TIMOs, REITs, and Taxes

Yesterday in Forest Management Practices we discussed the transfer of commercial forest lands from VIFPCs (Vertically Integrated Forest Product Companies)  to TIMOs (Timber Investment Management Organizations) and REITs (Real Estate Investment Trusts) over the last 25 years or so.

In spite of all the criticism of the vertically integrated companies over the years, they had at least a long term, multi-dimensional interest in their lands. The new owners have mostly a short-term, maximize profit goal. No matter how you look at it this can’t be healthy for the forests in the long run. Fragmentation and parcelization are just part of the problems. The unwillingness to engage in long term investments in the forest is another.

What really surprised me from the article I used in class, was that this is in large part a by-product of the tax policies.  Companies wanted to limit their taxes. A VIFPC has to pay both corporate income tax (35%) and stockholders pay capital gains taxes (15%). The new ownership arrangements only pay the capital gains taxes, if that.

I have always thought companies should be required to pay corporate income taxes. But maybe there is some justification to the idea that companies don’t really pay taxes, they just pass them on to their customers. At the very least, Congress has to be very careful when they are creating new tax law to avoid unintended consequences like this.

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