timber during the 1986-1992 period. The Texas Forest Service, located in College Station, maintains Texas Forest survey data collected by the USDA Forest Service. This growth is expressed in terms of four forest products for each of three forest types and four site classes for each Texas timber region. Chief appraisers should use the data in Figure 7: 34 TAC 9.4011(g) to calculate the average annual growth per acre for each forest type expressed in terms of forest products.
   27. (27) The forest products are pine sawtimber, pine pulpwood, hardwood sawtimber and hardwood pulpwood, and the forest types are pine, mixed and hardwood. To avoid confusion, it is important to remember that pine forests--defined in subsection (e)(15)(A) of this section to be at least two-thirds evergreen trees--may produce both pine and hardwood forest products. Likewise, hardwood forests--defined to be at least two-thirds deciduous trees--may product both pine and hardwood products.
   28. (28) Figures 8-10: 34 TAC 9.4011(g) shows these calculations for northeast Texas region; Figures 11-13: 34 TAC 9.4011(g) shows comparable calculations for southeast Texas. All calculations are based on the data in Figure 7: 34 TAC 9.4011(g). Figures 8-10: 34 TAC 9.4011(g) shows the steps necessary to compute growth for an average acre of pine in northeast Texas. For pine sawtimber, for example (the forest product shown in the upper left-hand box), the chief appraiser should multiply the number of plots in each site class by the per acre growth for that site class. A "plot" is an area defined by the USDA Forest Service for its survey work. Multiplying 95 (number of plots) by 478.13 (average growth per acre in board feet) in site class "120+" produces 45,422.35, which is the estimated total growth for this site class. The result of each calculation for the four different site classes is added and this sum is divided by the total number of plots for all four site classes. The resulting number, 357.31 board feet, is the average annual amount of pine sawtimber grown on the average acre of pine in northeast Texas.
   29. (29) The computations necessary to calculate the average annual growth of the other forest products--pine pulpwood, hardwood sawtimber and hardwood pulpwood--are identical to those for pine sawtimber. Figure 8: 34 TAC 9.4011(g) shows that the average acre of pine forest in northeast Texas grows annually 357.31 board feet of pine sawtimber, 20.37 board feet of hardwood sawtimber, 28.54 cubic feet of pine pulpwood and 4.86 cubic feet of hardwood pulpwood.
   30. (30) The chief appraiser should use these same procedures to compute the average annual growth of an average acre of both mixed and hardwood forests in the rest of northeast Texas. Identical calculations should be used for all forest types in southeast Texas. Complete calculations for all forest types are shown in Figures 8-13: 34 TAC 9.4011(g) for northeast and southeast Texas. The results of the detailed calculations illustrated in Figures 8-13: 34 TAC 9.4011(g) are summarized in Figure 14: 34 TAC 9.4011(g).
   31. (31) As shown in Figures 7-14: 34 TAC 9.4011(g), the USDA Forest Service measures sawtimber growth estimates in the International 1/4 inch log rule and measures pulpwood growth estimates in cubic feet. (A "log rule" is a scale for measuring the amount of sawtimber that can be produced from a tree. There are dozens of recognized log rules in use in the United States, and each is based on various assumptions about tree taper, lumber shrinkage, cutting methods, and waste. The two log rules that are of interest to the chief appraiser are the International one-fourth inch--used by the USDA Forest Service--and the Doyle log rule, used by the Texas Forest Service.) The Texas Forest Service collects timber sales data bi-monthly from timber buyers and sellers; however, buyers and sellers report sawtimber transactions in the Doyle log rule and pulpwood transactions in cords. Consequently, the next step in the appraisal process is conversion of the growth estimates to the same scales in which forest product selling prices are reported.
   32. (32) The chief appraiser must use a log rule conversion table to develop factors to convert sawtimber growth from one log rule to another. Figures 15 and 16: 34 TAC 9.4011(g) contain factors for converting board feet from the International 1/4 inch log rule to the Doyle log rule for northeast Texas and southeast Texas, respectively. The individual conversion factors shown in the fifth column of these tables are for Texas timber. Chief appraisers should use these log rule conversion factors until subsequent log rule conversion factors are developed based on reliable and scientific data from sources listed in subsection (f) of this section and the factors are approved by the comptroller.
   33. (33) The first two columns in Figure 15: 34 TAC 9.4011(g) are from the 1992 USDA Forest Service survey and show timber volumes by tree diameter class in northeast Texas. The fourth column, titled percent of total volume, shows volume for each diameter class as a percent of total volume. At the top of Figure 15: 34 TAC 9.4011(g), for example, the reported volume for pine in diameter class 9-10.9 inches is 1,708.5 million board feet. The 1,708.5 million board feet is divided by total volume, 11,947.8 million board feet, to produce the percentage figure of 0.1430. The fifth column, titled conversion factor, is for Texas timber. The percentage and conversion factor for each diameter class are multiplied to produce the weighted contribution shown in the sixth column. Finally, these weighted contributions are added to produce the weighted conversion factor for pine in northeast Texas, which is 0.58817. The computations for the other conversion factors are identical. The timber volume data shown in both tables are for privately-owned timberland.
   34. (34) After calculating the weighted conversion factors for sawtimber as illustrated in Figures 15 and 16: 34 TAC 9.4011(g), chief appraisers should apply these conversion factors to the sawtimber growth estimates summarized in Figures 14: 34 TAC 9.4011(g). The results of these computations are shown in Figures 17 and 18: 34 TAC 9.4011(g). In northeast Texas, for example (Figure 17: 34 TAC 9.4011(g)), the chief appraiser should multiply 357.31 board feet of pine sawtimber in the International 1/4 inch log rule (from Figure 14: 34 TAC 9.4011(g)) by the weighted conversion factor of 0.58817 to get 210.16 board feet of pine sawtimber in the Doyle log rule. To convert the 210.16 board feet to thousand board feet, the chief appraiser should divide 210.16 by 1,000 to get 0.210. The computations for hardwood sawtimber are identical.
   35. (35) In addition, the pulpwood growth volumes shown in Figure 14: 34 TAC 9.4011(g) must be converted from cubic feet into cords because pulpwood prices are reported in cords. The chief appraiser should use the pulpwood conversion factors provided by the Texas Forest Service in its bi-monthly publication, Texas Timber Price Trends. In the September-October, 1994 edition of Texas Timber Price Trends, the suggested conversion factors for pine pulpwood and hardwood pulpwood are 81 and 80, respectively. The results of these calculations also are presented in Figures 17 and 18: 34 TAC 9.4011(g).

   36. (36) Figure 19: 34 TAC 9.4011(g) summarizes the annual average growth of an acre of timberland by forest type and forest product in both northeast and southeast Texas. Sawtimber growth is shown as thousand board feet (MBF) in the Doyle log rule, while pulpwood growth is shown as cords. As shown in this table, for example, the average annual growth of an acre of pine forest in northeast Texas is:

       1. (A) 0.210 MBF (thousand board feet) of pine sawtimber;
       2. (B) 0.013 MBF of hardwood sawtimber;
       3. (C) 0.35 cords of pine pulpwood; and
       4. (D) 0.06 cords of hardwood pulpwood.
   37. (37) To determine the average annual gross income from an acre of timber, the chief appraiser should multiply timber growth by its average annual price, or stumpage price. Stumpage price is the terminology used to indicate the price of uncut, marketable timber. Before doing this, however, the chief appraiser must calculate the average annual stumpage price of each of the four forest products for each year of the five-year period preceding the year of appraisal.
   38. (38) A readily available source of stumpage price data is the Texas Forest Service, located in College Station, Texas. The Texas Forest Service is also an official source of data for timber appraisal. This agency collects timber prices in its bi-monthly surveys of forest industries, consulting foresters, government agencies and large landowners and publishes selected summaries of price data in its publication Texas Timber Price Trends. The Texas Forest Service also provides summaries of average annual stumpage prices of various forest products by region for various years. It does not provide data at the county level. This publication reports selected price data for pine and hardwood sawtimber sales, pine and hardwood pulpwood sales and other miscellaneous sales. Unpublished annual summaries of price data at the regional level are available upon request.
   39. (39) The Texas Forest Service reports both unweighted average annual prices and weighted average annual prices for various forest products for both northeast and southeast Texas. These price reports are available upon request from the Texas Forest Service. Chief appraisers should compute a simple average of these two reported prices and use this simple average in their timber appraisals.
   40. (40) Figures 20 and 21: 34 TAC 9.4011(g) show how to calculate average annual stumpage prices for four forest products for each year of the 1990-1994 period. In northeast Texas, for example (Figure 20: 34 TAC 9.4011(g)), the average price for pine sawtimber in 1990 was $169.53 per thousand board feet (MBF); in 1991, $182.17 per MBF; in 1992, $241.52 per MBF, etc.

   41. (41) Chief appraisers should calculate the average annual potential gross income of timber growth using three steps. The steps in this calculation are:

       1. (A) compute average annual gross income;
       2. (B) calculate soil productivity multipliers; and
       3. (C) use soil productivity multipliers to adjust average annual gross income to potential gross income.
   42. (42) First, the chief appraiser should multiply the growth of each of the four timber products (from Figure 19: 34 TAC 9.4011(g)) by its respective price (from Figures 20 and 21: 34 TAC 9.4011(g)) for each year of the five-year period. Figures 22 and 23: 34 TAC 9.4011(g), show these calculations for northeast and southeast Texas, respectively. As shown in Figure 22: 34 TAC 9.4011(g), for example, the average annual gross income for an acre of pine forest in northeast Texas was $44.11 in 1990 and $91.93 in 1994. These numbers were computed by multiplying each forest product growth estimate by its respective price and then summing the products. Although the Property Tax Code, §23.51(4), allows the chief appraiser to include "any income received from hunting or recreational leases" in the computation of net income of qualified agricultural land, nothing in the Code's sections (23.71-23.79) governing timber appraisal allows inclusion of lease income in the computation of net income of qualified timberland.
   43. (43) Next, the chief appraiser must adjust these gross income estimates to reflect different soil productivities. To do this, the chief appraiser should develop productivity multipliers to adjust the average gross income. Productivity multipliers must be computed from statutory data sources that are current and reliable. (As noted earlier, subsection (f) of this section contains a listing of official data sources.) At the time this manual was written, USDA Forest Service data were the only current and reliable data available for developing soil productivity multipliers.

   44. (44) The USDA Forest Service data needed to compute productivity multipliers are:

       1. (A) the most recent forest survey data for Texas; and
       2. (B) data contained in the Boyce study, conducted by the USDA Forest Service.
   45. (45) The Boyce study, named after one of its authors, determined in 1975 the average annual maximum potential amount of timber that could be produced on an acre of loblolly pine east of the Mississippi River in each of four soil productivity classes. The soil productivity classes used in the Boyce study correspond to the soil classification scheme developed in paragraphs (19)-(25) of this subsection. Combining that soil classification scheme with the Boyce study productivity classes produces the following:
       Attached Graphic
       
   46. (46) The concepts of site quality class and site index range were discussed earlier. "Potential timber growth per acre per year" are the Boyce study estimates of the maximum potential growth of an acre of loblolly pine in each soil productivity class under ideal conditions.
   47. (47) Figures 24 and 25: 34 TAC 9.4011(g), show how to compute the average annual potential growth of an average acre. The top part of Figure 24: 34 TAC 9.4011(g) lists acres by site class for each county in northeast Texas. These data are from the 1992 USDA Forest Service survey of Texas. The bottom part of Figure 24: 34 TAC 9.4011(g) shows the results of multiplying the acreage in each site class in each county by the growth potentials developed in the Boyce study.
   48. (48) For example, the 15,300 acres in site class 165+ in Anderson County (Figure 24: 34 TAC 9.4011(g)) are multiplied by 163 (the growth potential for that site type). The result, shown in the lower half of the table, is 2,493,900 cubic feet. This calculation is carried out for all site classes in each county. The resulting products are added to produce 606,729,100 cubic feet, which is the estimated total potential growth of timberland in northeast Texas. This total estimated potential growth is divided by the total number of acres, 4,897,100, to generate an estimate of the average annual potential timber growth of an acre of timberland in northeast Texas of 123.9 cubic feet per acre per year. As noted earlier, "average annual potential growth" is not the same as "average annual actual growth."
   49. (49) Computations for southeast Texas are identical and are shown in Figure 25: 34 TAC 9.4011(g).
   50. (50) Figure 26: 34 TAC 9.4011(g), shows how to calculate soil productivity multipliers for the four productivity classes for northeast and southeast Texas. Chief appraisers should compute these productivity multipliers by dividing the growth potentials from the Boyce study by the growth potential for each region. To compute the productivity multiplier for productivity class II timberland in northeast Texas, for example, the chief appraiser should divide 123 by 123.9 to generate a productivity multiplier of 0.99. The chief appraiser should compute the productivity multiplier for class II timberland in southeast Texas by dividing 123 by 122.3, which yields a multiplier of 1.01.
   51. (51) Figures 27 and 28: 34 TAC 9.4011(g), show chief appraisers how to apply productivity multipliers to the average annual gross income estimates, which were developed in Figures 22 and 23: 34 TAC 9.4011(g). In northeast Texas in 1990, for example, the annual gross income of pine, $44.11, is multiplied by the productivity multiplier for each productivity class. This produces estimates of the average annual potential gross income of each productivity class in 1990.
   52. (52) It is important to remember that this "potential gross income" measure is not an estimate of the actual income an individual timber grower could receive from the sale of timber in a particular year. It is a measure of the value of a year's worth of possible growth in each timber category (forest type and soil productivity class) in the region.
   53. (53) Texas law defines timber production costs as reasonable management costs and other reasonable expenses directly attributable to producing timber. The costs of producing timber are expenses related to establishing, owning, protecting, maintaining, and improving timber. These costs may vary by forest type, soil productivity, management intensity and other factors.
   54. (54) Timber production costs include professional services, site preparation, tree planting and seeding, timber improvement, protection against fire, insects and diseases, prescribed burning, maintenance of property boundaries, road construction and maintenance, measurements of standing timber, selling costs, property taxes, equipment use, mileage traveled to/from property for timber management, personnel supervision and administration. Since many foresters may include several activities under one general classification, chief appraisers should understand the components of a particular timber management activity to avoid duplicating or omitting costs.
   55. (55) The cost model in Figure 37: 34 TAC 9.4011(h) lists timber management activities and a typical frequency for each activity. The chief appraiser should use this general cost model as a basis for developing a district-specific cost model that reflects typical activities for a prudent manager in the district. Chief appraisers may add or delete activities to this model so that it reflects management activities that are typical for their respective counties districts.
   56. (56) After determining typical management activities and the frequency of each activity in the district, the chief appraiser should estimate the average annual cost of each activity. Sources of cost data are the Texas Forest Service, landowners within the district, private contractors, consulting foresters, and departments of forestry in Texas colleges and universities. The chief appraiser must develop costs that reflect typical management activities and typical frequencies for a prudent manager in the district.
   57. (57) Chief appraisers may develop an average, per acre cost for all timberland or an average, per acre cost for each type forest type. In either case, chief appraisers must adjust these costs to reflect different management costs for each category of timber. This is done because timber on more productive land is often managed more intensively, resulting in higher costs per acre. Adjusting average annual costs per acre for soil productivity classes is analogous to adjusting average annual gross income per acre to soil productivity classes, as discussed in paragraphs (41)-(52) of this subsection.
   58. (58) Chief appraisers who develop one average cost for all timberland must adjust this cost to reflect both forest type and soil productivities. To accomplish this, chief appraisers may use the following cost proration factors developed by the Texas Agricultural Experiment Station:
       Attached Graphic
       
   59. (59) Figure 29: 34 TAC 9.4011(g) shows hypothetical costs for a hypothetical county in northeast Texas and in southeast Texas. The numbers in this table were created to illustrate the timber appraisal process, and chief appraisers should not use these numbers in their appraisals.
   60. (60) Figures 30 and 31: 34 TAC 9.4011(g) show the results of applying these cost proration factors to the hypothetical costs shown in Figure 29: 34 TAC 9.4011(g). The chief appraiser should note that these cost proration factors are applied to an average cost for all timberland. The proration factors adjust costs for both forest type and soil productivity class.
   61. (61) If chief appraisers develop an average cost for each forest type, they must adjust each of these costs to reflect the impact of different soil productivity classes. To accomplish that, chief appraisers may apply the relationships within soil classes above to make the adjustments. For example, assume that the chief appraiser determines that the average annual management cost of hardwood is $8.00 and that most of the hardwood in the district in soil class II. This $8.00 figure becomes the management cost for hardwood soil class II. The management cost for hardwood soil class I would be $8.00 x 1.25, or $10.00. The 1.25 factor is derived by taking the relationship from the factors for hardwood in Figure 5 of paragraph (58) of this subsection, which is 0.75/0.60 = 1.25.
   62. (62) The management cost for hardwood soil class III would be $8.00 x 0.75, or $6.00. The 0.75 is the quotient of 0.45 divided by 0.60. The proration factor for hardwood soil class IV would be 0.30/0.60 = 0.50 and the management cost would be $8.00 x 0.50 = $4.00.
   63. (63) To calculate the average annual net income per acre for each timber type and soil productivity class, the chief appraiser must subtract the average annual cost per acre from the average annual potential gross income per acre. This calculation must be performed for each forest type and soil productivity class. The results are the average annual net income per acre by forest type and soil productivity class. Figures 32 and 33: 34 TAC 9.4011(g) show these computations for hypothetical counties in northeast and southeast Texas, respectively.
   64. (64) To complete the timber appraisal process, chief appraisers must develop an average net income for each forest type and soil productivity class for the prior five years of average annual net incomes, capitalize this average net income and apply these productivity values to the timber acreage in their appraisal districts. Figure 34: 34 TAC 9.4011(g) shows how to perform these calculations for hypothetical appraisal districts in both northeast and southeast Texas.
   65. (65) The productivity value of an acre of timberland is determined by dividing the average net income per acre for each forest type and productivity class by the capitalization rate mandated by the Property Tax Code, §23.74. The law sets the capitalization rate at the interest rate specified by the Farm Credit Bank of Texas or its successor on December 31 of the preceding year, plus 2-1/2 percentage points. Chief appraisers also may contact the comptroller's property tax division to find out the current year's capitalization rate.
   66. (66) Figure 34: 34 TAC 9.4011(g) shows the results of dividing the net income per acre by a capitalization rate of 10.75%. For example, in northeast Texas, pine forest, soil productivity class I, the chief appraiser would divide $66.30, the net income per acre, by 0.1075, the capitalization rate, to get $616.74, the productivity value of the average acre of pine forest in soil productivity class I in northeast Texas. In southeast Texas, the chief appraiser would divide $53.38 per acre by 0.1075 to get $496.56, the productivity value of the average acre of pine in soil productivity class I. The chief appraiser should perform these calculations for each forest type and each soil productivity class in the appraisal district.
   67. (67) The chief appraiser should apply the per acre values developed in paragraphs (64) and (65) of this subsection to the respective acreages of each parcel of qualified timberland in each forest type and soil productivity class in each taxing jurisdiction. Figures 35 and 36: 34 TAC 9.4011(g) show how to do this calculation for hypothetical counties in both Northeast and Southeast Texas, respectively.
   68. (68) In determining the forest type and soil productivity class of qualified timberland in the district, the chief appraiser should use maps from one or more of the five official sources listed in subsection (f) of this section. As noted earlier in paragraphs (16)-(18) of this subsection, chief appraisers may use aerial photographs, forest type maps and soil class maps from any governmental source that is recognized as competent to determine soil type, soil capability, general topography, weather, location and any other pertinent factors necessary to classify commercial timberland by forest type and soil type. If the chief appraiser elects to use maps for classifying timberland within his or her district from a data source not listed in subsection (f) of this section, the chief appraiser should exercise great care to be certain that the maps are the most current and reliable maps available and that the source of the maps is a competent governmental source.

6. (f) Data sources for the chief appraiser.

   1. (1) Chief appraisers are solely responsible for determining timber productivity values within their respective appraisal districts. To do so, they must obtain information on forest types, soil types, timber growth and forest product prices from sources listed in the Property Tax Code. While the following sources provide information on which to base determinations, the chief appraiser bears ultimate responsibility for determining timberland productivity value.
   2. (2) United States Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS). The NRCS is the federal agency charged with inventorying and classifying the nation's soils. This agency has detailed soil surveys of Texas timber-producing counties which show the potential productivity and site index of common trees in each soil series that is suitable for growing commercial trees. This information may be used to generate soil productivity maps.
   3. (3) United States Department of Agriculture Forest Service. The USDA Forest Service is a branch of the United States Department of Agriculture. This agency collects voluminous information about average timber growth and forest characteristics in east Texas timber counties as part of its surveys of east Texas timber. The USDA Forest Service publishes the results of these surveys and makes much of the collected data available to the Texas Forest Service.
   4. (4) United States Department of Interior Geological Survey. The United States Geological Survey periodically publishes land use/land cover maps, which classify forest types in a format useful for timberland appraisal. The agency has negatives of panchromatic (showing all colors in the visible color spectrum) aerial photographs and positive transparencies of color-infrared aerial photographs.
   5. (5) Texas Forest Service (TFS). The Texas Forest Service (TFS) is a state agency and has branch offices throughout the state's timber region. TFS foresters help timber growers prepare management plans, giving priority to those with long-term timber production goals who are interested in using approved management practices, including cost-sharing. TFS headquarters are located in College Station, where the agency publishes a bi-monthly report of timber stumpage prices, called Texas Timber Price Trends. In addition, TFS publishes an annual report of timber harvests called Harvest Trends. This publication shows harvest information for each product and for each timber-producing county in Texas. Finally, the TFS has data about timber growth that the agency develops in cooperation with the United States Department of Agriculture Forest Service.
   6. (6) Universities and colleges. The College of Forestry at Stephen F. Austin State University in Nacogdoches, the Department of Forest Science at Texas A&M University in College Station and other Texas colleges of forestry and universities with forest science departments often have research-based information unavailable from other sources. For example, personnel at the Texas Agricultural Experiment Station at Texas A&M University have developed forest type maps and soil productivity maps using United States Geological Survey maps and USDA Natural Resources Conservation Service data, respectively. These maps are available upon request for a nominal fee to cover reproduction costs.
7. (g) Appendix A contains Figures 6-22 which are referred to in this section. (A map and Tables 1-16B).
   Attached Graphic
   
8. (h) Appendix B contains Figure 37 (Timber Cost Model).
   Attached Graphic
   

Source Note:The provisions of this §9.4011 adopted to be effective May 9, 1983, 8 TexReg 1410; transferred effective November 26, 1991, as published in the Texas Register September 18, 1992, 17 TexReg 6481; amended to be effective August 6, 1996, 21 TexReg 7046.