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COMMITTEE REPORT
March 1, 2006
S. 1108
S. Printed 3/1/06--S.
Read the first time February 1, 2006.
To whom was referred a Bill (S. 1108) to amend the Code of Laws of South Carolina, 1976, by adding Section 12-6-5595 so as to provide that for purposes of the nonrecognition of gain under, etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass with amendment:
Amend the bill, as and if amended, page 1, by striking lines 31-38 and inserting:
/ "Section 12-6-5595. For purposes of the nonrecognition of gain under Section 1031 of the Internal Revenue Code and comparable provisions of state law, the conveyance by timber deed of the right to cut standing timber for a period of time exceeding thirty years is considered a conveyance of a real property interest, and as such, under the laws of this State, is a like-kind exchange with other similar conveyances of a real property interest or with conveyances of similar investment real property owned in fee simple." /
Renumber sections to conform.
Amend title to conform.
HUGH K. LEATHERMAN, SR. for Committee.
REVENUE IMPACT 1/
This bill would reduce general fund income tax revenue by an estimated $500,000 in FY2006-07.
Explanation
This bill would add Section 12-6-5595 to allow a taxpayer to swap the value of the sale of timber for an investment in real property of equal value negating the capital gain on the transaction. Based upon information from the U.S. Department of Agriculture, the S.C. Forestry Commission, and the Clemson University Extension Service, cash receipts from timber harvests in South Carolina totaled $508,731,778 in calendar year 2001. Subtracting fifty percent to allow for production costs yields a cost basis of the timber of $254,365,889. The revenue forecast expects that this level of sales and costs will continue. State capital gains taxes on this amount would amount to approximately $10,000,000. Although we cannot measure with any degree of certainty who would undertake this kind of swap in the future, we do not anticipate that these swaps would account for more than five percent of sales. As such, we should plan on a revenue reduction based on five percent. Multiplying $10,000,000 by five percent would yield a reduction in general fund income tax revenue of an estimated $500,000 in FY2006-07.
Approved By:
William C. Gillespie
Board of Economic Advisors
1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact by the BEA, or Section 2-7-76 for a local revenue impact or Section 6-1-85(B) for an estimate of the shift in local property tax incidence by the Office of Economic Research.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 12-6-5595 SO AS TO PROVIDE THAT FOR PURPOSES OF THE NONRECOGNITION OF GAIN UNDER SECTION 1031 OF THE INTERNAL REVENUE CODE AND COMPARABLE PROVISIONS OF STATE LAW, THE CONVEYANCE BY TIMBER DEED OF THE RIGHT TO CUT STANDING TIMBER IS CONSIDERED A CONVEYANCE OF A REAL PROPERTY INTEREST AND AS SUCH UNDER THE LAWS OF THIS STATE IS A LIKE-KIND EXCHANGE WITH OTHER SIMILAR CONVEYANCES OF A REAL PROPERTY INTEREST OR WITH CONVEYANCES OF SIMILAR INVESTMENT REAL PROPERTY OWNED IN FEE SIMPLE.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 6, Title 12 of the 1976 Code is amended by adding:
"Section 12-6-5595. For purposes of the nonrecognition of gain under Section 1031 of the Internal Revenue Code and comparable provisions of state law, the conveyance by timber deed of the right to cut standing timber is considered a conveyance of a real property interest and as such under the laws of this State is a like-kind exchange with other similar conveyances of a real property interest or with conveyances of similar investment real property owned in fee simple."
SECTION 2. This act takes effect upon approval by the Governor.
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