Legislature mulls new tax on Plum Creek

HELENA - Plum Creek Timber Co. officials were nervously watching Friday as the Legislature considered tax policy with deep implications for Montana's largest private timberland owner.

A bill sponsored by Sen. Jim Elliott, D-Trout Creek, targets Real Estate Investment Trusts, and Plum Creek happens to be the state's largest REIT. Elliott introduced similar legislation during the regular session, but the latest version is more obviously aimed at Plum Creek.

The new version ties new revenue from a capital gains tax on all REIT revenue to a new education trust that would effectively serve as a "rainy day" fund. That move brought education advocates into the picture, with several union officials testifying in favor of the legislation at a hearing Thursday night.

Plum Creek representatives predictably testified against it, including Hank Ricklefs, the company's vice president for northern resources and manufacturing.

Ricklefs pointed out how Plum Creek differs from other Montana REITs, such as one that owns the Rimrock Mall in Billings and isn't in the business of selling land like the Plum Creek REIT.

"Since most REITs have very little capital gains, this must make the legislation seem smaller, less onerous, and thus more acceptable, right?" Ricklefs posed to the committee. "Certainly not if you are Plum Creek, whose Montana REIT income is virtually 100 percent capital gains … let's make no mistake that is virtually a one-company bill."

Ricklefs also suspiciously referred to a provision in the bill that would allow Plum Creek to donate land in lieu of paying the new tax.

"It may just be that this proposed REIT capital gains tax is really about the state of Montana wanting an ability to purchase selected Plum Creek lands," he said. "If so, be assured that we have told the governor we will work with the state in a cooperative and reasonable manner, as long as that treatment is reciprocal. A new targeted tax truly does not help this process."

Elliott explained that the bill is aimed at collecting taxes that eight companies out of 40,000 in Montana do not have to pay.

Plum Creek does not pay income taxes on 90 percent of the capital gains from land and timber sales. But the company must, unlike other companies, distribute 90 percent of those profits to shareholders in the form of dividends.

Elliott maintains that the vast majority of Plum Creek investors live outside Montana, paying capitol gains taxes to other states. And that, he says, is contrary to a prime principle in taxation: "You tax where the money is made."

Plum Creek officials reject any suggestion that the company does not pay taxes. "We do pay taxes," Ricklefs told the committee.

Plum Creek pays about $3.8 million in property taxes on its manufacturing operations, and about $1.7 million in incomes taxes, including taxes on the 10 percent of REIT income that is not distributed to shareholders.

Plum Creek backers in the Capitol say that the bill would set Montana apart from all states except New Hampshire in REIT tax policy.

Plum Creek lobbyist Aiden Myhre compiled a total of $640,000 in Plum Creek Foundation contributions to community organizations, state agencies and schools from 2002 through 2006. So far this year, the foundation has given grants of $10,000 to the Kalispell's School District 5, another $8,800 to the Flathead-Glacier high school athletic complex, $25,000 to the Flathead Valley Community College, and $1,800 to Libby public schools.

Myhre maintains that Plum Creek has a strong history of directly supporting schools. That approach, she said, is more effective than broadly redistributing money collected through a new tax on the company.

The Legislative Fiscal Division estimates the bill, if enacted, would generate just more than $3 million in the first year, with projections that revenue would gradually increase to about $4.6 million by 2011.

Tom Ray, Plum Creek's general manager for northwest resources, said those projections could rise or fall dramatically, depending on land and timber markets and sales.

The Senate Taxation Committee was twice scheduled to vote on Elliott's bill Friday afternoon, but both "executive action" meetings were canceled, and the matter was rescheduled for this morning.

Elliott, chairman of the committee, said he delayed action because "I don't want to jeopardize any agreement that the House Republicans might have with the governor, so I just thought it was time to give it a rest."

While the REIT legislation was a major component in the Democratic budget package during the waning days of the regular session, Elliott said it was not included in the tentative agreements reached between House Republicans and the governor's staff last weekend.

Elliott predicted that he has "enough votes to pass it out of committee."

That may be, but his original version narrowly passed the Senate, and it appears that support may be waning in the Democratic ranks.

Sen. Dave Wanzenried, D-Missoula, sponsored a bill in the regular session to enact a state fund dedicated to the purchase of Plum Creek lands. Wanzenried is concerned about the public impacts of Plum Creek lands being sold and fenced off as private, inaccessible land requiring more public services.

But he said he would not support Elliott's bill. "I'm uncomfortable in embarking on a tax policy of this sort during a special session, without fleshing out the intentions and consequences of the bill."

Rep. Mike Jopek, D-Whitefish, had a similar view. Jopek said he would support enacting a school rainy day fund that could be used, for instance, if the budget surplus exceeded already high expectations. But tangling the bill up with a new policy regarding REITs is a major change that isn't appropriate for a special session, he said.