Changes to an estate tax exemption for Oregon forestland owners will be voted on by the Senate after existing record-keeping requirements have proven troublesome.

In 2023, lawmakers approved a bill exempting up to $15 million worth of a family’s natural resource assets from the estate tax.

The bipartisan legislation was praised for simplifying Oregon’s inheritance tax provisions for farming, timber and fishing families, but small woodland owners have since run into problems with the documentation involved.

“We discovered it really didn’t work for them because of the criteria for the management activities on their lands,” said Sen. David Brock Smith, R-Port Orford, who introduced Senate Bill 485 this year to correct the issue.

Management required

To qualify for the existing exemption, property owners must “materially participate” in management activities for at least 75% of the days in the five years before their deaths.

Their descendants must also materially participate in management activities for at least 75% of the days in the five years after inheriting the property.

“The purpose of that was to make sure the land really was family land,” said Nicole Mann, lobbyist for the Oregon Small Woodlands Association. “That was to make sure that you weren’t having out-of-state investors or big corporations finding a loophole to get this exemption.”

These requirements align with the activities of farmers and ranchers, who must frequently move irrigation lines or feed livestock, she said.

However, timber properties do not necessarily require as much day-to-day involvement once forest stands have been established, according to SB 485’s proponents.

“We may actively manage when we harvest and reforest, but after five to 10 years, the need for daily or even monthly inputs is no longer necessary,” said Dan Newton, a Douglas County forestland owner who supports the proposal.

The bill would alter the management requirements for forestland owners with fewer than 5,000 acres to reflect the different pace and time frame for growing trees.

Specifically, owners and their descendants would not be subject to provisions specifying the percentage of days they must be materially involved in the operation.

Instead, they would more broadly be required to document “appropriate or customary silvicultural or management activities given the current phase in the forest management cycle” for five years before and after the owner’s death.

“Managing a forest for many decades is a much different process than tending to crops and livestock daily. That does not mean we’re not actively managing our forests,” said Gordon Culbertson, president of the Oregon Small Woodlands Association. “It does not make sense for small woodland owners to track their daily management inputs.”

Supporters of SB 485 say these revisions will make the exemption work as intended, protecting forestland-owning families from having to sell property or harvest trees to pay the estate tax.

“This will be a crucial step to ensure family forests thrive for generations and help keep our forests as forests,” Culbertson said.

The proposal was recently unanimously approved by the Senate Finance and Revenue Committee, which has referred it to a Senate floor vote scheduled for May 20.

Exemption under fire

The committee did not receive any testimony opposing the bill, though the underlying estate tax exemption did come under fire for reducing state revenues by an estimated $15.5 million per biennium.

Critics also complained that requiring property owners and their descendants to spend at least 75% of their days materially involved in operations will be difficult to regulate and enforce, potentially spurring litigation.

Though the exemption applies to $15 million worth of natural resource assets, it does not cap the total amount of inherited assets, which critics claimed will benefit “very wealthy” families with diversified holdings and only minimal involvement in farming or forestry.

The exemption “represents a tax shift from the rest of us to an aristocracy,” according to Tax Fairness Oregon, an organization that supports tax reform to reduce income inequality.

“It would open a loophole for billionaires to exploit an exemption in the estate tax intended for family farms,” the group said.