An Act To Establish a Penalty on Gains from the Sale or Exchange of Land from Which Timber Has Been Harvested
Maine Legislature, Session 121, LD 0920
Committee: Taxation
Sponsors: KOFFMAN, DAGGETT, BULL, GERZOFSKY, SA VIELLO, SIMPSON, SUSLOVIC, THOMPSON, DAMON, EDMONDS
Amends: 36 MRSA §941

Legislative Document 
No. 920 
H.P.677 
House of Representatives, February 20, 2003 
An Act To Establish a Penalty on Gains from the Sale or Exchange 
of Land from Which Timber Has Been Harvested 
Reference to the Committee on Taxation suggested and ordered printed. 
Presented by Representative KOFFMAN of Bar Harbor. 
Cosponsored by President DAGGETT of Kennebec and 
77/~/J7.~ 
MILLICENT M. MacFARLAND 
Clerk 
Representatives: BULL of Freeport, GERZOFSKY of Brunswick, SA VIELLO of Wilton, 
SIMPSON of Auburn, SUSLOVIC of Portland, THOMPSON of China, Senators: DAMON of 
Hancock, EDMONDS of Cumberland. 
Printed on recycled paper 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1. 36 MRSA c. 105, sub-c. 2-e is enacted to read: 
SUBCHAPTER 2-C 
PENALTY ON GAINS FROM THE SALE OR EXCBAHGE 
OF LAND FOR TIMBER HARVESTING 
§595. 
Definitions 
As used in this subchapter, unless the context otherwise 
indicates, the following terms have the following meanings. 
1. 
Land 
for 
timber 
harvesting. 
"Land 
for 
timber 
harvesting" means all land, whether or not improved, greater than 
acres. 
"Land for timber harvesting" also means timber or 
rights to timber on land greater than 100 acres when that timber 
or those timber rights are sold within 10 years of purchase, 
provided the underlying land is also sold within 10 years. 
2. 
Sale or exchange. 
"Sale or exchange" means any transfer 
of title to land for a consideration. 
3. Title. 
"Title" means interest in property that endures 
for an unlimited period of time, including, but not limited to, 
an estate in fee simple, a life estate, a perpetual leasehold and 
a perpetual easement, except as modified or enlarged by explicit 
provisions of this subchapter and as limited in this subchapter 
to land for timber harvesting. 
The transfer of an option for the 
sale or exchange of land for timber harvesting is considered a 
transfer of title to land for timber harvesting for the purposes 
of this subchapter. 
4. 
Transfer. 
"Transfer" means 
a 
grant, 
assignment, 
conveyance, will, trust, decree of court or any other means of 
transferring title to property or vesting title to property in 
any person. 
5. 
Underlying land. 
"Underlying land" means the land for 
timber harvesting from which timber or timber rights have been 
separated. 
§596. 
Penalty imposed 
1. 
Penalty imposed. 
There is imposed, in addition to all 
other taxes imposed by this Title, a penalty on gains from the 
sale or exchange of land for timber harvesting. 
Page l-LR1225(1) 
} 
The penalty imposed by this section is based upon the years the 
land was held by the transferor at the following rates on the 
gain, as gain is determined under section 599. 
YEARS LAND HELD BY 
TRANSFEROR 
Less than one year 
At least one year, but less 
At least 3 years, but less 
At least 5 years, but less 
At least 7 years, but less 
GAINS, AS A PERCENTAGE 
OF BASIS 
200'\. or 
0-99'\. 
100-199'\. more 
60'\. 
70'\. 
80'\. 
than 3 
47.5'\. 
55'\. 
65'\. 
than 5 
35'\. 
40'\. 
50'\. 
than 7 
22.5'\. 
25'\. 
35'\. 
than 10 
10'\. 
l5'\. 
20'\. 
2. 
Exemption. 
When an exemption from the penalty imposed 
under subsection 1 is provided in the case of a purchase of land 
for the use of a dwelling used by the taxpayer as that taxpayer's 
principal residence, the land need not have been purchased at the 
same time as the dwelling to qualify for that exemption. 
§597. 
Sale: exchange of land 
A contract for the sale of land constitutes a sale or 
exchange of land for all purposes of this subchapter. 
A contract 
does not constitute a sale or exchange until some consideration 
has passed to or for the benefit of the seller or exchanger. 
The 
sale or exchange is considered to take place at the time any 
consideration first passes under the contract. 
A mere promise to 
purchase and amounts paid as earnest money or amounts paid in 
deposit or amounts paid in escrow to which the seller has no 
immediate right do not constitute the passing of consideration 
for the purposes of this subchapter. 
Any sale or exchange of shares in a corporation or other 
entity or of comparable rights or property interests in any other 
form of organization or legal entity that effectively entitles 
the purchaser to the use or occupancy of land constitutes a sale 
or exchange of land. 
§598. 
Dwelling on land for timber harvesting 
If, at the time of transfer, there is not on the land for 
timber harvesting a dwelling completed and fit for occupancy as 
the 
purchaser's 
principal 
residence, 
the 
residence 
must 
be 
completed and occupied within 2 years of the date of transfer or 
the penalty imposed by this subchapter becomes due and payable. 
§599. 
Basis: gain: holding period 
1. 
Basis of land sold or exchanged. 
The provlslons of the 
Code determine the basis of land sold or exchanged. 
2. 
Consideration. 
The amount realized from the sale or 
exchange is the full actual consideration paid or to be paid, 
including the amount of any liens or encumbrances on the land not 
removed by the sale or exchange. 
The amount realized from the 
sale or exchange is the gross amount reduced by any expenses of 
sale and commissions. 
If a sale includes land and buildings or 
other structures, the amount realized must be allocated between 
the land and the buildings or other structures on the basis of 
fair market value. 
3. 
Gain subject to penalty. 
The gain subject to penalty 
from the sale or exchange of land for timber harvesting is the 
amount realized from the sale or exchange of land, including the 
amount realized from the sale of timber or timber rights, minus 
the basis of the land as determined under subsection 1. 
The penalty on the gain under this subchapter from the sale or 
exchange of land for timber harvesting may not be reduced by any 
losses incurred in other transactions. 
4. 
Holding period. 
The land for timber harvesting sold or 
exchanged is deemed to have been held as determined under the 
Code. 
If a person's holding period is claimed by the seller or 
exchanger, the holding period may not exceed the time that that 
person had actual and recorded title to the land in that person's 
name 
and includes the time the land was held prior to the 
effective date of this subchapter. 
If a husband and wife are 
tenants by the entirety there may be added to the holding period 
the amount of time the land was held by one spouse alone before 
that spouse created the tenancy by the entirety. 
Notwithstanding 
any other provision to the contrary under the Code, if a tenancy 
by the entirety is dissolved by reason of death or divorce, the 
holding period during the tenancy by the entirety is added to the 
holding period of the spouse subsequently owning the property in 
the spouse's own name. 
For the purposes of this subsection, land 
devised to or inherited by a surviving spouse or land awarded to 
a spouse upon dissolution of marriage is treated as though it was 
held by husband and wife as tenants by the entirety. 
If the land 
is a gift, the holding period of the donee must include the time 
that actual and recorded title was held by the donor. 
Notwithstanding any other provisions of this subsection, land 
acquired from a decedent or an estate or sold by an estate has a 
holding period commencing as of the date of death of the decedent 
and its basis is the fair market value of the property as of the 
date of death of the decedent or alternative valuation date as 
finally determined under the Code for the federal estate tax. 
§600. 
Liability for penalty 
1. 
Person liable for penalty. 
The person liable for the 
penalty imposed on gain from the sale or exchange of land for 
timber harvesting is the transferor, which includes the owner, 
seller or other exchanger of the land for timber harvesting sold 
or exchanged. 
Notwithstanding section 598, the person acquiring 
the land for timber harvesting shall certify to the State Tax 
Assessor that the building will begin within one year of the date 
of purchase and will be completed within 2 years from the date of 
purchase and the land will be sold within 3 years from the date 
of purchase to a person who will use the building as a principal 
residence. 
If the conditions set forth in this subsection are 
not met, the penalty that is due from the seller must be paid by 
the buyer. 
2. 
Underlying land. 
Notwithstanding any other provision of 
this section, when underlying land is sold separately from timber 
or rights to timber purchased with the underlying land and both 
sales occur within 10 years of the purchase, the gain on the sale 
of the timber and timber rights must be combined with the gain or 
loss on the sale of the underlying land to determine the penalty 
imposed on gain from the sale or exchange of land for timber 
harvesting. If the sale of the underlying land occurs before the 
timber or timber rights are sold, the holding period used to 
calculate the penalty is the holding period of the underlying 
land. 
This subsection applies only when one or more transactions 
within 10 years by the same transferor involve underlying land 
that is or was part or all of a tract of more than 100 acres of 
contiguous land owned by the same transferor at any time during 
the holding period. 
Transferors owned or controlled directly or 
indirectly by the same interests are deemed to be the same 
transferor for purposes of this subsection. 
§600-A. 
Kithholding; payment 
1. 
Consideration withheld. 
The buyer or transferee of any 
land for timber harvesting held by the seller or transferor for 
less than 10 years shall withhold 
10~ of all consideration paid 
to the seller or transferor for the land, including 10~ of all 
partial payments made pursuant to installment sales under section 
600-B. 
At the time any payment is made to the seller or 
transferor, the amounts withheld must be remitted to the State 
Tax Assessor. 
2. 
Return; file. 
Within 30 days of the sale or exchange of 
land for which withholding is required under this section, the 
seller or transferor shall file a 
return with the State Tax 
Assessor setting forth the amount of the penalty due pursuant to 
section 596 and the amount withheld by the buyer or transferee 
pursuant to subsection 1. 
The seller shall either remit with the 
return the balance of the penalty due or make claim for a 
refund. 
Any refund not made by the State Tax Assessor within 15 
days of receipt of a valid claim accrues interest at the rate of 
1/2 of I'\, per month. 
For good cause shown and upon conditions 
set by the State Tax Assessor. the State Tax Assessor may extend 
the time for filing the return and paying the penalty required by 
this subchapter. 
3. 
Prepayment; no penalty due. 
Notwithstanding either 
subsection 1 or 2. the seller or transferor may. in advance of 
the sale or exchange. pay the penalty imposed by this subchapter 
or obtain a written ruling from the State Tax Assessor that no 
penalty is due under this subchapter. 
In either case. the State 
Tax Assessor shall certify to the seller or transferor that the 
payment has been made or that no penalty is due. 
Upon receipt by 
the buyer or transferee of the certification from the seller or 
transferor. the buyer or transferee is not required to withhold 
under subsection 1. 
4. 
Personal debt. 
The penalty required to be paid or 
withheld under this subchapter constitutes a personal debt of the 
person liable to payor withhold the same to this State to be 
recovered in an action under this subchapter. 
5. Suit. 
An action may be brought to recover the amount of 
the penalty to be paid or withheld in the manner prescribed for 
recovering amounts owed for taxes under section 941. 
The amount 
of the penalty to be paid or withheld is a lien in favor of this 
State upon all property and rights of property. whether real or 
personal. belonging to the person liable for the penalty or for 
the withholding. 
The lien must be enforced in the manner 
prescribed by subchapter 9. article 2. 
§600-B. 
Installment sale 
1. 
Installment sale. 
For the purposes of this section. 
"installment sale" means sale or exchange of land for timber 
harvesting for which the total penalty due under this subchapter 
is greater than $2.000 and in which the parties agree in advance 
that payments must be received by the seller or transferor in 
more than one installment on a date or dates other than the date 
of closing. 
A sale financed by a mortgage. deed of trust or 
other financing arrangement in which the seller or transferor is 
paid in full 
on the date of 
the 
sale or 
eXChange is not 
considered an installment sale. 
A lease-purchase agreement under 
which 
any 
part 
of 
the 
rental 
II. 
f 
J 
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payments constitute a portion of the purchase price of the land 
is considered an installment sale, and for the purposes of this 
subchapter the end of the holding period with respect to the sale 
or exchange must be determined as of the date of the agreement. 
2. 
Installment payment: due date. 
Notwithstanding any 
provision of 
law to the contrary, 
the penalty under this 
subchapter on any installment sale is due within 30 days of the 
date of payment of each installment paid to the seller or 
transferor. 
Except for the first installment, the seller or 
transferor may elect to file a return as part of the seller's or 
transferor's 
Maine 
income 
tax return for 
any year in which 
subseguent installments are paid or due and to pay the balance of 
the penalty as part of the seller's or transferor's Maine income 
tax, except that. if the seller or transferor elects to file 
annual returns, interest may not accrue on any withholding as 
provided by section 600-A, subsection 1. 
3. Penalty on installment payment. 
In an installment sale, 
the total amount of the penalty due under this subchapter is the 
amount that would have been due had the total purchase price been 
paid on the date the sale or exchange took place. 
The amount of 
the penalty due on each separate installment, including the first 
installment, must bear the same proportion to the total amount of 
the penalty due as the amount of that installment bears to the 
total consideration. 
§600-C. 
Administration of penalty 
1. 
Administration: enforcement. 
The State Tax Assessor 
shall administer and enforce this subchapter and this penalty. 
The State Tax Assessor may issue, amend and withdraw from time to 
time 
reasonable rules to assist in the administration and 
enforcement. 
Rules adopted pursuant to this section are routine 
technical rules pursuant to Title 5, chapter 315, subchapter 2-A. 
2. 
Administrative provisions. 
All the administrative 
prov1s1ons 
of 
chapter 
835, 
including those 
relating to 
the 
collection and enforcement by the State Tax Assessor of the 
withholding tax and the income tax apply to the penalty imposed 
by this subchapter. 
§600-D. 
Sanctions 
1. 
Fine: imprisonment. 
A person who willfully attempts to 
evade the penalty imposed by this subchapter may be imprisoned 
for not more than one year or fined not more than $10,000 or 5 
times the amount of the penalty the person attempted to evade, 
whichever is greater, or may be both imprisoned and fined. 
Any 
officer, employee, director, trustee or other responsible person 
of a corporation or other taxable entity, and any other person 
who 
counsels, 
aids, 
abets, 
participates in or conceals 
the 
attempted evasion of the penalty, is subject to the sanctions of 
this subsection. 
2. 
Form. 
The State Tax Assessor shall create and provide 
forms for the payment of the penalty under this subchapter. 
The 
form for the payment of the penalty under this subchapter must 
state in large type the sanctions provided by this section. 
Sec. 2. 36 MRSA §941, first 'II is amended to read: 
The lien on real estate created by section 552 or 600-A may 
be enforced in the following manner. 
SUMMARY 
The purpose of this bill is to create a penalty on gains 
from the sale or exchange of land for timber harvesting. 
The 
bill establishes a graduated penalty that declines over a 10-year 
period and is related to the amount of gain as a percentage of 
the cost basis. 
The penalty applies to parcels greater than 100 
acres. 
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