But businesses pay property taxes on personal property such as office and manufacturing equipment. The problem arises from failure to distinguish between the value of a capital investment, such as a factory, and income derived from that investment. Income is derived from crops produced by them. Invest in bean plants, nut trees or wine grapevines, and income derives from selling beans, nuts and grapes, respectively. The net revenue from selling crops is taxed as income, not property.
Income is generated and taxed when the trees are harvested.
The Tax Expenditure Report errs in two ways in its treatment of timber and forestland. Most of that value is attributable to many years of accumulated wood growth that will be subject to income tax when harvested. This small portion is the amount that would be subject to property tax if not exempted. A second error occurs because the report ignores privilege tax revenues generated when timber is harvested. The privilege tax is a deferred property tax on forestland paid at the time of harvest.