Firm: Ax the tax bill

Plum Creek says measure would harm the company

HELENA - Plum Creek Timber Co. representatives are roaming the halls of the Capitol this week with anxiety about legislation that would change the Montana tax code to extract an estimated $20 million from Real Estate Investment Trusts next year alone.

Plum Creek is a Real Estate Investment Trust. Wal-Mart and Rimrock Mall are other primary Real Estate Investment Trusts in Montana.

But Plum Creek is the largest in the state, owning more than 1 million acres of forest lands.

The Montana Department of Revenue, the Schweitzer administration and Democratic legislators contend that such trusts enjoy a "significant advantage" through a tax loophole that excuses them from part of the state's corporate income tax.

Plum Creek's leadership - and its lobbyists - reject the loophole characterizations. They say Democrats simply are advancing a new tax that mainly is targeted at the company.

"It's sizable," said Tom Ray, general manager for the company's northwest region. "It would have an impact on the business … we're in a competitive business, and it's a tough timber market."

A recent report on economic impacts of Plum Creek found that 1,187 employees in Flathead County alone earned labor income of $81.6 million in 2006, accounting for about 16 percent of the county's economic base.

Statewide, the company's 1,400 employees had labor earnings of $97.8 million.

Hal Harper, the governor's chief of staff, explained that House Bill 833 includes several provisions aimed at closing loopholes that allow out-of-state corporations and individuals to "escape taxes."

"We just don't think they should have tax advantages over other Montana corporations, and Plum Creek fits into this group," Harper said.

"It defies common sense that not paying corporate income tax when all other corporations have to pay is not a significant advantage," the Revenue Department declares in materials supporting the legislation.

But Plum Creek refutes that position, saying that as an REIT, it has obligations that other corporations do not. Most significantly, as a publicly traded REIT, it is required to return 90 percent of its earnings to investors in dividends, while other corporations do not. The firm has to pay corporate taxes on the remaining 10 percent.

In 2004, Plum Creek paid $3.3 million in payroll taxes, $3.7 million in property taxes and $1.9 million in corporate income tax in Montana. Plum Creek officials say the bill's backers unfairly try to make it seem as if the firm doesn't pay taxes.

The Revenue Department maintains that other states have pursued similar legislation, but Plum Creek's backers say the proposed legislation would set Montana apart from all other states except New Hampshire.

Harper said the legislation is being pursued for other reasons.

"There's another thing going on here, and we all know it, that Plum Creek is selling off their lands," he said.

Since 2000, Plum Creek sold 113,000 acres of its 1.3 million acres in Montana to nontimberland buyers. Of this amount, 71 percent was sold for conservation. An additional 80,000 acres was sold to Stimson Lumber Co.

The land sales have raised concerns across Western Montana about lost access to public lands, and the impacts on local governments that come up as subdivisions are developed on former Plum Creek lands.

Rep. Mike Jopek, D-Whitefish, noted that Plum Creek timberlands that are advertised for sale, with potential for residential development, are taxed as timberlands at just about $1 an acre.

He and Harper said that HB 833 includes business-equipment tax cuts, homeowner and renter tax credits and other forms of "permanent" tax cuts - costs that basically would be covered by the increased revenue from closing loopholes.

Rep. Jon Sonju, R-Kalispell, said those provisions are simply "bait" for legislators to support a bill with harmful elements, such as the REIT provision.

"It's a bill that looks good on the outside, but you crack that egg open and it's rotten and it stinks," said Sonju, who is vice chairman of the House Taxation Committee.

Sonju questions why there are any proposals to raise additional tax revenue when legislators are figuring out how to divvy up excess revenue collections of more than $1 billion.

"With over a $1 billion surplus, why are we penalizing business more? Let's take a step back," he said.

Yet to be decided is whether the REIT provision proposed by Democrats will, in the end, be considered a piece in the budgetary jigsaw puzzle that legislative leaders are negotiating as the session draws toward a close Friday.

Sonju said he has urged Speaker of the House Scott Sales to keep HB 833 off the agenda. The business-equipment tax reductions and other worthwhile provisions in the bill can be added to other legislation that is advancing through the process, he said.

Mark Baker, a lobbyist for Plum Creek, said there is concern that if HB 833 is stalled, the tax provision still could be added to other legislation, perhaps through a line-item amendment from the governor.

For that reason, Plum Creek's representatives expect to be around the Capitol until the matter finally is decided.

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com