Taxes
As a landowner, you pay a property tax to the town or the state if you are in an unorganized territory. The rate you pay is determined by the town you live in. The rate usually equals the town budget divided by the total property value in the town. This rate is multiplied by the assessed value of your property to determine your property tax. The assessed value is based on what the property would probably sell for. Usually this assessed value is much higher than the value of timber on the land because it is based on the property's highest and best use. Highest and best use is the use of the property that would create the largest selling price. This use is usually development.
Those woodland owners that do not want their forest developed, are taxed as if they do. For these landowners, Maine has a Tree Growth Tax rate. This tax rate is based on the ability of your woodland to grow timber. It is usually much lower than the "highest and best use" property tax. Please go to the Tree Growth Tax Page for more information. A similar tax is the Farm and Open Space Tax. Please go to the Farm and Open Space Tax Page for more information.
If you and your spouse receive over $600,000 each ($1,200,000 total) from an inheritance, you will have to pay a 35% federal estate tax. The estate pays the tax. Maine has no state estate tax. If most of the inheritance is in woodland, this tax may force you to sell some of the land, or harvest it, to pay the taxes. Oftentimes, this results in undesirable liquidation of the property. There are ways to avoid this tax and its problems. A conservation easement will reduce the value of the inherited property; perhaps enough to avoid taxation altogether. SWOAM (Small Woodland Owners Association of Maine) offers such an easement program. If you are worried about the taxation and integrity of your woodland upon your passing, you should consult an accountant or lawyer to plan ahead. Keep in mind that you can give up to $10,000 of your property each year; tax free. If you have three children, you can give each one $10,000 of your woodland each year. Once a gift is above $10,000; a gift tax is levied upon the donor of the gift.
Once every 10 years you can receive a state income tax credit for up to $200 of the cost of a forest management plan prepared by a licensed forester. The parcel in consideration must have over 10 acres of commercial woodland. To qualify, you must attach a document to your state income tax form stating the cost of the plan, and it must have the signature of the forester who wrote the plan. This credit cannot decrease your state income tax to less than $0. If you deducted to cost of hiring a forester, you cannot use that cost as part of the credit (Field 1994).
If you own greater than 500 acres used for commercial forestry, the state charges you an annual excise tax. Commercial forestry means growing trees for commercial use. The tax rate is recalculated annually and is based on State forest fire control costs. The tax is used to support these costs. The State will send you the tax return to fill out if you fall in this ownership category (Field 1994).
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