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CLOSING RANGE DAVE SKINNER
GUEST COLUMN JUANITA VERO & ROBIN SAHA
SUPPORT THE NATIONAL BISON ORANGE TRANSFER
NE OF THE CORE PRINCIPLES and as good as many state sh and wild- of Montana Conservation Vot- life agencies.”
ers is the protection of our pub- There can be no doubt that the Tribes
PAST, PRESENT, FUTURE
CPART 2
ONTINUING DISCUSSION OF
calls “tax code terminology for ‘fat cat.’” Critically, only 25 percent of a REIT’s total assets can be used for other reve- nue-producing activities, manufacturing included, which we’ll call “active.” Such active tasks are normally conducted by a “Taxable REIT Subsidiary” or TRS, with the TRS taxed like a regular corporation on those allowable, not-quite-REIT busi-
ness activities.
Further, only 25 percent of REIT gross
revenue can originate from manufactur- ing – and Congress just cut that number to 20 percent, starting in 2018. However, the after-tax pro ts sent to the REIT by the “TRS” manufacturing subsidiary don’t count in calculating whether or not the income is “permissible.”
If you nd this accounting kabuki strange, keep in mind that REITs have been around since 1960. Only in 1999 did Plum Creek ( rst founded as a mas- ter limited partnership) transition into a REIT – in large part because the com- pany’s asset mix of land (real estate) and mills (manufacturing) was already near the “passive/active” proportions required of a REIT.
How might all these scal gymnastics a ect Montana?
Well, it is clear that REITs like Plum Creek, and now Weyerhaeuser, are struc- tured to focus primarily on “real estate investment.” Equally clear, REITs with a manufacturing component must pay a higher tax rate on any production pro ts.
Almost by necessity, making stu using people is a very low priority for REITs, which explains why, when Plum Creek bought the Champion and Stim- son lands, the associated mills were left behind, except for temporary supply contracts. When those supply contracts expired, so did the mills.
That low priority also explains why Ksanka and Pablo were closed and not either mothballed or sold, but quickly dismantled.
Finally, that low priority explains why, as Plum Creek bought millions of acres of timberland all across America, at merger time it owned just three mills, all here in FlatheadCounty.
Now a REIT, milling wood is no lon- ger Weyerhaeuser’s top priority in the United States. Managing their real estate for maximum return to shareholders is now Job One.
How might REITs maximize returns? That’s next.
Montana’s forestry sector, the
transformation of industrial wood products companies into Real Estate Investment Trusts (or REIT’s, rhymes with beets) was a complete game changer.
Congress actually created REITs in 1960, intending to create a “tax-pre- ferred” means for small investors to invest in professionally-managed, big- time real estate – basically allowing sim- ilar tax “preferences” for humble stock- holders in a new kind of corporation, preferences previously reserved for big shots who could throw down millions for a partnership.
Conventional “C-Corporations” pay a 35 percent federal tax on operat- ing income, and stockholders are then expected to cough up another 15 percent on dividends. REITs pay no income tax (but their “taxable REIT subsidiary” must) on pro ts, 90 percent of which must go to shareholders, who pay 15 per- cent on their annual capital gains.
How does that work? If you’ve invested $100 in Corp C, and Corp C makes $10, Uncle Sam rakes o $3.50 to start, leav- ing $6.50. If Corp C gives it all to share- holders (they usually won’t), you’ll get $5.52 as your best-case net after you pay capital gains.
With REITs, 90 percent of all pro ts must be “distributed” to shareholders – $9 of our REIT’s $10 pro t. Pay 15 percent of that, and our shareholder is left with $7.65 net for a $100 stake. Bottom line is, for identical businesses that di er only in tax treatment, the REIT returns at least 38 percent more than a C-Corporation for each invested dollar.
So – is it any surprise Wall Street and the timber industry went nuts? Nope. The tax break alone enabled Plum Creek to gain millions of acres – as a “tax-pre- ferred” REIT, they could pay more for forest land than any competitor could a ord.
Besides the tax factor, another huge but little-known aspect of REITs is restrictions on how they can make money. Seventy- ve percent of gross REIT revenue must come from sources such as “rents from real property,” “gain from the sale or other disposition” of property and other “real-estate” activ- ities – with another hitch: These activi- ties are expected to be what REIT advi- sors call “passive,” which Forbes in turn
lic lands as well as access to those pub- lic lands. At the state and federal level, MCV has vehemently opposed e orts to transfer or sell-o public lands to state or private ownership or even to study these misguided proposals. Such an e ort would certainly lead to loss of access to pristine public lands and likely mismanagement by states who are inexperienced at multi-purpose land management.
However, MCV proudly supports the National Bison Range Transfer and Res- toration Act and supports the Range’s transfer to be held in trust by the U.S. Department of the Interior and man- aged by the Confederated Salish and Kootenai Tribes.
The restoration of the Range to the Tribes would right a historic wrong by returning land lying entirely within the reservation boundaries and provided for in the Hellgate Treaty of 1855 – land that the federal courts ruled to be an illegal taking from the Tribes. Restoration would continue the Tribes’ proven track record of responsibly managing lands while maintaining public access for the bene t of all Americans.
The Tribes have established a tribal wilderness area, developed a grizzly management plan, restored endan- gered bull trout habitat, reintroduced the trumpeter swan, created wildlife corridors, and managed invasive spe- cies. The reservation includes half of Flathead Lake, one of the most popular recreation areas in the state that a ects tribal and non-tribal interests alike. The Tribes have also worked in partnership with the U.S. Fish & Wildlife Service to develop the land use plan for the Range and have co-managed the Range and various waterfowl areas with USFWS.
This experience prompted a USFWS o cial to rank the Tribes’ wildlife pro- gram “among the best in tribal programs
have a proven record to manage the Range and are committed to maintain- ing public access so visitors can learn about the natural and cultural history of the bison as well as the Tribes and their history with the land over the millennia.
While supporters of the idea to trans- fer federal lands to the state control might point to this proposed transfer of the Range as an argument to trans- fer more lands to states, it is clear that the Montana Constitution and the U.S. Constitution make this is a unique circumstance.
Article I of the Montana Constitution declares “all lands owned or held by any Indian or Indian tribes shall remain under the absolute jurisdiction and con- trol of the congress of the United States.” Article I, Section 7 of the U.S. Constitu- tion states that, “The Congress shall have the power ... to regulate Commerce ... with the Indian Tribes.”
The Range is currently under the jurisdiction of the USFWS within DOI and the transfer authorized by the Res- toration Act simply moves jurisdiction to another part of DOI, the Bureau of Indian A airs, so the land could be held in Trust for the Tribes. It is under the purview of Congress to take this action.
Enactment of the National Bison Range Transfer and Restoration Act is an important step to expanding self-de- termination for the Tribes who have a proven record of managing lands and the Range. We are con dent that the vis- itor experience, opportunities for wild- life viewing and taking in outstanding scenery will be much the same as it is today and even better in many ways.
MCV stands ready to help the Tribes bring attention and support to this important legislation and encourages other conservation-minded citizens and groups to do the same.
Mike (Uncommon Ground) Jopek and Dave (Closing Range) Skinner often fall on opposite sides of the fence when it comes to political and outdoor issues. Their columns alternate each week in the Flathead Beacon.
“THERE CAN BE NO DOUBT THAT THE TRIBES HAVE A PROVEN RECORD
TO MANAGE THE RANGE AND ARE COMMITTED TO MAINTAINING PUBLIC ACCESS.”
Juanita Vero is chair and Robin Saha is vice-chair of Montana Conservation Voters. MCV is a statewide non-partisan membership organization that is dedicated to ghting for Montana’s air, water, open spaces, wildlife, and public health.
JULY 27, 2016 // FLATHEADBEACON.COM
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