AN ANALYSIS OF FOREST TAXATION IN BRITISH COLUMBIA \ George P i r k i s K i d d A T h e s i s s u b m i t t e d i n P a r t i a l F u l f i l m e n t of The Requirements f o r t h e Degree of MASTER OF ARTS i n the Department of ••'ECONOMICS' and POLITICAL SCIENCE # The U n i v e r s i t y of B r i t i s h Columbia . A p r i l , 1940. ACKNOWLEDGEMENT The w r i t e r wishes t o express h i s thanks t o P r o f . H. F. Angus f o r h i s h e l p throughout the w r i t i n g and r e a d i n g of t h i s ' t h e s i s ; and a l s o t o Mr. Wright of the F o r e s t r y Department f o r many u s e f u l s u g g e s t i o n s . An A n a l y s i s of F o r e s t T a x a t i o n i n , B r i t i s h Columbia Table of Contents c h a p t e r .page I . I n t r o d u c t i o n 1 I I . The P r i n c i p l e s of F o r e s t T a x a t i o n 6 I I I . The D i s p o s a l of Timber i n B r i t i s h Columbia 14 a. The o r i g i n and Development of Canadian Timber R e g u l a t i o n s b. Crown-granted l a n d s c. Timber Leases d. Timber L i c e n s e s e. Timber S a l e s IV. The P r o p e r t y Tax, on F o r e s t s i n B r i t i s h Columbia 5 5 ""a. G e n e r a l working of the p r o p e r t y t a x . b. I n f l u e n c e of t h e t a x r a t e . c. The importance of assessment. V. The Ground Tax or Rent 48 a. Theory and g e n e r a l e f f e c t s of the t a x . b. The p o s i t i o n of r e n t a l s i n t h e t a x s t r u c t u r e ".• c. The r a t e of the t a x . TEL.. The F o r e s t Y i e l d Tax i n B r i t i s h Columbia. - 59 a. Theory and forms of the t a x . b. The o p e r a t i o n of the t a x . c. The f l a t r a t e . V I I . The P r o t e c t i o n t a x . 76 V I I I . C o n c l u s i o n s . ' 85. T a b l e s . page No. 1. Forms of Timber D i s p o s a l i n use i n Canada to-day 17 No. 2. Ownership of Merchantable Timber Stands of B. C. 1) , Acreage 20 No. 5. Ownership of Merchantable Timber Stands of B. C. 2) Volume. 20 No. 4. D e t a i l s of Timber S a l e s awarded, 1915-1938. 29 No. 5. R e l a t i v e importance of the p r o p e r t y t a x on f o r e s t s 33 No. 6. Assessment R a t i o s f o r s e l e c t e d d i s t r i c t s i n B. C. 46 No.. 7. R e l a t i v e importance of the r e n t a l s . . 51 No. 8.. Comparison of B r i t i s h 'Columbia' s r e n t a l r a t e s . 54 No. 9. Comparison of Canadian r e n t a l r a t e s . 54 No. 10. Cost of c a r r y i n g r e n t s i n Canada. 58 No. 11. R o y a l t i e s a c c o r d i n g t o f o r e s t d i s t r i c t s i n B. C. 61 No. 12. R e l a t i v e importance of ,the " r o y a l t i e s . 62. No. 13. Percentage r a t e s of r o y a l t i e s on the c o a s t 1925-39.71 No. 14. The e f f e c t s of a $1.00 drop i n l o g p r i c e s . 73 No. 15. U n i t e d S t a t e s ' y i e l d t a x r a t e s . 74 No. 16. D e t a i l s of F o r e s t P r o t e c t i o n E x p e n d i t u r e s 80 No. 17. D e t a i l s of -the damage caused by f o r e s t f i r e s . 81, Graphs page No. 1. • F o r e s t Revenues as a percentage of the t o t a l P r o v i n c i a l Revenues. 3 No. 2. Average Stumpage p r i c e s f o r main s p e c i e s 1915-3350 No. 5. Percentage of t o t a l Timber cut by Land S t a t u s 1925-1938. 32 No. 4. E f f e c t s of changes i n the r a t e of the p r o p e r t y t a x on t a x r a t i o s . 42 No. 5. Percentage of t o t a l Timber c u t by f o r e s t d i v i s i o n s , 1915-1938. 68 No. 6. Average l o g p r i c e s f o r main s p e c i e s and grades i n B r i t i s h Columbia, 1925-1938. 70 No. 7s Percentage•,composition of t h e F o r e s t P r o t e c t i o n ; Fund, 1912-1938. . 77 An A n a l y s i s of F o r e s t T a x a t i o n i n B r i t i s h Columbia Chapter 1 I n t r o d u c t i o n The f o r e s t s of B r i t i s h Columbia are to- d a y the most v a l u a b l e n a t u r a l r e s o u r c e t h a t t h e p r o v i n c e p o s s e s s e s . S e v e n t y - s i x y e a r s ago when the f i r s t shipment of B r i t i s h Columbia Douglas f i r was t r a n s p o r t e d from New Westminster t o Sydney., few people dreamed of t h e i n e s t i m a b l e v a l u e t h e s e f o r e s t s would some day r e p r e s e n t . But s i n c e t h a t t ime "green g o l d " has become ;worth much more t o t h e p r o v i n c e t h a n the y e l l o w m e t a l . From s m a l l b e g i n n i n g s lumbering has become our major i n d u s t r y , now employing d i r e c t l y and i n d i r e c t l y about o n e - f i f t h of our p o p u l a t i o n . . JSist how i m p o r t a n t the f o r e s t I n d u s t r i e s a r e t o B r i t i s h Columbia i s c l e a r l y seen when a comparison w i t h o t h e r I n d u s t r i e s i s made. The average a n n u a l v a l u e of p r o d u c t i o n i n our f o u r p r i m a r y i n d u s t r i e s f o r the y e a r s 1927-1935 was: -F o r e s t s - — -$63,308,300. M i n e s — 48,644,367. A g r i c u l t u r e — 47,054,521. F i s h e r i e s 17,724,249. On t h i s . b a s i s , and assuming i n the l a s t a n a l y s i s t h a t 1. Report of the F o r e s t Branch, Department of Lands^ 1937. pp. M 29 - M 31 a l l v a l u e s depend on t h e s e f o u r p r i m a r y i n d u s t r i e s , t h e n the f o r e s t s appear t h e most i m p o r t a n t element i n the p r o v i n c i a l income d o l l a r . F o r e s t s — — — —-$0.56 Mines : 0.27 A g r i c u l t u r e — 0.27 F i s h e r i e s 0.10 T o t a l p r o v i n c i a l income $1.00 The t a x a t i o n of the f o r e s t , r e s o u r c e s of the p r o -v i n c e i s thus a v e r y i m p o r t a n t p a r t of B r i t i s h Columbia's annual Income. I n the l a s t t e n y e a r s the t o t a l revenue from t h i s source has p r o v i d e d the p r o v i n c i a l t r e a s u r y on an average w i t h some t h r e e m i l l i o n d o l l a r s - ^ e r annum^ And t h i s f i g u r e to-day r e p r e s e n t s about t w e l v e per cent of t h e revenue s i d e of the p r o v i n c i a l budget. The purpose of t h i s t h e s i s i s t o a n a l y s e the v a r i o u s t a x e s which c o n s t i t u t e the f o r e s t revenues and as f a r as po-s s i b l e , f i n d out t h e a c t u a l burden of each t a x on t h e lumber-man and how f a i r and e q u i t a b l e each i s i n i t s ^ vorking. 2. S«e Graph no. 1 f f t r t h e r e l a t i o n of t h e f o r e s t revenues t o the t o t a l p r o v i n c i a l revenue. These percentages were c a l c u l a t e d by comparing t h e t o t a l s from the P u b l i c Accounts and the Reports of the F o r e s t Branch f o r the R e s p e c t i v e ¥ears. GRAPE NO. 1. A t t e n t i o n - , t r o & , w i l l be devoted t o the e f f e c t s of. these t a x e s on the f o r e s t s i n g e n e r a l . I t must be p o i n t e d out, however, ' t h a t t h e s e t a x e s do not r e p r e s e n t the whole burden of t a x a t i o n -on the f o r e s t s , but merely the t a x e s ?fhich f a l l d i r e c t l y on the f o r e s t s . I n a d d i t i o n , c o r p o r a t e income t a x e s , g a s o l i n e t a x e s , motor t a x e s , and i n h e r i t a n c e t a x e s , a l l a f f e c t the f o r e s t i n d u s t r i e s , but t h e y a re not t r e a t e u i n t h i s s t u d y . For the purpose of t h i s t h e s i s t a x a t i o n has been c o n s i d e r e d i n i t s broadest sense, and a g e n e r a l c l a s s i f i c a t i o n has been made a t the o u t s e t i n accordance w i t h w hich the e q u i t y of the v a r i o u s t a x e s can be judged. The f i r s t main s u b d i v i s i o n i n c l u d e s t a x e s or l e v i e s w h i c h c o r r e s p o n d t o t h e economic r e n t and d e p l e t i o n charges due t o t h e Crown (the government, or the people as owners). The quantum of t h i s r e n t i s t h e y i e l d of t h e f o r e s t s l e s s t h e l e g i t i m a t e c o s t s o f e x p l o i t a t i o n . Some a p p r o x i m a t i o n t o t h i s , l e a v i n g r e a s o n -a b l e inducement f o r good management and r e a s o n a b l e i n c e n t i v e s a g a i n s t w a s t e f u l e x p l o i t a t i o n , I s what i s e q u i t a b l e . L e g i t i m a t e c o s t s w i l l i n c l u d e r e f o r e s t a t i o n , i f c a r r i e d out by the o p e r a t o r ; or I f the s t a t e i s t o see t o r e f o r e s t a t i o n , i t s r e n t s h o u l d i n c l u d e t h i s i t e m . Such a t a x i s r e a l l y " p a r t of t h e p u b l i c domain revenue. I n B r i t i s h Columbia t h r e e f a r e s * t a x e s ( f o l l o w i n g the broad i n t e r p r e t a t i o n mentioned above) may be s a i d t o come under t h i s h e a d i n g . 1) A p r o p e r t y t a x . S) A ground t a x or r e n t . • 3) A y i e l d t a x i n the form of a r o y a l t y . These t a x e s form by f a r the m a j o r i t y of t h e f o r e s t revenues, the o n l y o t h e r item of any s i g n i f i c a n c e being "stumpage". T h i s cannot i n any;sense of the word be deemed a t a x , s i n c e i t i t i s the p r i c e charged by t h e government f o r s e l l i n g Crown t i m b e r , and as such I s e q u i v a l e n t t o a s a l e p r i c e . I t i s a f i g u r e r e g u l a t e d by demand and s u p p l y , and not an o r d i n a r i l y l e g i s l a t e d f i g u r e l i k e a t a x . The second main s u b d i v i s i o n i n c l u d e s t a x e s or l e v i e s , the purpose of which i s t o make the i n d u s t r y meet i t s r e a l c o s t s . T h i s i s r e p r e s e n t e d I n B r i t i s h Columbia by the P r o t e c t i o n Tax.° I t i s an Insurance a g a i n s t d e s t r u c t i o n of f o r e s t s by f i r e s i n c i d e n t a l t o t h e i r e x p l o i t a t i o n and would be analagous t o any t a x l e v i e d t o meet a s p e c i a l damage t o r o a d s , e t c . The t e s t of i t s e q u i t y i s here c o s t . :, With, the e x c e p t i o n of t a x e s f o r s p e c i f i c i t e m s , as the g a s o l i n e t a x and the road t a x , o t h e r t a x a t i o n s h o u l d be n e i t h e r more nor l e s s t h a n i s borne by net c o r p o r a t e incomes earned i n oth e r o c c u p a t i o n s . As such i t i s i n a l l p r o b a b i l i t y covered by the t a x on c o r p o r a t e incomes. A l l the above f o r e s t t a x e s a re h o t , however, l e v i e d on every f o r e s t p r o p e r t y of the p r o v i n c e , but v a r y a c c o r d i n g t o the d i f f e r e n t l a n d t e n u r e s of B r i t i s h Columbia. I n view of t h i s f a c t , s p e c i a l c o n s i d e r a t i o n w i l l be g i v e n t o the r a t h e r c o m p l i c a t e d system under w h i c h t h e t i m b e r o f t h e p r o -v i n c e has been d i s p o s e d . 3. The p r o t e c t i o n , t a x i s not i n c l u d e d i n the f o r e s t revenues, but c r e d i t e d t o t h e F o r e s t P r o t e c t i o n Fund, as w i l l be e x p l a i n e d i n a l a t e r c h a p t e r . • ' .i CHAPTER 1 1 The P r i n c i p l e s of F o r e s t T a x a t i o n -I n any a n a l y s i s of f o r e s t t a x a t i o n the f i r s t ' t h i n g . t h a t i t i s e s s e n t i a l t o understand i s the p e c u l i a r n a t u r e of .the f o r e s t i n d u s t r y . I t d i f f e r s from most forms of b u s i n e s s e n t e r p r i s e i n t h a t i t t a k e s a c o n s i d e r a b l e time f o r the i n -vestment t o mature. Trees t a k e many decades t o grww b e f o r e t h e y become f i n a n c i a l l y m a r k e t a b l e , d u r i n g which t i m e . t h e c o s t of c a r r y i n g t a x e s p l u s I n t e r e s t , i n a d d i t i o n t o the l a r g e element of r i s k i n v o l v e d t h r o u g h ' l o s s by f i r e , , decay, wind and i n s e c t s , a l l mount up. I t has been e s t i m a t e d t h a t t h i s i t e m of r i s k a l o n e comes t o one per cent or more - ^ e r annum.^ s ' When, the f o r e s t -owner reaches the p o s i t i o n where he i s r e -c e i v i n g an a n n u a l income.from the p r o p e r t y t h e n , of c o u r s e , t h i s s i t u a t i o n does not a p p l y . Even i f ah owner s t a r t s from t h i s p o s i t i o n the above f a c t o r s are r e f l e c t e d i n the e x t r a p r i c e he pays f o r the mature t i m b e r . Furthermore, the lumber i n d u s t r y d i f f e r s from o t h e r e x t r a c t i v e i n d u s t r i e s i n the n e c e s s i t y of c a r r y i n g a l a r g e s t o c k of the raw m a t e r i a l s u f f i c i e n t t o l a s t from t e n t o twenty y e a r s * Wood-working i n d u s t r i e s i n most cases c a r r y o n l y a few month's s t o c k , t r u s t i n g t o the lumberman f o r 1;. W h l t f o r d , H.fi. and Cr a i d , R..D.: F o r e s t s of B r i t i s h , Columbia ; •(^^feetliS^a'waCommission of C o n s e r v a t i o n , p u b l i c a t i o n , 1918) .' ; ' . p. 155.. s.supplies, and t h i s i s a l s o t r u e of a m a j o r i t y of the i r o n and s t e e l i n d u s t r i e s . From a c o n s i d e r a t i o n of the s e f a c t s c e r t a i n con-c l u s i o n s a re e v i d e n t . The income of a l l f o r e s t ovmers i s d e f i n i t e l y n o t always r e g u l a r , i n f a c t i t i s v e r y l a r g e l y s p o r a d i c . T h i s means t h a t any t a x which f o r c e s the o?vner t o gay out l a r g e amounts t o the government so l o n g as the f o r e s t y i e l d s him n o t h i n g has an element of i n j u s t i c e i n i t . But he has the r i g h t t o the l a n d i f not the use of t h e timb e r w h i l e i t " i s m a t u r i n g . The q u e s t i o n t h e n a r i s e s whether the f o r e s t s h o u l d he c o n s i d e r e d and r a t e d s e p a r a t e l y from the l a n d upon vifhich i t s t a n d s . L i k e l a n d t h a t c o n t a i n s m i n e r a l w e a l t h , f o r e s t l a n d s have been endowed by the bounty of na t u r e w i t h a c e r t a i n i n h e r e n t v a l u e over and above t h a t o f the l a n d i t s e l f . They are not t h e product of t h e sweat of man's brow, but a g i f t of n a t u r e , and as such seem t o c a l l f o r a s e p a r a t e v a l u a t i o n . These c o n s i d e r a t i o n s s h o u l d be borne i n mind when we l o o k i n t o t h e b a s i c p r i n c i p l e s of f o r e s t t a x a t i o n . By t h i s term i s meant the broad o u t l i n e upon which a t a x a t i o n p o l i c y f o r f o r e s t s may be f o r m u l a t e d . However, from t h i s i t must not be assumed t h a t any one p r i n c i p l e can be t a k e n i n i t s e n t i r e t y and a p p l i e d t o a p a r t i c u l a r d i s t r i c t or r e g i o n . T a x a t i o n i n any form* much l e s s f o r e s t t a x a t i o n , i s never as simp l e as a l l t h a t . One p r i n c i p l e may have c e r t a i n f e a t u r e s t h a t make i t s a p p l i c a t i o n i n e x p e d i e n t f o r some f o r e s t s and another p r i n c i p l e has t o be p a r t i a l l y employed t o make up •cnese defects> As a r e s u l t , , a t a x a t i o n system i s n e a r l y a l -ways made up of a c o m b i n a t i o n of -two or more p r i n c i p l e s , and t h i s c e r t a i n l y h o l d s t r u e i n the case of t h e f o r e s t s of B r i t i s h Columbia. . The f i r s t t h i n g t h a t i s s e l f - e v i d e n t b e f o r e any t a x a t i o n system i s put i n t o o p e r a t i o n i s t h a t t h e government r e q u i r e s revenue. T n i s indeed seems t o be the c r y i n g need of the day. War e x p e n d i t u r e s , and the growing c o s t s of e d u c a t i o n and p u b l i c w e l f a r e demand i n c r e a s e d amounts of revenue.~ The p e r i o d of h i s t o r y i n the n i n e t e e n t h c e n t u r y , e s p e c i a l l y i n the U n i t e d S t a t e s of America, when budget s u r -p l u s s e s , were the r u l e r a t h e r t h a n the e x c e p t i o n i s a t h i n g of the p a s t . N a t u r a l l y enough t h e n , b e f o r e any o t h e r con-s i d e r a t i o n s are t a k e n i n t o account, the f o r e s t s must p r o -v i d e revenue f o r t h e government, s h a r i n g w i t h the r e s t of the c o u n t r y ' s i n d u s t r i e s , the c o s t of running, our modern c i v i -l i z a t i o n . '.'The aanger i n such a p r i n c i p l e being g i v e n f u l l c o n t r o l i s t h a t t h e r e w i l l i n a l l l i k e l i h o o d be a g r e a t t e n -dency on the p a r t of the s t a t e t o b l e e d t h e foiest d r y . I n such a s i t u a t i o n a t a x ? v r i l l be d e s i g n e d t h a t i s t h e most l u c r a t i v e from a f i s c a l : p o i n t of v i e w , w i t h o u t r e g a r d t o any u n f o r t u n a t e consequences i t may have or t o i t s u n f a i r -: ness. - I n o r d e r , t h e r e f o r e , t o p r e v e n t such an extreme s i t u a t i o n from o c c u r r i n g , a t a x system f o r f o r e s t s must i n -c l u d e o t h e r p r i n c i p l e s other t h a n t h a t of a revenue p r o -ducer f o r t h e government. I t s n o u i a be d e s i g n e d so as t o p r o v i d e continuous: revenue t o the s t a t e and y e t a t the same time r e q u i r e a j u s t c o n t r i b u t i o n from f o r e s t owners. A j u s t c o n t r i b u t i o n i s assumed t o be one i n which t h e burden i s e q u i t a b l y d i s t r i b u t e d amongst a l l peoples h a v i n g an i n t e r e s t i n the government of t h e c o u n t r y . Furthermore, the system must be vrorkable and econo m i c a l as Idam Smith p o i n t e d out over a hundred and f i f t y y e a r s ago. F i n a l l y , the Systems must make t h e oest use of the f o r e s t s from t h e v i e w p o i n t of the p u b l i c I n t e r e s t . Does the system d i s c o u r a g e r e -f o r e s t a ' c i o n and encourage the c u t t i n g o f Immature t i m o e r ? I f i t does, t h e n i t i s not f o r k i n g f o r the i n t e r e s t s of the common weal. Does i t cause f o r e s t p r o p e r t y t o be p l a c e d on t h e d e l i n q u e n t t a x r o l l s ? Such a r e s u l t i s as bad as g i v i n g s p e c i a l exemptions t o t h e f o r e s t s . A l l t h i s i s , of c o u r s e , an i d e a l , but n e v e r t h e l e s s 1 i t i s always a#vt&g'a'&>le t o aim h i g h e r t h a n i t i s p o s s i b l e t o a t t a i n , s i n c e t h e n the f i n a l r e s u l t w i l l be l e s s s h o r t of t h e mark t h e n i t o t h e r w i s e would be. So t h a t a t a x may be a good and c o n t i n u o u s revenue producer i t must be ie$£d a t s e t times and n o t a t the con-v e n i e n c e of the t a x p a y e r . The u n i t of time has g e n e r a l l y come t o be a c c e p t e d as the y e a r , though payments faay be made q u a r t e r l y or s e m i - a n n u a l l y as the law so d e c r e e s . Having seen t h a t f o r f i n a l purposes the t a x must t o a l a r g e e x t e n t be a n n u a l , the next t h i n g I s t o determine upon .what b a s i s the ta x w i l l be l e v i e d . For any d i r e c t tax.two bases suggest themselves. -10-1) C a p i t a x H) Income I n the case of f o r e s t s , c a p i t a l f o r t a x a t i o n purposes i s the p r o p e r t y , t h a t i s , , the l a n d p l u s the timber, on i t , w h i l e income i s the r e t u r n from t h i s i n v e s t m e n t . The former can always be t a x e d , but t h e l a t t e r can o n l y be ta x e d when t h e r e I s an income t o be t a x e d . As a r e s u l t the i d e a of an annual p r o p e r t y t a x on f o r e s t s seemed the b e s t means of p r o v i d i n g sure and c e r t a i n revenues each y e a r . T h i s t a x s o l v e s t h e government's problem, but i s v e r y o f t e n u n j u s t and i n e q u i t -a b l e i n i t s o p e r a t i o n . Many problems tend t o d i s t o r t what, might appear a t f i r s t g l a n c e t o be a f a i r and j u s t t a x i n t o an e x t r e m e l y burdensome one. These w i l l be f u l l y d i s c u s s e d i n r e l a t i o n t o B r i t i s h • C o l u m b i a i n a / l a t e r c h a p t e r . The second b a s i s , t h a t of income has l e d t o the development of the p r i n c i p l e of the "severance tax"?. T h i s term i s a v e r y composite onefanbraeing s e v e r a l forms of t a x e s on income.. I t may be i n the form o f a g r o s s Income t a x , a * 3 net income t a x or a y i e l d t a x on the; q u a n t i t y and q u a l i t y of the n a t u r a l r e s o u r c e t h a t i s b e i n g ; s e v e r e d from I t s o r i g i n a l r e s t i n g p l a c e . Such a t a x i s a l i c e n s e or p r i -y ^ l e g e .tax, and as such d i f f e r s r a d i c a l l y I n p r i n c i p l e from t h e p r o p e r t y tax,. The j u s t i f i c a t i o n f o r such a t a x l i e s i n 2. So named because of the L o u i s i a n a Severance A c t o f 1920. 5. The t h e o r y of the y i e l d t a x and i t s a p p l i c a t i o n i n B r i t i s h Columbia i n t h e form of r o y a l t i e s w i l l be d i s c u s s e d i n a l a t e r c h a p t e r . '. -11-the f a c t t h a t ; a n y n a t u r a l r e s o u r c e i s a n a t u r a l g i f t and not a r e s u l t of human endeavour* As a consequence the s o v e r e i g n a u t h o r i t y ought t o p a r t i c i p a t e I n t h e "unearned r e s o u r c e " and so the t a x becomes a "Quid pro quo" l e v i e d I n r e t u r n f o r the ^ • p r i v i l e g e of s e v e r i n g the p a r t i c u l a r n a t u r a l r e s o u r c e . How : burdensome "such a t a x w i l l be depends on whether i t i s l e v i e d i n a d d i t i o n t o the p r o p e r t y t a x w i t h o u t a subsequent r e d u c t i o n i n the l a t t e r , and n a t u r a l l y the r a t e of the severance t a x . . I t i s i n s t r u c t i v e t o note what P r o f e s s o r F. R. F a i r c h i l d , t he l e a d i n g f o r e s t t a x economist'of the U n i t e d S t a t e s , has t o say c o n c e r n i n g the a d d i t i o n a l l e v y of a severance t a x . . "There i s no j u s t i f i c a t i o n f o r a severance t a x , i n a d d i t i o n t o p r o p e r t y or o t h e r adequate t a x , , i n t h e case of f o r e s t s , except p o s s i b l y as a measure t o be a p p l i e d t o f o r e s t s d e s t r u c t i v e l y e x p l o i t e d w i t h o u t p r o v i s i o n f o r r e s t o c k i n g . " 4 The d e s t r u c t i o n of a n a t u r a l r e s o u r c e and the p o s s i b l e damage done t o the s u r r o u n d i n g d i s t r i c t are i m p o r t a n t con-s i d e r a t i o n s . A f o r e s t i s not n e c e s s a r i l y a w a s t i n g a s s e t l i k e a mine, but may be so i f w a n t o n l y c u t . I n such cases the e f f e c t s on the p r o d u c t i v i t y of a l l nearby l a n d t h rough : denuding watersheds o f t h e i r streams i n t h e s e a r e a s , may be s e r i o u s i n d e e d . Then a g a i n , d i s a s t r o u s c l i m a t i c changes may 4. F a i r c h i l d , F.R. and A s s o c i a t e s : F o r e s t T a x a t i o n i n the U n i t e d S t a t e s . (Washington, U.S. Department of A g r i -c u l t u r e , M i s c e l l a n e o u s P u b l i c a t i o n No. 218, 1935) p. 635 -- h e r e a f t e r c i t e d as F a i r c h i l d " F o r e s t T a x a t i o n . " -12-r e s u l t from'complete s t r i p p i n g of f o r e s t s . F i n a l l y , t h e r e . are the f u t u r e g e n e r a t i o n s t o be c o n s i d e r e d . Have we to-da>y a to.complete^waste a n a t u r a l r e s o u r c e , which but f o r our wanton d e s t r u c t i o n c o u l d have supported our sons and grandsons? I t h a r d l y appears j u s t t h a t we s h o u l d t u r n our c o u n t r y I n t o another Sahara D e s e r t , b r i n g i n g about such a metamorphosis ; merely f o r the sake of p r e s e n t g a i n . These p o i n t s 3.X1© 3,11 v e r y c l e a r l y summed up i n an o l d Roman law maxim:-" S i c wtere t u o , u t non al i e n u m l a e d a s " 5 No man has, t h e r e f o r e , a r i g h t t o waste the f o r e s t f o r . h i s own enrichment t o the d e t r i m e n t of the p r e s e n t or any f u t u r e g e n e r a t i o n T h i s b r i n g s us r i g h t up a g a i n s t t h e q u e s t i o n of •whether c o n s e r v a t i o n i s t h e n a sound p r i n c i p l e f o r a f o r e s t t a x a t i o n p o l i c y . Such.a p r i n c i p l e c o u l d t a k e two forms, f i r s t , a t a x i n t h e form of a p r o t e c t i v e bah, or second, a t a x t o encourage r e f o r e s t a t i o n . -The complete a p p l i c a t i o n o f the former would i n a l l p r o b a b i l i t y , depending, of c o u r s e , on the steepness of the t a x , l e a d t o a c e s s a t i o n .of f o r e s t c u t t i n g . T h i s would r e a c t much more s e v e r e l y on the g o v e r n -ment t h a n on t h e f o r e s t owner f o r he c o u l d seek o t h e r avenues of employment f o r h i s c a p i t a l , whereas the government would l o s e a l l t he f o r e s t revenues. A t a x of t h i s n a t u r e would t h e n be i n e x p e d i e n t . But t h i s does not mean t h a t p a r t of t h e f o r e s t t a x a t i o n system cannot be d e s i g n e d t o i n c l u d e 5. "You must BO use your p r o p e r t y as not t o i n j u r e t h a t of your n e i g h b o u r . " --15-t h i s p r i n c i p l e . Some form of s m a l l , p r o t e c t i o n t a x p r o v i d i n g i t does not h i n d e r l e g i t i m a t e o p e r a t i o n s has much i n i t s f a v o u r . L e t us t u r n now t o the second t y p e , a. t a x which w i l l encourage r e f o r e s t a t i o n . Such a t a x would be i n the v e r y b e s t i n t e r e s t s of sound f o r e s t r y p r a c t i s e and of the f u t u r e good of the s t a t e . But no t a x has y e t been designed t o approximate a n y t h i n g v e r y c l o s e t o such an i d e a l s i t u a t i o n . L e g i s l a t i o n t o p r o v i d e r u l e s f o r r e f o r e s t a t i o n i s n e a r l y a l -ways n e c e s s a r y . So many men are i n t e r e s t e d o n l y i n t h e pr e s e n t and cannot be co n v i n c e d t h a t i t i s t o t h e i r own f u t u r i n t e r e s t s t o p l a n t seed t r e e s . A minimum t a x would, t h e r e f o r e not a c c o m p l i s h r e f o r e s t a t i o n and might even r e s u l t i n the op p o s i t p e f f e c t by o f f e r i n g a g r e a t e r o p p o r t u n i t y t o q u i c k .wealth. The. p r i n c i p l e o f c o n s e r v a t i o n f o r a f o r e s t t a x a t i o n scheme i s sound and must be i n c r e a s i n g l y i u d i e d i n order t o p r e s e r v e our p r e s e n t f o r e s t r e s o u r c e s and p r o v i d e f o n our f u t u r e f o r e s t r e s o u r c e s . Fromffithls o u t l i n e o f t h e p r i n c i p l e s o f f o r e s t t a x a t i o n , the c o m p l e x i t y of t h e n a t u r e of t h e t a x problem i s evident.,. So many t h i n g s have t o be a c h i e v e d i n any f o r e s t : t a x a t i o n system t h a t i t i s i m p o s s i b l e t o f i n d one m i r a c u l o u s e l i x i r . t o s o l v e a l l p r o b l e m s . Much has t o be done i n the way of t r i a l and e r r or, and o f t e n what i s l e a s t h a r m f u l has t o be a c c e p t e d . But u n d e r l y i n g a l l t h i s , t he p r i n c i p l e s a l r e a d y mentioned each attempt t o seek a l e v e l compatat-ivo ?/lth one a n o t h e r . -14-.» .j - CHAPTER 111 . ' The D i s p o s a l of.Timber I n B r i t i s h Columbia A. The O r i g i n and Development of Canadian Timber R e g u l a t i o n s I n the v a r i o u s e x i g e n c i e s of the n i n e t e e n t h c e n t u r y , whether p o l i t i c a l , m i l i t a r y , s o c i a l or commercial, any p o l i c y of c o n s e r v a t i o n w i t h r e g a r d t o n a t u r a l r e s o u r c e s was e n t i r e l y p r e c l u d e d . The main i d e a I n the"minds, of t h e r u l e r s of Canada was t h a t the q u i c k e r the f o r e s t was c u t , j u s t so much q u i c k e r would a g r i c u l t u r a l s e t t l e m e n t proceed. And as t h i s was deemed t o be the b e s t form of s e t t l e m e n t f o r a prosperous Canada of the f u t u r e , t h e f o r e s t s were from t h i s a n g l e o n l y a bar t o p r o g r e s s . People b e h e l d the s p e c t a c l e of a f r o n t i e r g r a d u a l l y -moving westwards and. of a. f o r e s t l a n d b e i n g c l e a r e d and t r a n s -formed i n t o f a r m i n g l a n d . T h i s process seemed t o them o n l y n a t u r a l . The lumberman was t o be t o l e r a t e d as a n e c e s s a r y e v i l because he paved the-way f o r the s e t t l e r * T h i s i d e a of c l e a r i n g the l a n d f o r t h e s e t t l e r a t times reached what seems i n our day the h e i g h t of r i d i c u l o u s -ness. Both i n Upper Canada and '•Lower -Canada laws were passed d i r e c t i n g the i n s e r t i o n of a c l a u s e i n a l l c u t t i n g t h a t a minimum of one thousand f e e t periiagredmust be f e l l e d each y e a r i ' , And l e s t t h e l a c k of a good market or t r a n s p o r t a t i o n f a c i -.11 t i e s d e t e r c u t t i n g o p e r a t i o n s , i t was q u i t e comm.oh i n these :'.tw6 o r i g i n a l p r o v i n c e s of Canada t o f e l l and b u r n ti m b e r i n order t o c l e a r t h e l a n d . As a consequence much f i n e t i m b e r was d e s t r o y e d i n t h i s manner. 1. L a w l e r , J : H i s t o r i c a l S k e t c h of Canada's Timber I n d u s t r y ( F o r e s t r y Branch C i r c u l a r , No. 15) p. 3. -15-With t h e s e i d e a s i n view a d i s t i n c t l y Canadian system o f - l e a s i n g t i m b e r l a n d t o lumbermen f o r the purpose of c u t t i n g the timber t h e r e o n , wras I n t r o d u c e d . A c e r t a i n s p e c i f i e d time was a l l o w e d f o r c l e a r i n g the la.nd of t i m b e r , p r e p a r a t o r y t o the a r r i v a l of the s e t t l e r . The f a l l a c y i n t h i s p r i n c i p l e of t he lumberman p l a y i n g the r o l e of the f r o n t i e r m a n l a y i n the f a c t t h a t the farmer c o u l d not push him i n t o the i n t e r i o r I n d e f i n i t e l y . Somewhere.the t i m b e r l a n d s would end. And, f u r t h e r m o r e , a l l t y p e s of l a n d a r e not s u i t a b l e f o r c u l t i -v a t i o n . A c l a s s i f i c a t i o n o f l a n d s s u i t a b l e f o r a g r i c u l t u r e and those v a l u a b l e ; o n l y f o r t h e i r t i m b e r would have been.a w i s e r course t o .have f o l l o w e d . For o t h e r w i s e the lumbering J i n d u s t r y under the f r o n t i e r p r i n c i p l e c o u l d o n l y be a t r a n -s i t o r y i n d u s t r y , whereas we know to-day t h a t both f a r m i n g and lu m b e r i n g can d e v e l o p alongside each o t h e r However, i n a l l f a i r n e s s t o t h e l e a s i n g system i t must be a d m i t t e d t h a t i t saved t h e l a n d from b e i n g permanent-l y a l i e n a t e d . As a r e s u l t a t the p r e s e n t t i m e , l e s s t h a n seven per cent of the t i m b e r l a n d s of Canada are p r i v a t e l y owned, a v e r y f a v o u r a b l e f i g u r e i n comparison w i t h t h a t of the U n i t e d S t a t e s of America. Only i n Nova S c o t i a (where some s e v e n t y - f i v e per cent of the l a n d i s p r i v a t e l y owned) and i n New BrunsYvick (where about f i f t y per cent i s p r i v a t e l y ; h e l d ) was t h i s system not adopted u n t i l w e l l on I n t o the t w e n t i e t h century.. -16-I n more r e c e n t y e a r s t h e r e has grown up t h e p r a c t i c e of d i s p o s i n g , of timber under a t i m b e r c o n t r a c t , a n n u a l l y by p u b l i c t e n d e r s or p u b l i c a u c t i o n . Under such a system o n l y t h e t i m b e r i s a l i e n a t e d , , the l a n d r e m a i n i n g under t h e c o n t r o l of t h e p r o v i n c i a l a u t h o r i t y of i t s l o c a t i o n . The a p p l i c a t i o n of t h i s method i n B r i t i s h Columbia i s s p e c i f i c a l l y d i s c u s s e d I n a l a t e r s e c t i o n of t h i s c h a p t e r . For Canada g e n e r a l l y i t i s worth noting, t h a t i t has come i n t o f a i r l y g e n e r a l r e c o g -n i t i o n by the s e v e r a l p r o v i n c e s as t h e most sound p o l i c y of t i m b e r d i s p o s a l b o t h from the s t a n d p o i n t of good f o r e s t r y p r a c t i c e and the b e s t i n t e r e s t s of the:, people. Table no. 1,, d e p i c t s t h e systems of t i m b e r d i s p o s a l i n use i n Canada to-day^ and i t i s t o be n o t i c e d t h a t t h e t i m b e r s'sale i s employed by a l l a u t h o r i t i e s except Quebec, Nova S c o t i a and New Brunswick. The r i g h t t o d i s p o s e t h e f o r e s t l a n d s has been s i n c e the time of C o n f e d e r a t i o n one of the p r e r o g a t i v e s of t h e s e v e r a l p r o v i n c e s . A c c o r d i n g t o t h e B r i t i s h N o r t h America Act one of the e x c l u s i v e powers g i v e n t o the p r o v i n c i a l l e g i s l a t u r e s was:. "The management and s a l e of t h e P u b l i c Lands b e l o n g i n g t o t h e P r o v i n c e , and of the t i m b e r and wood t h e r e o n . " . • 2, B r i t i s h N o r t h America Act 1867. 50 and'31 V i c t o r i a c. 3, sec. 92, subsec. 5. -17/ -* ' Table No.' 1 FForms of Timber D i s p o s a l -in use. I n Canada to-day PROVINCE • NATURE OF TENURE . BASIS OF COMPETITION Nova S c o t i a : Annual renewable l i c e n s e N o n - competitive New Brunswick : 1. S a w m i l l l i c e n s e s : 2. P u l p or paper l i c e n s e s : 5. C rown t i m b e r l i c e n s e s : a l l annual & renewable. P u b l i c A u c t i o n Quebec : 1. Annual renewable : . l i c e n s e :-. P u b l i c A u c t i o n 2. S p e c i a l . l i c e n s e : O n t a r i o Annual renewable l i c e n s e : . C o m p e t i t i v e tender Manitoba 1. Annual t i m b e r s a l e : P u b l i c A u c t i o n c o n t r a c t : .2. Annual renewable : l i c e n s e : . '" .. Saskatche-. wan • 1. Annual, t i m b e r s a l e : P u b l i c t e n d e r . c o n t r a c t : 2. Annual renewable : l i c e n s e : A l b e r t a 1. Annual renewable l i c e n s e 2. Annual p e r m i t b e r t h . S. Timber s a l e P u b l i c t e n d e r B r i t i s h . ; .Columbia 1. 1 year renewable t i m b e r s a l e 2. 1 year h a n d - l o g g e r s ' l i c e n s e ( n o n - c o m p e t i t i v e ) : ; 1. P u b l i c t e n d e r 2. Open p u b l i c a u c t i o n : Source: Dic&son,. J .R: "Timber D i s p o s a l R e g u l a t i o n s i n Canada '. i n r e l a t i o n t o F o r e s t Management". The F o r e s t r y C h r o n i c l e . V o l . X. pp. '51-42. - and S t a t u t e s of B r i t i s h Columbia. T h i s does not:, -however,, i n c l u d e a l l the l a n d i n each p r o -v i n c e as c e r t a i n l a n d s were ceded t o t h e Dominion govern-ment a t the time of the C o n f e d e r a t i o n and the succeeding ad-m i t t a n c e s t o the u n i o n of the other p r o v i n c e s . I n B r i t i s h Columbia by the terms of the Act of Union, the p r o v i n c e t r a h s f e r e d t o the f e d e r a l government 10,976,000 a c r e s known as the R a i l w a y B e l t and e x t e n d i n g twenty m i l e s e i t h e r s i d e of the p a t h f o r the Canadian P a c i f i c R a i l w a y , up t o t h e head-of B u r r a r d I n l e t ; and 3,468,000 a c r e s i n the Peace R i v e r i n l i e u of l a n d i n t h e R a i l w a y B e l t which had p r e -v i o u s l y been a l i e n a t e d by t h e p r o v i n c e . ^ T h i s l a n d which c o n t a i n e d some v a l u a b l e timber t o g e t h e r w i t h c o a l r e s o u r c e s was r e t u r n e d t o the p r o v i n c e i n 1930.^ . Apart from t h i s the r e s t of the l a n d of B r i t i s h Columbia comes under the a u t h o r i t y of the p r o v i n c i a l govern-ment as p r o v i d e d f o r i n the B r i t i s h N o r t h America. A c t . The w a r i o u s forms of l a n d t e n u r e - f o r d i s p o s a l of t i m b e r l a n d s t h a t have developed i n t h i s p r o v i n c e are r a t h e r c o m p l i c a t e d and must be e x p l a i n e d I n o r d e r t o c l e a r l y understand the t a x a t i o n o f f o r e s t s i n B r i t i s h Columbia. Four main of types of t e n u r e a r e t o be found i n our p r o v i n c e to-day:-3. Order of Her M a j e s t y i n C o u n c i l , Windsor, May 16, 1871. 4„ M u l h o l l a n d , F.D•: The For e s t Re s our c e s of Br i t i sh Columbia.- ( V i c t o r i a , K i n g ' s p r i n t e r , 1937) p. 34. -19-1) Crown-granted l a n d s . 2) Timber l e a s e s 3) Timber l i c e n s e s 4) Timber s a l e s . Of t h e s e , o n l y the l a s t named i s employed at the p r e s e n t t i m e , a l t h o u g h the t e n u r e s g r a n t e d under the f i r s t t h r e e p r i o r t o t h e i r r e s p e c t i v e a b o l i t i o n are s t i l l i n e x i s t e n c e . I n t a b l e s no.-2 and no. 3, the acreage and the volume of merchantable tim b e r i s g i v e n f o r the t e n u r e s under d i s c u s s i o n * I t i s t o be noted t h a t the u n a l i e n a t e d l a n d i n c l u d e s t i m b e r s a l e s and o t h e r p r o v i n c i a l l a n d s not d i s p o s e d i n any of t h e o t h e r t y p e s of t e n u r e . -B. Crown-granted Lands. I n B r i t i s h Columbia the e a r l i e s t form of l a n d d i s p o s a l was t h a t of the crown-grant. T h i s permanently a l i e n a t e d l a n d s o l d i n t h i s manner, g i v i n g the new owner the l a n d i n f e e s i m p l e . Such t i t l e , t o o , c a r r i e d w i t h I t t h e r i g h t s t o a l l t h e n a t u r a l r e s o u r c e s appurtenant t o the l a n d . A c c o r d i n g l y , much v a l u a b l e t i m b e r was a c q u i r e d a t the same r a t e s as o r d i n a r y l a n d , w i t h o u t even the r e s e r v a t i o n of a r o y a l t y . As a R o y a l Commission i n 1910 n o t e d : " I n the e a r l y days of the P r o v i n c e timber l a n d s seem t o have had l i t t l e or no v a l u e i n the p u b l i c e s t i m a t i o n . " 5 5. F i n a l Report of the R o y a l Commission of I n q u i r y on Timber and F o r e s t r y 1909-1910, p. 11. -20-OlNERSHIP OF MERCHANTABLE TIMBER STANDS OF B.C. / i t e Table No. 2 1 ACREAGE Ownersnip C l a s s A c c e s s i b l e :per ;cent I n a c c e s s i b l e : per: :cent T o t a l :per :cent-u n a l i e n a t e d Crown ti m b e r . ' 4,799,600 .: ;58.0 12,279,200 85.4 17,078, 800 :75.4 Timber L i c e n s e s and Leases 2,162,800 26.1 :. 1,254,700 '. 8.6 5,597, 500 15.0 Crown /Grants and I n d i a n Reserves 1,315,100 :15.9: j 866,400 6.0 2,179, 500 9.6 TOTALS 8,275,500 100 14., 580,500 100 22,655, 500 100 Table No. 5 . . 2. THOUSANDS OF BOARD-FEET Ownership C l a s s A c c e s s i b l e per cent f I n a c c e s s i b l e :Per :cent T o t a l per cent UnaMeha t ed ICB own t i m b e r 44,803,9,00. ,40.8 100,655,800 69.5 145^4 S-9576C 57.1 Timber, L i c e n s e s and Leases 50,902,400 46.4 51,124,800 21.5 7,203 '82.2 Grown Grants and .: I n d i a n Reserves : 14,031,900 12.8 12,980,400 : 9.0 27,01 2,3K0 10.7 T0I1LS \rl,/,. • • ''••...,••] 109,758,200 100 144,761,000 100 '254,4 99 , 200 100 Source:- M u l h o l l a n d , F.D. "The F o r e s t Revenues of B r i t i s h Columbia." Percentage f i g u r e s c a l c u l a t e d from acreage and volume f i g u r e s o b t a i n e d from t h i s book. . • -21- , Other l a r g e a l i e n a t i o n s i n c l u d i n g some v a l u a b l e f o r e s t l a n d were a l s o made f o r the encouragement of a spe-c i f i c p r o j e c t . Most of these- were g r a n t s i n a i d of .railways' and t o a l e s s e r e x t e n t , r o a d s . The h i s t o r y of the l a n d s g r a n t e d t o the Dominion government and t h e i r subsequent . r e t u r n t o the p r o v i n c e ' h a s been d e t a i l e d . . B e s i d e s t h i s , .however, 8,203,410 a c r e s were gr a n t e d t o v a r i o u s r a i l w a y companies, of which 4,065,076 acres;, were, a f t e r w a r d s r e r purchased.by the government, l e a v i n g a permanent a l i e n a t i o n t o the r a i l w a y s of 4,138^534 a c r e s . 6 Of the remaining r a i l -. way g r a n t s to-day, the most i m p o r t a n t i s the gra n t of 1884 t o the ESquimalt and Nanalmo R a i l w a y , c o v e r i n g over two m i l l i o n a c r e s . T h i s g r a n t i n c l u d e d Some of t h e f i n e s t stands of Douglas f i r i n B r i t i s h Columbia, much of which has s i n c e passed i n t o the hands of p r i v a t e companies./ ' •"• The f i r s t attempt t o prevent f u r t h e r w h o l e s a l e a l i e n a t i o n of t i m b e r l a n d s came i n 1884. By t h e p r o v i s i o n s of the Land Act of t h a t y e a r i t was decreed t h a t : " N o l a n d c h i e f l y v a l u a b l e f o r t i m b e r s h a l l ' be , 7 d i s p o s e d of by p u b l i c or p r i v a t e : s a l e . " 6. The o r i g i n a l r a i l w a y g r a n t s were: N e l s o n and F o r t t S h e p p a r d 'Railway 550,783 a c r e s . B r i t i s h Columbia Southern R a i l w a y 3,755,733 Columbia and Western R a i l w a y 1,348,225 K a s l o and S l o c a n R a i l w a y 250,022 Columbia and Kootenay R a i l w a y 188,593 E s q u i m a l t and Nanalmo R a i l w a y 2,110,054 T o t a l 8,205,410 acres. 7. Land A c t 1884. 47 V i c t o r i a c, 16. But t h i s a c t Remained v e r y l a r g e l y a dead l e t t e r A sub-sequent a c t of 1888 imposed r o y a l t y charges and r a i s e d the p r i c e of l a n d i n g e n e r a l from $1.00 t o $8*50. Since these p r i c e s d i d not t a k e i n t o c o n s i d e r a t i o n what t y p e " o f l a n d i t was,. so timber l a n d c o u l d s t i l l be secured a t the same p r i c e as any o t h e r l a n d . A ste p i n the r i g h t d i r e c t i o n was t a k e n i n 1891 by l i m i t i n g a l l types of l a n d purchased t o s e c t i o n s from 160 t o 640 a c r e s and a second purchase was not p e r m i t t e d u n t i l the f i r s t had been Improved t o an e x t e n t e a u a l i n v a l u e t o t h e o r i g i n a l p r i c e of the l a n d . 9 Timber l a n d , under t h i s l e g i s l a t i o n was s t i l l n o t . c l a s s i f i e d as such and c o u l d s t i l l be purchased a t t h e p r i c e of f i r s t c l a s s l a n d I.e. $5.00 per a c r e . I t was n o t , however,, u n t i l 1896 t h a t the p r i n c i p l e of s t a t e ownership o f t h e f o r e s t s o f B r i t i s h Columbia was r e c o g -n i zed by law. From t h a t -date- - onwards a l l "timber l a n d "was r e s e r v e d from s a l e or pre-emption. The s t a t u t o r y d e f i n i t i o n Of t h i s , "timber l a n d " was f i x e d as l a n d c a r r y i n g 8000 boa^d f e e t t o the a c r e west o f the Cascade Range, and 5000 board, f e e t t o the a c r e e a s t of the Cascade•'• Range} 1 These r e g u l a t i o n s a r e s t i l l i n f o r c e to-day. U n t i l government i n s p e c t i o n vras e s t a b l i s h e d i n 1918 some t i m b e r areas were, s e c u r e d , but the g e n e r a l aggregate of C rown t i m b e r has s i n c e 1896 remained i n t a c t . 8. Land Act Amendment Act 1888. 51 V i c t o r i a c l 6 . 9. Land, Act Amendment Act 1891. 54 V i c t o r i a c. 15. 10. Land Act Amendment Act 1896 59 V i c t o r i a c, 88. 11. The Cascade Range by s t a t u t e i n c l u d e s the Coast Mountains, which border the P a c i f i c c o a s t and l i e n o r t h and'west of the F r a s e r R i v e r . C. Timber Leases I n 1870 the l e a s i n g system of timb e r d i s p o s a l was IP i n t r o d u c e d i n t o B r i t i s h Columbia. The advantages of t h i s system over t h a t of the crown g r a n t were v e r y g r e a t from the p o i n t of view of t h e government, s i n c e i t s t i l l r e t a i n e d po-s s e s s i o n of the l a n a o n l y l e a s i n g the c u t t i n g r i g h t s . F u r t h e r more, t h e L e g i s l a t u r e hoped, t o o , ; i t would encourage the b u i l d i n g , of s a w m i l l s . Indeed, by 1888 t h i s was d e f i n i t e l y a p o l i c y " o f the p r o v i n c i a l , government f o r an a c t of t h a t y e a r 1 ^ 7 made the e r e c t i o n of a s a w m i l l an e s s e n t i a l c o n d i t i o n . o f the g r a n t i n g of a l e a s e . To g i v e the l e s s e e s a s e c u r i t y of tenur e . comparable w i t h t h a t of owners of crown-granted l a n d s , the term of the l e a s e s were s e t a t t h i r t y y e a r s . A f u r t h e r ex-t e n s i o n of the l e a s i n g system i n 1891^^ g r a n t e d the r i g h t t o cut hemlock f o r t a n n i n g purposes. The d i f f e r e n c e s between t h i s type of l e a s e and the o r d i n a r y Tease are not impo r t a n t enough t o warrant d e s c r i p t i o n h e r e . The term o f te n u r e of the s e l e a s e s as i t e x i s t s 15 to-day was f i x e d i n 1901. I n t h i s y e a r i t was p r o v i d e d t h a t l e a s e s c o u l d be renewed f o r c o n s e c u t i v e and s u c c e s s i v e p e r i o d s of t?fenty-one y e a r s , s u b j e c t t o such t a x e s as the government might impose. The o l d t h i r t y - y e a r l e a s e s were p e r m i t t e d t o e n j o y t h e same p r i v i l e g e i f they s u r r e n d e r e d t h e i r o l d l e a s e 12. . Land Ordinance of 1870. 15. Land A c t Amendment Act 1888, 51 V i c t o r i a c. 16 14. Land Act Amendment Act 1891,. 54 V i c t o r i a c. 15 15. Land A c t Amendment Act 1901 1 Edward V l l c. 50 --24-w i t h i n one y e a r . F i v e y e a r s l a t e r the g r a n t i n g of l e a s e s 16 was d i s c o n t i n u e d , but a l l l e s s e e s were a l l o w e d t o r e t a i n t h e i r u •'. l e a s e s g r a n t e d t o t h i s time on the c o n d i t i o n s of the a c t of 1901. The r e a s o n . f o r , t h i s a c t i o n was t h a t the l e a s e - h o l d system had been p r i m a r i l y d e s i g n e d t o p r o v i d e s a w m i l l owners w i t h a d e f i n i t e source of lumber a t cheap r a t e s , but w i t h the I n t r o d u c t i o n of t h e l i c e n s i n g system ( d e s c r i b e d i n s e c t i o n D) t h i s was no l o n g e r n e c e s s a r y . T h i s system had done i t s p a r t i n h e l p i n g t o e s t a b l i s h the lumbering i n d u s t r y . Wow t h a t the i n d u s t r y was e s t a b l i s h e d i t s use was l a r g e l y over. Another c o n t r i b u t i n g f a c t o r i n I t s a b o l i t i o n was t h a t i t was a v e r y w a s t e f u l system of ti m b e r d i s p o s a l . One l e a s e of f i v e t h o u s -and a c r e s might c o n t a i n f i v e , t e n or even more s c a t t e r e d areas i n a f o r e s t d i s t r i c t , some f?f which would be l e s s t h a n a couple o f hundred a c r e s i n e x t e n t . ' Much of the c h o i c e s t s e c t i o n s were t h e r e b y s e l e c t e d l e a v i n g the areas i n between t o the p r o v i n c e , t o o s m a l l i n many eases t o be p r o d u c t i v e l y Operated. One o t h e r t ype of l e a s e t h a t e x i s t s to-day, but under a d i f f e r e n t t ype of t e n u r e , deserves a t t e n t i o n . That 17 i s the_ .wood-pulp l e a s e . I t was. f i r s t g r a n t e d i n 1901, i n order t o encourage p u l p and paper i n d u s t r i e s I n B r i t i s h Columbia. The l e n g t h of te n u r e was tvventy-one years and the e r e c t i o n of a p u l p - m i l l was compulsory. B e f o r e the a b o l i -18 t i o n of t h i s t y p e of l e a s e I n 1903, some 355,250 a c r e s had 16. Land A c t Amendment A c t , 1906. 6 Edward. V l l c. 24. 17. Land A c t Amendment A c t , , 1901 1 Edward V l l C. 50. 18. Land A c t Amendment A c t , 1905-04. 5 and 4 Edward V l l c. 59. -25-beeh disposed-;of I n t h i s manner. A l l these l e a s e s which t o -day cover about 535,000 acres' were'renewed i n 1936 f o r a p e r i o d 19 of e i g h t e e n y e a r s . A l t h o u g h t h i s form of t e n u r e has never been r e v i v e d , i n 1912 a licen§e f o r the d i s p o s a l of p u l p 20 was g r a n t e d i n the form of a t i m b e r s a l e c o n t r a c t . • D. Timber L i c e n s e s The o r i g i n of the t i m b e r l i c e n s e i n B r i t i s h Columbia was the o l d " g e n e r a l l i c e n s e " , d e s i g n e d t o enable the s m a l l and independent lumberman t o o b t a i n t i m b e r . Under a " g e n e r a l l i c e n s e " such men c o u l d a f f o r d , t o operate where-as t h e y c o u l d not a f f o r d ' , t o take out a l e a s e w i t h i t s con-d i t i o n of t h e e r e c t i o n of a s a w m i l l . With a l i m i t of a thousand a c r e s t h e s e l i c e n s e s were, f i r s t g r a n t e d i n 1884 on a f o u r - y e a r tenure.^- 1 I n 1888 " s p e c i a l l i c e n s e s " o n the same c o n d i t i o n s except t h a t t h e y ivere renewable a n n u a l l y , were i n t r o d u c e d . The amount of t i m b e r l a n d t a k e n up under th e s e l i c e n s e s was, however, v e r y s m a l l and might have remained so but f o r t h e c o n d i t i o n s of the time.. Towards the end of t h e n i n e t e e n t h c e n t u r y and d u r i n g the f i r s t decade of the t w e n t i e t h c e n t u r y , t h e r e was a p e r i o d of g r e a t r u r a l d e v e l o p - .:' ment and r a i l w a y e x p a n s i o n , and as might be expected the consumption of lumber began t o r e a c h more t h a n normal h e i g h t s . The r e s u l t was a "timber f a m i n e . " T h e r e f o r e , the government of B r i t i s h C o l u m b i a s e e i n g the enormous areas of :li'$. M u l h o l l a n d op. c i t . p. 54. : : 1 : : ~~ ; 20. F o r e s t A c t , 1912. 2 George V c . 17 21. Timber C u t t i n g A c t , 1884, 47 V i c t o r i a c. 32. -26-t i m b e r l a n d "xx-i the p r o v i n c e l y i n g i d l e and r e c o g n i z i n g f o r the f u t u r e the s e r i o u s n e s s of a "timber famine", p e r c e i v e d an o p p o r t u n i t y t o r e l i e v e the s i t u a t i o n and a t the same time secure t h e r e b y an i n c r e a s e d revenue f o r the t r e a s u r y . A c c o r d i n g -l y , e a r l y as 1894 the p r o v i s i o n f o r s t a k i n g l a n d s f o r 11-censes was passed,^ and i n s u c c e s s i v e y e a r s by making the l i -cense t r a n s f e r a b l e and renewable f o r twenty-one y e a r s . As a r e s u l t , M i e n the "timber famine" became a c u t e , w i l d spe-c u l a t i o n took p l a c e and f o r a time t h e r e was a l a r g e boom. But as was i n e v i t a b l e the a c q u i s i t i o n of t i m b e r f a r o u t r a n the requirements of t h e market. F i n a l l y i n 1907, the government, a l t h o u g h t h e y were r e c e i v i n g the g r e a t e s t revenues i n t h e i r h i s t o r y from t h e s t a k i n g of the s e l i c e n s e s , saw t h a t the f u t -u re r e s o u r c e s of t h e p r o v i n c e were be i n g e x p l o i t e d f o r g a i n i n the p r e s e n t , and 'that b e i n g t h e case withdrew t h i s form of t e n u r e by o r d e r - i n - c o u n c i l . ^ 3 I n t h e 'worst y e a r s of t h i s w i l d s t a k i n g (1304-07) S3»me ISiOOO square m i l e s of tim b e r l a n d were so d i s p o s e d 00© by the government, and t h i s a r e c o n t a i n e d a b o u t 200,00Q.board f e e t of t i m b e r . I n 1904 t h e r e were o n l y 1451 l i c e n s e s i n e x i s t e n c e , by 1907 t h i s number had i n c r e a s e d t o over 15,000. A l t h o u g h the p r i v i l e g e of s t a k i n g f u r t h e r l i c e n s e s was withdrawn i n 1907, a l l e q u i t i e s i n l i c e n s e s were kept i n -22. Land Act Amendment Act 1894, 57 V i c t o r i a c. 24. A p a r a l l e l s i t u a t i o n i s t o be found i n the U n i t e d S t a t e s a t the same time i n the Homestead and Timber and Stone Ac t s 22. O r d e r - i n ^ c o u n c i l , 1907 7 Edward V l l l . -27 t a c t . S i n c e t h a t date they have gradually-.decreased i n number th r o u g h b e i n g a l l o w e d t o l a p s e or through t a x d e l i n -quency, and to-day t h e r e a re o n l y a few thousand - i n e x i s t e n c e Another form of l i c e n s e of minor importance, but which has t o be mentioned because i t i s s t i l l i n e x i s t e n c e t o day i s the h a n d - l o g g e r s ' l i c e n s e . The o r i g i n a l terms under which t h i s form of l i c e n s e was g r a n t e d are worthy of note s i n c e t h e y imposed no r e s t r i c t i o n s as t o a r e a o r methods of l o g g i n g t o be employed. "The C h i e f Commissioner may, upon the payment of the sum o f $10 t h e r e f o r , g r a n t a g e n e r a l l i c e n s e t o any person t o c u t t i m b e r upon Crown l a n d s , n o t bein g t i m b e r l i m i t s , w i t h o u t any r e s e r v a t i o n as t o a r e a — - a n d such l i c e n s e s h a l l be i n f o r c e f o r one year from the date t h e r e o f , and no l o n g e r . " 2 4 The R o y a l Commission of I n q u i r y on Timber and F o r e s t r y 1909-10 recommended the d i s c o n t i n u a n c e of such l i c e n s e s , but t h i s a d v i c e has never been f o l l o w e d by the p r o v i n c i a l government. Except f o r r a i s i n g the l i c e n s e f e e and p r e -s c r i b i n g c e r t a i n minor r e s t r i c t i o n s t h ey remain to-day much as t h e y were i n 1888. By t h i s l i c e n s e much f i n e t i m b e r has been i n d i -s c r i m i n a t e l y c u t ; The l a n d , t o o , i s d e s t r o y e d f o r f u t u r e use s i n c e many o f the t r e e s t h a t a re c u t never r e a c h the water*, because of an amendment which forbade the use o f 24. Land Act amendment A c t , 1888. 51 V i c t o r i a c. 16. steam power. 'The f i r e h a z a r d from such d e b r i s i s enormous. ' An e s t i m a t e by the Commission of C o n s e r v a t i o n i n 1918. f o r a t w e n t y - e i g h t year p e r i o d i s e n l i g h t e n i n g on t h i s m a t t e r . 500,000,000 board f e e t marketed 300,000,000 » « cut and a l l o w e d t o go t o waste 800,000,000 " i n d i r e c t l y d e s t r o y e d through f i r e and - w i n d f a l l From a t a x a t i o n p o i n t o f ' v i e w , they c e r t a i n l y are not j u s t i f i e d . I n the l a s t f o r t y y e a r s t h e y have p r o v i d e d a n n u a l l y a few thousand d o l l a r s : i n l i c e n s e f e e s and from f i f t e e n to-'twenty-thousand d o l l a r s i n r o y a l t i e s . T h i s i s v e r y l i t t l e i n comparison w i t h the damage done. The probable r e a s o n t h a t t h i s form o f t e n u r e i s p e r p e t u a t e d i s out of sympathy f o r t h e s m a l l man. f' E. Timber S a l e s . . W i t h t h e p r o h i b i t i o n of t i m b e r l a n d a l i e n a t i o n , under t h e crown grant,, t i m b e r l e a s e or t i m b e r j /linces"e : r e -s p e c t i v e l y , no method remained by w h i c h f o r e s t l a n d c o u l d be s e c u r e d , A c c o r d i n g l y , the F o r e s t A c t of 1912 I n t r o d u c e d t h e system of t e n u r e by which t i m b e r i s d i s p o s e d of t o t h i s day, the t i m b e r s a l e c o n t r a c t . T h i s t e n u r e g i v e s the . h o l d e r the r i g h t t o cut and d i s p o s e o f t h e t i m b e r on the l a n d w i t h i n a s p e c i f i e d p e r i o d of t i m e , u s u a l l y from two t o f i v e y e a r s . T h i s t e n u r e , however, c a r r i e s w i t h i t no r i g h t t o 25. W h i t f o r d and C r a i g , op. c i t . pp. 94-95. 26. F o r e s t Act,, 1912,' 2 George V, c. 17. See appendix f o r a copy of t h i s c o n t r a c t . -29-the l a n d on*which the t i m b e r s t a n d s . These t e n u r e s are a l l d i s p o s e d of by p u b l i c t e n d e r or open p u b l i c - a u c t i o n depending on the amount of timber. off'ered. The number and ar e a of these t i m b e r s a l e s g r a n t e d each year has g r a d u a l l y i n c r e a s e d . About f i f t e e n per cent of the f o r e s t revenues to-day come from the i t e m of stumpage, i . e . t he s a l e p r i c e of the t i m b e r s o l d under the terms of a ti m b e r s a l e c o n t r a c t . The growth i n e x t e n t and importance of t h i s t y pe of t e n u r e i s c l e a r l y d e p i c t e d i n the f o l l o w i n g t a b l e of t i m b e r s a l e s awarded.' 0' : Table No. 4 YEAH : NO. CF SALES : ACREAGE l SAW-TIMBER (F.B.M) :PER CENT : STUMPAGE00F :TOTAL REVENUE 1915 : : .98.. : 12,990 : 94,550,000 : 5.5$. 1920 : 594 : 121,690 : 440,649,755 : 7.0$ 1925: 613 v. :: 94,015 * 189,022,514 -: - -15.2$ : 1930 : 866 : 162,043 199,485,000 : . 15.-0$ 1935 : 1357 . 231,958 : 260,851,000 i 11.0$ • . 1936. : 1443 , 252,624 \ 558,804,000 : 11.7$ 1937 : 1449 278,988 : 450,798,000 • 1 5 . 1 $ *958 \ 1501 272,424 \ 415,747,000 > : 15.8$ Much o f t h e percentage i n c r e a s e i n the t o t a l revenue I s due t o the r i s e i n stumpage p r i c e s . T h i s i s e s p e c i a l l y n o t a b l e up t o 1925 as r e f e r e n c e t o graph no. 2 w i l l show. A c t u a l l y ^ s i n c e 1925 the s e p r i c e s have d e c l i n e d somewhat, but 27. Reports of the F o r e s t Branch, 1915, 20, 50, 55-58. The l a s t column was c a l c u l a t e d from t h e t o t a l f o r stumpage and t h e grand t o t a l revenue f o r each y e a r . saoiJH t h i s has been: o f f s e t by more t h a n d o u b l i n g the number and acreage of t i m b e r s a l e s awarded- each y e a r . Another i m p o r t a n t f e a t u r e has been the growing amount of t i m b e r c u t from t i m b e r s a l e s . In.1915 t h i s f i g u r e r e p r e s e n t e d o n l y 9.2 per cent of B r i t i s h Columbia t o t a l c u t , but to-day i t amounts t o 19.9 per c e n t , more t h a n double the former l e v e l . The t o t a l c u t , broken up a c c o r d i n g t o the main •• • ' 29 types of t e n u r e i s shown i n Graph no. 5, f o r the p e r i o d 1925-1938. F i g u r e s f o r the p r e v i o u s t e n y e a r s 1916-25 were u n f o r t u n a t e l y not a v a i l a b l e . 28, Values i n Graph nov 2 were o b t a i n e d from the Reports of t h e F o r e s t B r a n c h f o r the r e s p e c t i v e y e a r s . 29 •« The percentages i n t h i s Graph were c a l c u l a t e d from the t o t a l s f o r each type of l a n d s t a t u s i n the Reports of t h e F o r e s t Branch f o r t h e y e a r s 1925-1938. -53-1 Chapter IV The P r o p e r t y Tax on F o r e s t s I n B r i t i s h Columbia 'A. G e n e r a l working of the p r o p e r t y t a x . W h i l s t i n the U n i t e d S t a t e s of America the p r o p e r t y t a x as a t a x on f o r e s t s has r e c e i v e d almost g e n e r a l r e c o g n i t i o n , i n Canada i t s a p p l i c a t i o n has been l i m i t e d . I n B r i t i s h Columbia t h e s t r a i g h t p r o p e r t y t a x produces o n l y about a t e n t h of the f o r e s t revenues, and t h i s p r o p o r t i o n has remain-ed f a i r l y c o n s t a n t f o r t h e l a s t t w e n t y - f i v e y e a r s . The 1 f o l l o w i n g t a b l e demonstrates t h i s v e r y c l e a r l y . Table No. 5 YEAR : % OF TOTAL, FOREST REVENUES: % OF TOTAL FOREST TAXES 1915 : ,-9'a.. : i 9.8 1920 _: •••'8*6 " 5 - 10.5* 1925 .: 10.2 • 10.5 '.; 1950 : ; .12.5 :. 1: 14.9 1955 •: 10.7 . 12.5 - -1956 : 8.7 • 10.5 1957 : 8,8 :* 10*8 to 1958 8.6 ": 10.7 One r e a s o n t h a t t h i s p r o p o r t i o n i s not l a r g e r i s t h a t i t I s a p p l i e d o n l y t o one form of t e n u r e , t h a t o f t h e cro?m-granted, ti m b e r l a n d . 1. •• The above pe r c e n t a g e s I n column 1 were c a l c u l a t e d from t h e f i g u r e s f o r each t a x and the t o t a l s g i v e n i n t h e Reports of t h e F o r e s t Branch f o r t h e r e s p e c t i v e y e a r s . The second column was o b t a i n e d by adding t h e t o t a l s f o r t h e p r o p e r t y tax,/, r e n t a l s and r o y a l t i e s , and t h e n computing t h e p e r c e n t of the p r o p e r t y , t a x f rom t h i s t o t a l amount. -54- . On a l l t i m b e r l a n d 2 o b t a i n e d i n t h i s manner a one and a h a l f per cent t a x on i t s assessed v a l u e i s charged. Morever, i t i s not the sole, t a x on crown g r a n t s , as such l a n d i s a l s o sub-j e c t t o c e r t a i n r o y a l t i e s as w i l l be- d i s c u s s e d i n a l a t e r c h a p t e r . I t i s worthy of n o t e , t o o , t h a t t h i s t a x i s ad-m i n i s t e r e d by the Finance Department and not the Lands De-partment as are the o t h e r f o r e s t t a x e s . Such a t a x on p r o p e r t y s a t i s f i e s t he government's need f o r a st e a d y stream of revenue each y e a r , but has q u i t e d i s s i m i l a r e f f e c t s on d i f f e r e n t t y p e s of f o r e s t p r o p e r t i e s . I n order t o a n a l y s e t h e s e "'effects*' f o r e s t p r o p e r t i e s may be c o n v e n i e n t l y d i v i d e d i n t o t h r e e b a s i c c l a s s e s . 1) Annual s u s t a i n e d y i e l d p r o p e r t i e s . I n t h i s c l a s s of f o r e s t p r o p e r t y the annual income i s r e g u l a r l y s u f f i c i e n t t o e q u a l the I n t e r e s t on the . c a p i t a l v a l u e of t h e p r o p e r t y . 2),/ DDef e r r e d y i e l d p r o p e r t i e s * Here t h e annual income i s . not e q u a l t o , but l e s s t h a n t h e i n t e r e s t on th e c a p i t a l v a l u e of the f o r e s t . C a p i t a l i s , b e i n g accumulated t o t h e d e t r i m e n t of p r e s e n t income, which i s t o be d e f e r r e d f o r some f u t u r e d a t e . 5) D D e p l e t i o n y i e l d p r o p e r t i e s . I n t h i s f i n a l c l a s s the income i s g r e a t e r t h a n the i n t e r e s t on the c a p i t a l v a l u e , and as a r e s u l t the c a p i t a l i s being d e p l e t e d f o r an i n c r e a s e i n c u r r e n t income. 2. T h i s means s t a t u t o r y t i m b e r l a n d as d e f i n e d i n Chapter 111. 5. These terms a r e employed by F. R. F a i r c h i l d i n " F o r e s t T a x a t i o n i n t h e U n i t e d S t a t e s " , though used i n p a r t by". other w r i t e r s . ,. A * s i n g l e p r o p e r t y may not remain permanently i n one c l a s s . The d e f e r r e d y i e l d f o r e s t on maturing may be-come an an n u a l s u s t a i n e d y i e l d , which i s the i d e a l s i t u a t i o n , and. the aim of most f o r e s t e r s , o r y e t a d e p l e t i o n y i e l d , the most d e s t r u c t i v e , t y p e . F or t h e purpose of i n v e s t i g a t i n g the i n c i d e n c e ,of the one and a , h a l f per cent f o r e s t p r o p e r t y t a x of B r i t i s h Columbia i n r e l a t i o n t o each of the above types of p r o p e r t i e s c e r t a i n assumptions must be made. L e t each of the t h r e e p r o -p e r t i e s be worth $12,000 i f no p r o p e r t y t a x were i n e x i s t e n c e The i n t e r e s t r a t e may be, t a k e n a t a f a i r l y c o n s e r v a t i v e l e v e l 3 per c e n t . P r o p e r t y No. 1 g e t s 3 per cent p e r p e t u a l l y from h i s f o r e s t l a n d , i . e . §360 per annum. P r o p e r t y No. 2 d e f e r s h i s income f o r 15,f 4 y e a r s when h i s c a p i t a l h a v i n g I n c r e a s e d t o $19,090, he o b t a i n s a p e r p e t u a l a n n u a l income from i t a t the r a t e o f 3 per c e n t , i . e . $572.70 each y e a r . The t h i r d p r o p e r t y produces an a n n u a l i,ncome of ^ $2400 f o r j u s t over f i v e s y e a r s , a t w h i c h time a l l the c a p i t a l i s d e p l e t e d , and no f u r t h e r income i s f o r t h c o m i n g . From, t h i s " i t • w i l l be seen t h a t t h e s e t h r e e p r o p e r t i e s r e p r e s e n t the t h r e e t y p e s o u t -l i n e d above. Now t h e p r o v i n c i a l l e g i s l a t u r e I n t r o d u c e s a I f per cent p r o p e r t y t a x , and f o r t h e sake of comparison i n t h i s s t u d y , an a l t e r n a t i v e of a s t r a i g h t and u n p r o g r e s s i v e 33/£ per cent income, t a x . I n t h e case of each p r o p e r t y , the v a l u e 4. T h i s odd f i g u r e i s o n l y used f o r convenience i n computing ot h e r amounts. -36-of the c a p i t a l ' i m m e d i a t e l y decreases t o $8000, s i n c e t h a t i s a l l t h a t anyone would---pay f o r each p r o p e r t y , a f t e r d i s c o u n t i n g the e f f e c t of t h e t a x . Such a purchaser would have t o bear a l l the f u t u r e t a x e s and the v a l u e of the c a p i t a l i s i n t h e o r y thetsum of i t s t o t a l f u t u r e net income. I n the case of the f i r s t p r o p e r t y , the annual sus-t a i n e d y i e l d c l a s s , the I n c i d e n c e of e i t h e r t h e p r o p e r t y tax. or income t a x I s t h e same. The SS^g per cent income t a x de-. c r e a s e s the a n n u a l income from $360 t o $240, and the v a l u e of t h e c a p i t a l f r om $12,000 t o $8000, j u s t 33^g per cent r e -s p e c t i v e l y . Now on the o t h e r hand the 1-| per cent p r o p e r t y t a x on t h e c a p i t a l v a l u e of the p r o p e r t y , when s u b t r a c t e d must l e a v e enough income t o c a p i t a l i z e t o t h i s Value a t the assumed i n t e r e s t r a t e of 3 per c e n t . Taking "x» as the v a l u e of the c a p i t a l t h e n : 3 6 0 — 0.015X - 0.03x and from t h i s "x" i s $8000 and a" l j per cent p r o p e r t y t a x i n B r i t i s h Columbia would exact $120, j u s t t h e same as 33^g per cent of $560. T h e r e f o r e , i n t h e case of an annual s u s t a i n e d y i e l d p r o p e r t y , a 1-| per cent p r o p e r t y t a x i s e q u i v a l e n t t o a 55^, per c e n t income t a x . The p r e s e n t w o r t h of e i t h e r o t a x on t h i s p r o p e r t y i s a c c o r d i n g l y 55^ per cent of the 5 c a p i t a l v a l u e b e f o r e the i m p o s i t i o n of the tax.. The d e f e r r e d y i e l d (No. 2) p r o p e r t y p r e s e n t s a r a t h e r d i f f e r e n t p i c t u r e . Here t h e $12,000 f o r e s t y i e l d s n o t h i n g f o r 1 5 | y e a r s , b u t t h e n c e f o r # k r d $572.70 per annum. A 5 5 ^ per cent income t a x on t h i s p r o p e r t y would produce n o t h i n g for..*15f y e a r s and t h e n exact $190.90 a n n u a l l y . Under t h i s s t r a i g h t income t a x the p r e s e n t worth of a l l f u t u r e t a x e s would a g a i n be $4000, or 55;teper cent of the v a l u e of the c a p i t a l b e f o r e the i n t r o d u c t i o n of t h e t a x as i n p r o p e r t y No. 1. But. the p r o p e r t y t a x does not a c t i n t h i s manner. I t i s p a i d a l l t h r o u g h t h e 15f year p e r i o d w h i l e the owner i s i n r e c e i p t of no income. To f i n d the burden of t h i s t a x we must f i r s t o b t a i n t h e v a l u e o f the c a p i t a l . Now t h e f u t u r e p e r -p e t u a l income of $572.70 minus the I f per cent t a x must be , e q u a l t o 5 per cent of the v a l u e of t h e c a p i t a l . S o l v i n g . the e q u a t i o n as b e f o r e : . . ....... 572.70 - 0.015X- 0.05x The •'".value, of t h e c a p i t a l (x) comes t o $12,726,66 and a i f per cent p r o p e r t y t a x on t h i s i s $190.90, the same as under the 53/% per cent income tax.. On t h i s . b a s i s of a i f per cent p r o p e r t y t a x - the p r e s e n t worth of t h i s v a l u e i s the amount whic h w i t h i f per cent f o r t a x e s and 3 per cent f o r i n t e r e s t . w i l l equal-$12,7,26.66 i n 1 5 | y e a r s , or t h a t sum d i s c o u n t e d f o r t h i s p e r i o d a t 4 f per cent s i n c e money doubles i n 15'|; y e a r s a t 4 f p e r c e n t ; 5 t h e r e f o r e , the -present. worth ' i s h a l f t h i s f i g u r e , $6365.53. Erom t h i s t h e p r e s e n t w o r t h of the i f per .cent p r o p e r t y t a x i s t h e o r i g i n a l c a p i t a l l e s s 5. .The purpose of t h i s odd number of years w i l l now be e v i d e n t . * -38- • • : / h i s amount '($12,000 - 6363.33) which i s $5637.67. T h i s f i g u r e r e p r e s e n t s t h e i n c i d e n c e of a l l f u t u r e p r o p e r t y t a x payments on t h i s d e f e r r e d y i e l d . p r o p e r t y , and i t amounts t o 46.98 per cent of $12,000, a c o n s i d e r a b l e degree h i g h e r t h a n the 53^g per cent burden on the annual s u s t a i n e d y i e l d p r o p e r t y . F i n a l l y , t h e r e i s the t h i r d t y p e , the d e p l e t i o n y i e l d p r o p e r t y . From t h i s f o r e s t the owner i n our example r e c e i v e s $2400 a y e a r f o r f i v e y e a r s and the remaining cap-i t a l of $1200 the s i x t h y e a r . The income t a x of 3 3 ^ per cen t would t h e r e f o r e produce $800 f o r f i v e y e a r , $400 the s i x t h y e a r and. n o t h i n g a f t e r t h a t . The p r e s e n t v a l u e of thes e amounts i s $4000 or 3 3 ^ p e r cent of t h e c a p i t a l p r e v i o u s t o the l e v y i n g of the t a x . T h i s i s j u s t t h e same as. i n t h e annual s u s t a i n e d y i e l d and d e f e r r e d y i e l d p r o p e r t i e s . The o p e r a t i o n o f the \\ per cent p r o p e r t y t a x i s v a s t l y d i f f e r e n t . T h i s t a x w i l l t a k e each y e a r an amount s u f f i c i e n t " t o make the c a p i t a l f o r t h e f o l l o w i n g y e a r , b e f o r e s u b t r a c t i n g the $2400 income payment, l a r g e r t h a n what i t was the p r e c e d i n g y e a r by 4 j per c e n t , I .e. 3 per cent i n t e r e s t and 1^ per cent t a x . Then t h e v a l u e a f t e r the p r o p e r t y t a x has been d i s c o u n t e d w i l l be 2400 / 1 - ( X 0 4 5 ) " 5 V 1200 _ 1.045 ( 1 - ( 1 . 0 4 5 ^ 1 / t " ( 1 . 0 4 5 ) b which s o l v e d comes t o $10,536. From t h i s i t i s e v i d e n t t h e p r o p e r t y t a x has reduced the v a l u e of the c a p i t a l $464 (12,000 - 10,536), which f i g u r e s r e p r e s e n t o n l y 4.52 per cen€ of . i t s v a l u e . -39-From t h i s a n a l y s i s of these t h r e e types of pro-p e r t i e s the i n c i d e n c e of the I f per cent property, t a x c l e a r -l y I s d i f f e r e n t I n each case. The s t r a i g h t 33^g per cent income t a x t r e a t e d each u n i f o r m l y . Assuming i t remained a t the same r a t e the owner of each p r o p e r t y c o u l d have p r o v i d e d f o r a l l h i s f u t u r e t a x e s by p u t t i n g away a fund e q u a l t o one-t h i r d of h i s c a p i t a l b e f o r e the i m p o s i t i o n of t h e t a x . But v/i t h t h e p r o p e r t y t a x t h e burden was not e q u i t a b l y d i s t r i b u t e d . The p r e s e n t Yvorth of t h i s I f p e r cent t a x on each p r o p e r t y and a c c o r d i n g l y the per cent o f " h i s c a p i t a l b e f o r e t a x e s ^ each owner would have t o l a y a s i d e i n orde r t o meet a l l h i s f u t u r e t a x e s (the t a x r a t i o ) was as f o l l o w s : -1) Annual s u s t a i n e d y i e l d p r o p e r t y 33.33 per eent 2) D e f e r r e d y i e l d property:*' .46.98 " " 3) D e p l e t i o n y i e l d p r o p e r t y , 4.52 " " The c o n c l u s i o n s t o be drawn from t h i s i n e q u i t a b l e ^ s i t u a t i o n a re not v e r y p l e a s a n t . Most s t r i k i n g i s the f a c t t h a t the w a s t e f u l owner comes,off b e s t . Then i t i s a l s o obvious t h a t the p r o p e r t y t a x d i s c r i m i n a t e s a g a i n s t the d e f e r r e d y i e l d f o r e s t i n f a v o u r of tho s e y i e l d i n g some form of a n n u a l i n -come, as No. 1 or No. 2. One a m e l i o r a t i n g c o n d i t i o n s h o u l d be mentioned i n t h i s c o n n e c t i o n . I f the e f f e c t s of the p r o p e r t y t a x are f u l l y u n d e r s t o o d and the r e s p e c t i v e p r o p e r t i e s f u l l y c a p i t a l i z e d t o meet them, t h i s unequal Ihirden l a r g e l y d i s -.__ . — •• - • , ~ ~ ~ T h i s a n a l y s i s f o l l o s s t h a t o u t l i n e d by F.R. F a i r c h i l d i n " F o r e s t T a x a t i o n i n the U n i t e d S t a t e s " , but a l l c a l c u l a t i o n s are o r i g i n a l -40-appears. However, t a x e s are r a r e l y " c a p i t a l i z e d . T h i s i s due i n l a r g e measure t o t h e - i n b o r n tendency of optimism among the buyers and s e l l e r s and the u n c e r t a i n l y of j u s t what t h e f u t u r e may h o l d i n the way of t a x a t i o n . As a r e s u l t , the p r o p e r t y t a x d i s c r i m i n a t e s a g a i n s t d e f e r r e d - y i e l d investments and tends t o encourage e a r l y f e l l i n g of t r e e s as i n a d e p l e t i o n y i e l d . How g r e a t t h i s w i l l be depends t o a g r e a t degree on the l e v e l of the t a x r EL I n f l u e n c e of the t a x r a t e The q u e s t i o n now a r i s e s : w h a t e f f e c t w i l l a change i n t h e t a x r a t e , up or down, have on each type of f o r e s t p r o -p e r t y . T h i s i s a v e r y p e r t i n e n t q u e s t i o n as the t a x r a t e 'seldom remains t h e same f o r any l o n g p e r i o d of t i m e . I n B r i t i s h Columbia t h e p r e s e n t r a t e on.-timber l a n d of I f per cent of i t s a s s e s s e d v a l u e has o n l y been i n e x i s t e n c e s i n c e 1925. From 1917 t o 1925 i t was 3 per c e n t , and p r e v i o u s t o t h a t d a t e 2 per cent.; Taking t h e same t h r e e examples used i n s e c t i o n A, Yie can d i s c o v e r t h e t a x r a t i o a t any g i v e n t a x r a t e . For the 1917-1925 p e r i o d of a 3 per ;cent r a t e t h e s e r a t i o s were as f o l l o w s : -1) Annual s u s t a i n e d y i e l d p r o p e r t y 50.0 per cent • , 2) D e f e r r e d y i e l d p r o p e r t y 76.2 " " 3) D e p l e t i o n y i e l d p r o p e r t y 8.7 " " The d i f f e r e n c e between the s e r a t i o s and those f o r a , l | per cent t a x r a t e i s most n o t i c e a b l e i n the case of the d e f e r r e d -41-y i e l d p r o p e r t y , and l e a s t n o t i c e a b l e i n t h a t of the d e p l e t i o n y i e l d p r o p e r t y . The r e d u c t i o n of the r a t e from 3 per cent t o 1-g per cent i n 1925 t h e r e f o r e b e n e f i t t e d the d e f e r r e d y i e l d p r o p e r t i e s most, but • would - . g e n e r a l l y • tend t o make the i n e q u a l -i t i e s between each, p r o p e r t y l e s s as can be seen by an exarnin-7 a t l o n of Graph No. 4. T h e . c u t t i n g i n h a l f of the r a t e i n 1925 has tended t o make t h e i n e q u a l i t i e s between each type of p r o p e r t y l e s s a g g ravated to-day, a l t h o u g h i n e q u a l i t i e s s t i l l e x i s t where c a p i t a l i z a t i o n of t a x e s i s , not complete as was-pointed out p r e v i o u s l y . Indeed, as e a r l y as 1919, t h e 5 per cent; r a t e 8 was denounced by a Board of T a x a t i o n . However, even though t h e l o w e r i n g of the t a x r a t e may h e l p t o i r o n out i n e q u a l -i t i e s , the u n c e r t a i n t y f o r d e f e r r e d y i e l d f o r e s t s remains pronounced. The r i s k due t o an upward or downward movement i n t h e t a x r a t e over a l o n g p e r i o d f o r such a p r o p e r t y i s v e r y g r e a t . As the income may be d e f e r r e d f o r any l e n g t h of time over t e n y e a r s , the p r o p e r t y t a x s u b j e c t s t h i s p r o -p e r t y t o a r i s k c o m p l e t e l y out of p r o p o r t i o n t o t h a t of the ot h e r two. T h i s i s u n j u s t where, t n e y i e l d i s b e i n g d e f e r r e d on account of t h e i m m a t u r i t y of the t r e e s . However, where 7. Graph No. 4 d e p i c t s the t a x r a t i o f o r each type of pr o -p e r t y a t t a x r a t e s v a r y i n g from per cent t o t h r e e per c e n t . These v a l u e s were computed on the b a s i s of the o r i g i n a l assumptions made f o r e a c h . p r o p e r t y i n s e c t i o n A of t h i s c h a p t e r . 8. Reports of t h e Board of T a x a t i o n ( V i c t o r i a , K i n g ' s P r i n t e r , 1919) p. y 99 -42--43-the f o r e s t " i s being h e l d f o r a r i s e i n p r i c e s , t h e r e i s a j u s t i f i c a t i o n . isAnother i n f e r e n c e t h a t can be drawn from a c l o s e s c r u t i n y of these t a x r a t i o s w i t h v a r y i n g t a x r a t e s , i s the e f f e c t on m a r g i n a l p r o p e r t i e s . L e t us t a k e , f o r example, a p r o p e r t y c l o s e t o w i l d l a n d c o n d i t i o n . I t may have a v a l u e of $10 per a c r e f o r use as a d e f e r r e d y i e l d f o r e s t pro-p e r t y or $6 per a c r e as g r a z i n g l a n d . As l o n g as the t a x r a t i o i s not over 40 per c e n t , the f i r s t use w i l l always be chosen as b e i n g more p r o f i t a b l e , but the minute i t goes above t h i s mark the second w i l l be s e l e c t e d . A h i g h p r o p e r t y t a x r a t e w i l l t h e r e f o r e tend t o so s h i f t the margin f o r d e f e r r e d y i e l d , t h a t l a n d e c o n o m i c a l l y s u i t e d f o r such use w i l l be employed Otherwise. How i m p o r t a n t t h i s w i l l be i n any r e g i o n depends upon the r a t e of the p r o p e r t y t a x on the t i m b e r l a n d t h e r e . C . The Importance of Assessment The a d m i n i s t r a t i o n nf the p r o p e r t y t a x i s another v e r y i m p o r t a n t f a c t o r i n the d e t e r m i n a t i o n of t h e e q u a l i t y of the t a x burden on each c l a s s of f o r e s t p r o p e r t y . In essence, t h i s a d m i n i s t r a t i o n depends upon the a c c u r a c y of the assessment. I t s importance, t h e r e f o r e , , cannot be over emphasized. SEven under, the m i l d e s t of t a x r a t e s i f the assessment i s f a u l t y or i s c a r e l e s s l y c a r r i e d out, t h e r e w i l l r e s u l t i n j u s t i c e i n the t a x burden as between one p r o -p e r t y and a n o t h e r . . -44-By- the laws of the p r o v i n c e of B r i t i s h Columbia an annual assessment r o l l i s prepared i n each assessment d i s t r i c t based on the r e t u r n s rendered by each owner. L i k e other l a n d , t i m b e r l a n d i s ass e s s e d a t "the a c t u a l cash v a l u e of the l a n d . • 9 m money." The main purpose of t h i s assessment i s t o f i n d out the v a l u e of a l l t i m b e r l a n d s u b j e c t t o t a x a t i o n . T h e o r e t i c a l -l y , the v a l u e of a n y t h i n g i n economics i s the q u a n t i t y of some goods or s e r v i c e which c o u l d be o b t a i n e d i n exchange f o r i t . To o b t a i n t h i s as a c c u r a t e l y as p o s s i b l e , a s s e s s o r s u s -u a l l y have access t o s a l e r e a l i z a t i o n s , and s u r v e y and t i m b e r c r u i s i n g d a t e . But a t best any assessment i s a judgment, an attempt, t o a p p r a i s e t h e v a l u e of something. I f p r o p e r t i e s a re o v e r a s s e s s e d , t h e n t h i s i s e q u i -v a l e n t t o r a i s i n g t h e t a x r a t e , and i f un d e r a s s e s s e d , the converse i s t r u e . I f one p r o p e r t y i s assessed a t a d i f f e r e n t l e v e l t o a n o t h e r , t h e n there, i s i n e q u a l i t y between t h e s e two p r o p e r t i e s . The problem t h e n becomes one of d e t e r m i n i n g how a c c u r a t e assessments a r e . On o b t a i n i n g a " t r u e value?', we can from t h i s c a l c u l a t e s r a t i o between t h i s f i g u r e and the as s e s s e d v a l u e . Such a r a t i o i s known as an "assessment r a t i o . " P e r f e c t assessment would i n t h e o r y r e s u l t i n a r a t i o of 100 per c e n t . Now i n t h e assessment r a t i o the numerator i s always knovm, s i n c e i t i s the amount a t which the p r o p e r t y i s a s s e s s -ed on the t a x r o l l s of the p r o v i n c e . But the denominator, T a x a t i o n A c t , R.S. 1924. C. 254. s i . -45-the " t r u e v a l u e " i s not a matter, of r e c o r d . I t can be found by two methods, f i r s t l y by the e s t i m a t e s of an e x p e r i e n c e d a p p r a i s e r , and s e c o n d l y , by a c o n s i d e r a t i o n of s a l e v a l u e s . B oth "methods: are open t o severe c r i t i c i s m , but they are the o n l y way i n which a n y t h i n g l i k e t h i s " t r u e v a l u e " can be o b t a i n e d . The f i r s t method was i m p o s s i b l e f o r t h e ' w r i t e r , so the second i n as f a r as i t was p o s s i b l e has been adopted. S a l e f i g u r e s were c o l l e c t e d from v a r i o u s timber b r o k e r s and lumbermen. Data i n s u f f i c i e n t q u a n t i t y ( r a n g i n g from 2 t o 12 s a l e s i n any d i s t r i c t ) were o n l y o b t a i n e d f o r s i x assessment d i s t r i c t s ; . I t would have been d e s i r a b l e t o l i m i t these f i g u r e s t o s i n g l e year p e r i o d s , but t h i s was not p o s s i b l e due t o the p a u c i t y of m a t e r i a l i n any one y e a r . So t h r e e p e r i o d s were s e l e c t e d , namely 1925-1930* 1951-1934, and 1936-1938. These f i g u r e s were t h e n compared w i t h average assessment f i g u r e s f o r the r e s p e c t i v e p e r i o d s and assessment r a t i o s c a l c u l a t e d from these two g r o u p s . 1 ^ I t must b e / c l e a r l y understood t h a t the r e s u l t i n g assessment r a t i o s are o n l y an i n d i c a t i o n of the a c c u r a c y of assessment i n g e n e r a l , and must not be c o n s t r u e d t o r e -p r e s e n t any i n j u s t i c e i n i n d i v i d u a l assessments i n a s i n g l e d i s t r i c t . The l i m i t a t i o n s of these s a l e f i g u r e s are"nu-merous. To b e g i n w i t h any s a l e a l t h o u g h a c o n t r a c t between a buyer and a s e l l e r I s not i n i t s e l f "prima f a c i e " evidence 10. See Table No.-6 f o r - t h e s e assessment r a t i o s f o r the s i x assessment d i s t r i c t s . -46--* ) Table No. 6 AssBisMeMcl R a t i o s f o r S e l e c t e d D i s t r i c t s i n B r i t i s h Columbia 1925 - 30 Assessment D i s t r i c t : Av. Ass, v a l u e per : Av. S a l e : Ac. :value per Ac: Assessment R a t i o A l b e r n i : $57.47 i ; $ 56.45 • 101.8$ Gomox . ;:: 49.80 : • 56.00 : 88.9$ . Cowichan : 69.46 : 78.66 : 88.3^ Nana imp : 46.18 : 40.00 : 107.-9$ Vancouver : : 100.41 90.2$ • V i c t o r i a _ _ — • • 19 s i - 34. Assessment D i s t r i c t : Av. As s . v a l u e s p e r : Av. S a l e :: Ac:value per Ac; Assessment R a t i o - A l b e r n i : $ 66.66 :, $ 74.07 \ 90$ Comox • .. : 50.69 • i-'s 5 9 e 9 d • 84.6$ Cowichan : 72.18 : ; 84.45 : : 85. '5$ Nanaimo : , 55.63 a 59«52 « Vancouver : - — — : : V i c t o r i a : 39.46 45.00 : 87.7% 1935 - 3 8 Assessment D i s t r i c t : Av. Ass. v a l u e per : Av. Sal e : Ac: v a l u e , p e r Ac: Assessment R a t i o . A l b e r n i . : : $ — • .: • Comox 42.35 : 50.20 : 84.4$ * Cowichan : 51.65 : 56.80 : 90.9$ Nanaimo : 35.86 : 44.60 : 80.4$ Vancouver : _ _ _ 1 / r / • :' • V i c t o r i a : • • - 4 6 ( b ) - , ' : Source: The average assessment v a l u e s p e r . a c r e were c a l -c u l a t e d from the average a s s e s s e d v a l u e f o r each year pu-b l i s h e d i n the Reports of the F o r e s t Branch f o r t h e r e s -p e c t i v e y e a r s . I n as much as they are averages of averages, t h e y are not 100 per cent a c c u r a t e , but the d i s c r e p a n c y over a p e r i o d of a few years i s v e r y s l i g h t . The average s a l e v a l u e s per acre were c a l c u l a t e d from s a l e p r i c e s o b t a i n e d from t i m b e r b r o k e r s and lumbermen. In t h e case of tho s e on the i n s t a l l m e n t b a s i s , the pre s e n t worth was computed. Where the terms of t h e s a l e i n c l u d e d an i n t e r e s t i n the p r o p e r t y , the p r e s e n t v a l u e was e s t i m a t e d , w i t h the a s s i s t a n c e of the lumbermen concerned. Most v a l u e s a r e t h e average of from .5-to 10 s a l e s , but i n no case has an average f o r any d i s t r i c t been used where t h e r e were l e s s t h a n 2 s a l e s Assessment R a t i o _ A s s e s s e d Value expressed as a percentag ~ Sale, Value -47-of the value* of the p r o p e r t y being a©ld. I n the s a l e both p a r t i e s may not have e q u i v a l e n t b a r g a i n i n g power, and the r e s u l t i n g s a l e p r i c e i n such cases w i l l conform t o the p a r t y w i t h the l a r g e s t b a r g a i n i n g power r a t h e r t h a n the a c t u a l market v a l u e of t h e p r o p e r t y . Furthermore, some p r i c e s w i l l , i n a l l p r o b a b i l i t y , r e p r e s e n t f o r c e d s a l e s and a c c o r d i n g l y w i l l n o t be a measure of the market v a l u e a t the t i m e . Over and above the s e r e a s o n s , t h e r e i s the f a c t t h a t a l a r g e number of s a l e s , a r e made on terms, sometimes t o be p a i d i n a l i m i t e d number Of years> and. a t o t h e r t i m e s , g r a n t i n g a p e r -centage of the t o t a l c u t i So, though the assessment r a t i o s c a l c u l a t e d from these s a l e f i g u r e s s e r v e as an i n d i c a t i o n , f o r g e n e r a l purposes, they must not. be a c c e p t e d , " i p s e d i x i t " , t o prove any s p e c i f i c i n e q u a l i t y as between one d i s t r i c t and another. The g e n e r a l i n d i c a t i o n from t h e s e assessment r a t i o s i s t h a t on the whole t i m b e r l a n d i n B r i t i s h Columbia i s assessed below r a t h e r t h a n above i t s a c t u a l v a l u e . I n o t h e r words, the a s s e s s o r s t e n d t o be c o n s e r v a t i v e . T h i s r a t h e r l e a d s to. the c o n c l u s i o n t h a t owners of crown g r a n t s have no c o m p l a i n t i n . t h e matter of over-assessment. No c o n c l u s i o n s as t o d i f f e r e n c e s between d i f f e r e n t assessments can be drawn from the r e l a t i v e l y s m a l l m a t e r i a l a v a i l a b l e f o r t h i s study. Chapter V The Ground Tax or Rent A. Theory and g e n e r a l e f f e c t s of the t a x . The ground t a x or r e n t i s a f l a t charge exacted a n n u a l l y and computed on t h e b a s i s of some s p e c i f i e d u n i t of a r e a . I n Canada, the u n i t of a r e a t h a t has come i n t o g e n e r a l acceptance i s the square m i l e , so t h a t . t h i s t a x i s l e v i e d a t a c e r t a i n r a t e per square m i l e . The d i f f e r e n c e between such a " t a x and the p r o p e r t y t a x now becomes e v i d e n t . Whereas a t a x on a square m i l e of f o r e s t l a n d under t h e l a t t e r may v a r y from year t o year-•as t h e assessment v a r i e s (assuming the r a t e remains c o n s t a n t ) , under the former I t i s a b l a n k e t charge i n each j u r i s d i c t i o n and does not v a r y each y e a r . To g i v e a c l e a r c u t p i c t u r e of the t h e o r y of t h i s t a x I s not v e r y easy. To s t a r t w i t h , i t s f i r s t i m p o r t a n t c h a r a c t e r i s t i c i s t h a t i t i s l e v i e d a n n u a l l y . As--s«eh, jshere-' f o r e ^ p a r t of i t s d e s i g n i s t o be a r e g u l a r revenue p r o v i d e r f o r t h e government. Furthermore, a l t h o u g h i t d i f f e r s from th e p r o p e r t y t a x i n the e s s e n t i a l p o i n t o f b e i n g a f l a t r a t e as opposed t o a percentage r a t e on an a s s e s s e d v a l u e , as i&as e x p l a i n e d above, i t n e v e r t h e l e s s has a marked resemblance t o t h e p r o p e r t y t a x i n o t h e r ways. The r e n t i s charged on the u n i t a r e a of l a n d and not on the t i m b e r , a l t h o u g h the amount of t i m b e r per u n i t a r e a d e f i n i t e l y has a b e a r i n g on the u l t i -mate r a t e of t h e t a x . N o t w i t h s t a n d i n g t h i s f a c t , the p r o p e r t y r a t h e r t h a n t h e t i m b e r on i t i s the a c t u a l b a s i s of the t a x , and i n t h i s r e s p e c t i t i s a type of p r o p e r t y t a s . There i s , however, one f u r t h e r element I n the ground -49-t a x , t h a t of a t a x i n the form of a l i c e n s e f o r o p e r a t i o n . I n p r i m i t i v e s o c i e t i e s the w e a l t h produced by a savage i s near-l y iy: a l l wages, v e r y l i t t l e g o i n g t o i n t e r e s t and none t o rent.- With the e v o l u t i o n of p r o g r e s s r e n t becomes a s t e a d i l y i n c r e a s i n g f a c t o r i n w e a l t h . I t r e p r e s e n t s the v a l u e of the o p p o r t u n i t y t o accumulate r i c h e s . T h i s v a l u e i s not a s t a t e c r e a t i o n or a p e r s o n a l c r e a t i o n , but a v a l u e i n h e r i t e d from a m u n i f i c e n t C r e a t o r a t the b e g i n n i n g o f time enhanced by the outcome of s o c i a l p r o g r e s s . T The owner of the l a n d f o r the p e r i o d of h i s s e i s i n , h a s a monopoly over the o p p o r t u n i t y t o produce w e a l t h t h e r e o n . I n t h e r e n t a l t h e r e i s a c c o r d i n g l y , an element of t h e l i c e n s e t a x i n an attempt t o t a x t h i s un-earned o p p o r t u n i t y f o r p r o f i t . A l t h o u g h the e f f e c t of such a t a x depends v e r y l a r g e l y on the r a t e and t h e c o n d i t i o n s of i t s o p e r a t i o n , c e r t a i n g e n e r a l e f f e c t s a p p l i c a b l e under n e a r l y any c i r c u m s t a n c e can be observed. As an annual t a x i t w i l l always tend t o en-courage q u i c k c u t t i n g and d i s c o u r a g e h o l d i n g the l a n d f o r the t i m b e r t o mature or f o r a second.crop. S i n c e the i d e a of developing, t h e f o r e s t as a crop r a t h e r t h a n a w a s t i n g a s s e t i s the aim o f modern f o r e s t r y , such e f f e c t s are by no means i n the b e s t i n t e r e s t s of sound f o r e s t r y p r a c t i s e . I f we c o n s i d e r t h e t h r e e t y p e s o f p r o p e r t i e s d e s c r i b e d i n t h e l a s t c h a p t e r , t h i s , t a x l i k e t h e p r o p e r t y , tends t o d i s c r i m i n a t e i n f a v o u r of a d e p l e t i o n y i e l d p r o p e r t y , as against, an annual s u s t a i n e d y i e l d p r o p e r t y or a d e f e r r e d y i e l d p r o p e r t y . But from t h i s i t must n o t be c o n s t r u e d t h a t the t a x i s n e c e s s a r i l y " i p s o -50-f a e t o " unjust', s i n c e the most i m p o r t a n t s i n g l e f a c t o r i n d e t e r m i n i n g the j u s t i c e or i n j u s t i c e of such a t a x i s the r a t e . •From the government's p o i n t of view the t a x has much .to commend i t . Wot o n l y does i t b r i n g i n an always r e -c u r r i n g amount of income.to the p r o v i n c e ' s c o f f e r s , but i t i s much l e s s c o s t l y t o a d m i n i s t e r t h a n t h e p r o p e r t y t a x . As i t i s a f l a t r a t e per square m i l e a l l t h a t i t i s n e c e s s a r y t o know f o r c a l c u l a t i n g t h e t a x i s the a r e a of t h e p r o p e r t y t o be t a x e d . There a r e no expensive assessment: ;costs t o be met ever y y e a r , and t h i s s a v i n g i s of no small, importance t o any government. As a r e s u l t , many j u r i s d i c t i o n s i n Canada have f a v o u r e d t h i s method, and adopted i t i n p r e f e r e n c e t o the s t r a i g h t p r o p e r t y t R. The p o s i t i o n of r e n t a l s i n t h e t a x - s t r u c t u r e * I n B r i t i s h Columbia the an n u a l r e n t a l i s l e v i e d on t h r e e t y p e s of t e n u r e , namely t h e t i m b e r l e a s e , t h e ti m b e r l i c e n s e and the t i m b e r s a l e . " I t p a r a l l e l s on the s e tenures the p r o p e r t y t a x on oroim-granted l a n d s . As a source of t a x funds i t has g r a d u a l l y been d e c l i n i n g i n importance. A q u a r t e r of a c e n t u r y ago about t h r e e - q u a r t e r s of the f o r e s t revenues '•cane from t h i s o r i g i n , whereas t o - d a y t h e f i g u r e r e p r e s e n t s o n l y . o n e - f i f t h of the s e reveues. The f o l l o w i n g t a b l e shows i t s r e l a t i v e importance i n the f o r e s t revenues and f o r e s t t a x s t r u c t u r e f o r the l a s t t w e n t y - f i v e y e a r s . 1 1. The percentages i n the f i r s t column were c a l c u l a t e d from the f i g u r e s f o r each t a x and the t o t a l s o b t a i n e d from t h e Reports of the F o r e s t Branch f o r t h e years 1915, 20, 25, 30, 35-38. Those i n t h e second column were o b t a i n e d -51-Table No.,7 :Year : % o f ' T o t a l . F o r e s t Revenue : % of T o t a l F o r e s t 1915 : 65.2 - : 70.6 1920 49.9 - 'j . 59.8 1925 : 51.9 \ 45.8 1950 : 28,1 — 55.9 1935 : 18.5 25.5 1956 ; 20.5 • 25.8 1937 : 1-957 • :• 19.8 - \ 22.9 1958 i 21.5 - • : 26.2 The main cause f o r . t h i s decrease i s t h a t both t i m b e r l i c e n s e s and t i m b e r l e a s e s , as was e x p l a i n e d i n Chapter 111 are no l o n g e r g r a n t e d . S i n c e t h e y p r o v i d e about 95 per cent of the t o t a l r e n t a l f e e s , as t h e y l a p s e o r are g i v e n up so the t o t a l of r e n t a l s d e c r e a s e s . The amount of r e n t a l s from, t i m b e r s a l e s i s i n f i n i t e s i m a l and has i n c r e a s e d l i t t l e i n the l a s t t e n y e a r s . An average f o r the t e n year p e r i o d 1929-1958 g i v e s the f o l l o w i n g c o m p o s i t i o n f o r the s e ground t a x e s . Timber l i c e n s e r e n t a l s 87.2 per cent Timber l e a s e r e n t a l s 9.5 " » . Timber s a l e r e n t a l s 5.5 " " I (Cont.) by adding the t o t a l s f o r a l l r e n t a l s , r o y a l t i e s and p r o p e r t y t a x f i g u r e s and computing the per cent of r e n t a l s i n t h i s amount. 2.The above percentages were c a l c u l a t e d a f t e r a v e r a g i n g the t o t a l s f o r each r e n t a l source f o r the t e n year p e r i o d * 1929-1958 as p u b l i s h e d each year i n the Reports of the F o r e s t Branch. -52-' C-. The r a t e of the t a x . There are two main r a t e s charged f o r r e n t a l s i n t h i s p r o v i n c e . West of the Cascade Mountains the r a t e i s $140 per square m i l e , w h i l e east of the Cascades i t i s o n l y $100 per square m i l e . The o n l y e x c e p t i o n s t o t h e s e r a t e s are those on p u l p l i c e n s e s which are h a l f of these r a t e s i n the r e s p e c t -i v e r e g i o n s , i . e . $70 on the c o a s t and $50 i n the i n t e r i o r . The f i r s t p o i n t worthy of e x a m i n a t i o n i n the above r a t e s i s the d i f f e r e n c e "between those east and west of the Cascades. T h i s r e d u c t i o n of $40 i n the i n t e r i o r i s due t o the .. s m a l l e r volume of timber- t o t h e a c r e i n t h i s r e g i o n . The s t a t u t o r y d e f i n i t i o n of t i m b e r l a n d t h e r e i s o n l y 5000 board f e e t t o the a c r e as a g a i n s t 8000 board f e e t t o the acre on the c o a s t . From t h i s d i f f e r e n c e _aione we can see a b a s i s f o r the d i v e r g e n c e i n the two r a t e s . I n o r d e r t o a n a l y s e these two r a t e s more c l o s e l y , t h e f o l l o w i n g method has been adopted. The purpose of t h i s method: was t o compare th e two r a t e s by f i n d i n g out what per cent of the v a l u e the t a x took i n any, one y e a r . T h i s was a c h i e v e d by f i r s t c a l c u l a t i n g the average number of board feet- t o the square m i l e from t h e t o t a l stand and area f o r each r e g i o n . Then t a k i n g t h e average stumpage p r i c e ( t o the n e a r e s t even number) f o r B r i t i s h Columbia t i m b e r s a l e s f o r t h e ' y e a r 1938, and computing from t h i s a f i g u r e f o r the a v e r -age v a l u e of one square m i l e on t h e c o a s t and i n t h e i n t e r i o r . H a v i n g o b t a i n e d these f i g u r e s , t h e n i t was p o s s i b l e t o a s -c e r t a i n what per cent $140 and $100 a p p r o p r i a t e d r e s p e c t i v e l y of the average v a l u e s f o r a square m i l e west and east of the C ascades. T h i s i s i l l u s t r a t e d i n d e t a i l i n Table No. 8. The r e s u l t s of t h i s a n a l y s i s tend t o show .that the $100 "rate i n the i n t e r i o r i s the h i g h e r of the two.. The r a t e t h e r e of 1.95 per cent i s more t h a n t?vice as h i g h as t h a t of 0.92 per cent on t h e c o a s t . C o n s i d e r i n g t o o , the f a c t t h a t stumpage v a l u e s i n the i n t e r i o r a r e o f t e n lower t h a n on the c o a s t , whereas i n t h i s t a b l e the average r a t e f o r the whole of B r i t i s h Columbia was used, th e h i g h e r percentage would i n a l l . ; , p r o b a b i l i t y be r a i s e d . Only f i g u r e s f o r merchantable ti m b e r and i t s area were used h§re as t h e y were the o n l y ones o b t a i n -a b l e f o r b o t h r e g i o n s . I t i s , however, u n l i k e l y t h a t the - a d d i t i o n of volume and a r e a f i g u r e s f o r immature t i m b e r would a l t e r these r e s u l t s t o an a p p r e c i a b l e * degree.u FFrom the above i t would appear t h a t t h e r e i s i n t h i s s i t u a t i o n a c e r t a i n I n e q u a l i t y , the d i s c r i m i n a t i o n being a g a i n s t the i n t e r i o r . I t i s p e r t i n e n t now t o i n q u i r e how B r i t i s h Columbia' r a t e s compare w i t h those i n o t h e r p r o v i n c e s of Canada. Four o t h e r j u r i s d i c t i o n s b e s i d e s t h i s , p r o v i n c e l e v y ground t a x e s . The r a t e s of t h e s e a r e a s a r e as f o l l o w s : -New Brunswick $8 per square m i l e Quebec $3 « » " O n t a r i o $5 " " Dominion l a n d s $5 " .••»'. « (but $128 f o r l a n d s s i t u a t e d i n B r i t i s h Columbia. On the f a c e of i t t h e s e r a t e s appear v e r y low i n comparison t o those on t h e P a c i f i c . But a n a l y s i n g them i n Table No. 8 rnm^rison of BT±t±sh^o^^M-^I^^^• TD /~\ rr ~i /~\Y") Merchantable : Timh^r (bd. f t . ) : Area fsw. M i . ) : Average No. of bd. f e e t per so. mi. Kegion » * • 155,128,800,000 : 12,512 s 12.599,724 Coasx. 1 q q ^ - 7 0 /inn.000 : 23,088 : 4,308.512 i n t e r x u i . ^ » ^ • ~ Source: m i ™ s 1 and 2 are fr.om Mulhollana 284.496 Quebec O n t a r i o • S3.260.000,000. : 56.101 • 59.287 Source: average D U U I U J J U 6 V ~ ~ - , , W Q i n the " F o r e s t r y C h r o n i c l e " f o r 19o8. columns are a g a i n computed from t h e s e The r e m a i n i n g The Dominion t o base c a l c u l a t i o n s c o u l d not be °£^inea. i i n from 40 t o 60 per c e n t , and so t h i s S f f i r E f t S ! ^ e n i a g e d « t o between c e n t . and 3 per -54-Average Stumpage v a l u e per.1000 bd. f t Average v a l u e per sq.. mi. . R e n t a l Rate Tax per cent of v a l u e . $1.20 $15, 119.67 '. $140.00 0.92$. 1.20 5, 169.97 100.00 ' 1.93$ , Avera^ Value « je Stumpage : per 1000 bd.. f t . * Average V a l u e : :per sq. ml.. : R e n t a l • .. Rate Tax per cent of v a l u e i • j>X»25 • , $896.75 : $8.00 0.89$ ' . 1«25 • 355.62 . : 3.00 ' 0, 85$ 1.70 : 100.79 , : 5.00 : 4.96$ -55- • t h e same mariner as p r e v i o u s l y shows t h a t the f.140 r a t e com-pares v e r y f a v o u r a b l y t o them. Only i n O n t a r i o does the r a t e seem r a t h e r burdensome. T h i s demonstrates t h a t c o n t r a r y t o the b e l i e f of some p e o p l e , the §140 per square m i l e i s no h e a v i e r t h a n t h e ; s e e m i n g l y lovrer r a t e s i n the e a s t e r n pro-v i n c e s . The a c t u a l percentage f i g u r e s would change w i t h the r i s e and f a l l i n stumpage values,. b u t , assuming these o n l y change r e l a t i v e l y , the a l t e r a t i o n i n the per cent t h a t the t a x t a k e s i n each p r o v i n c e would be p r o p o r t i o n a l i n every case. D e s p i t e the low percentage t h a t t h i s a n a l y s i s ' s h o w s . " t h e $140 r e n t t o e x a c t , i n p r a c t i s e the burden i s much h e a v i e r . As ,was poin t e d ' out i n s e c t i o n B, t i m b e r l i c e n s e s s u p p l y a l -most 90 per cent of t h e s e t a x e s . Now by f a r the m a j o r i t y of th e s e l i c e n s e s a r e under 640 ac r e s i n e x t e n t and no r e d u c t i o n i n t he ground t a x i s a l l o w e d on t h i s account. As a r e s u l t , the $140 or $100 r e s p e c t i v e l y i s p a i d i n a l a r g e number of p r o p e r t i e s f o r some f r a c t i o n of a square m i l e . T h i s would., of c o u r s e , i n c r e a s e the percentage of the v a l u e which t h e t a x c o n f i s c a t e s . T h i s same p r i n c i p l e i s i n evidence i n the q u e s t i o n of t a x r e d u c t i o n s . By law t h e annual r e n t a l may be reduced each y e a r 4 by t h e o m i s s i o n from i t s computation of s i x hundred and f o r t y a c r e s or any m u l t i p l e t h e r e o f , which has been logged o f f t o the s a t i s f a c t i o n of t h e M i n i s t e r of Lands. A g a i n the s m a l l l i c e n s e h o l d e r s cannot t a k e advantage of t h i s S. See t a b l e No. 9. 4. F o r e s t A c t , 1912 2 George V, c.17. r e d u c t i o n . - •• The f l a t r a t e has a l s o a d e c i d e d l y v a r y i n g e f f e c t on d i f f e r e n t t e n u r e s , r e g a r d l e s s of what percentage of the v a l u e i t may be a p p r o p r i a t i n g . The t i m b e r s a l e which,runs f p r o n l y a few y e a r s b a r e l y f e e l s t h e burden of the t a x . I t may be l i k e n e d .to.-a d e p l e t i o n y i e l d p r o p e r t y , and as under the p r o p e r t y t a x a g a i n comes o f f b e s t . On the o t h e r hand, a l i -cense or l e a s e i s u s u a l l y h e l d over a number of y e a r s . Con-s e q u e n t l y , the e f f e c t : o n a n n u a l s u s t a i n e d y i e l d p r o p e r t i e s and even more so on d e f e r r e d y i e l d p r o p e r t i e s becomes v e r y bur-densome i n comparison t o t h a t on a timber, s a l e . . I n t a b l e No. 10, the c o s t of c a r r y i n g r e n t a l s i n B r i t i s h Columbia and i n o t h e r p r o v i n c e s f o r p e r i o d s from 10 t o 100 years i s g i v e n . I n order t o o b t a i n fil&rly c o n s e r v a t i v e f i g u r e s money has been v a l u e d a t 3 per c e n t . Prom t h i s t a b l e the lumberman can f i n d out h i s t a x b i l l i f he d e f e r s h i s y i e l d f o r some f u t u r e date or i n t e n d s t o r e t u r n , f o r a second l o g g i n g i n t h e f u t u r e . Assuming a lumberman owns one square m i l e under l i c e n s e on the c o a s t , h i s t a x b i l l f o r any such o p e r a t i o n i n the f u t u r e i s somewhat prodigious." I n 20.years #3763 " 40. " $10,560 » 80 " $46,176 "100 " $85,082 The l o n g e r the p e r i o d of w a i t i n g f o r t h e a c t u a l l o g g i n g , t h e f a s t e r the t a x b i l l grows. The i n c r e a s e f o r each t e n year p e r i o d i s . p r o p o r t i o n a t e l y g r e a t e r as time goes on. -57-~-There i s ong f i n a l c o n s i d e r a t i o n w i t h r e g a r d s t o the r a t e . That Js the problem of t a x d e l i n q u e n c y . Under the pre s e n t system, i f the t a x i s not p a i d i n any year $1.25 a month i s charged f o r each month u n t i l t he t a x i s p a i d . A f t e r one year of d e l i n q u e n c y t h i s p e n a l t y i s r a i s e d t o $10.00 a month. At the end of two years the l i c e n s e or l e a s e i s then withdrawn from i t s owner. The b i l l f o r p e n a l t i e s a t t h e end of one year i s not v e r y g r e a t ($15), but the r i s e f o r t h e second year can o n l y be j u s t i f i e d on two grounds, s a p u n i s h -ment f o r non-payment, or i n order t o prevent the t a x e s a c c u m u l a t i n g t o the e x t e n t t h a t the s e c u r i t y of t h e p r o p e r t y becomes inadequate. The l i k e l i h o o d of t h i s s i t u a t i o n b e i n g reached i n two y e a r s would n o t , however, appear v e r y g r e a t . A f t e r two. y e a r s , the p e n a l t y b i l l i s $135, o u t s i d e of the a c t u a l t a x e s owing, almost the c o s t of another y e a r ' s t a x e s on the c o a s t . The r e s u l t of t h i s p o l i c y has been t o f o r c e many l i c e n s e s t o r e v e r t t o t h e crown, and has c o n t r i b u t e d i n no s m a l l measure, t o t h e c o n t i n u e d drop i n the number of these l i c e n s e s i n t h e l a s t q u a r t e r of a c e n t u r y . While much of t h i s t i m b e r l a n d may h a v l been w i l d l y s t a k e d i n the e a r l y n i n e t e e n u hundreds, t h e p e n a l i z i n g e f f e c t ' o f t h i s d e l i n q u e n c y p o l i c y 5 seems r a t h e r h a r s h . 5. I n 1937 the r e p e a l of s e c t i o n 44 of t h e " F o r e s t A c t " '" r e i n s t a t e d many l i c e n s e s l o n g i n a r r e a r s , but t h i s p r i -v i l e g e ' w a s withdrawn, a f t e r r u n n i n g f o r o n l y . a few months. Table No. 10 Host of C a r r y i n g Rents i n Canada-Tifiri q d i c t i o i l * Rent : 10 y r s . : 20 y r s . : 30 Y r s . : 3.00 : 34 : 81 \ 143 1^ Llv> MC - V-x . — l O n t a r i o : Dom. l a n d s out sice: of B- C. : 5.00 : 57 : 134 : 238 t v t o w "RTiinswick 3 8.00 : 92 : 215 : 381 : \2 W ,)..J-1- vv -1- ^ -*- , * P u l p l i c e n s e --i ri+. p t i or ( B. C. ) 50.00 573 , 1344 2380 P u l p l i c e n s e -nnast (~B. C.) : 70.00- : 803 \ 1882 : 3332^ r > p _ I n t e r i o r •100.00 '. 1147 \ 2688 4760 Pimn l a n d s i n B.C \128.00 1468 \ 3441 • 6093 B. C. - c o a s t :140.00 \ 1606 3763 i 6664 Source: The above v a l u e s were d e r i v e d from t h e f o l l o w i n g f o r m u l a : -S _ a ( l i.Qv1- 1). T7op w i ; where "a" t h e annua l r e n t a l payment, "n" t h e number of y e a r s , and "p" t h e per cent ( i n t e r e s t ) at w h i c h the r e n t a l i s t o be compounded. -58-40 y r s : 50 y r s : 60 y r s . : 70 y r s . • * : 80 y r s : 90 v r s 100 Y r s . ,226 : : 559 489 : .. 692 :• 990 : 1331 : 1825 577 : 564 : 816 :. 1154 : 1649 : 2218 • : . 5059 : 605 : 903 ! 1505 : 1846 . 2659 : 5549 : 4862 5771 5641 8156 ' 11,556 16,492 ': 22,18,0 . 30,586' .5280 : 7898 , i 11,419 j 16,150 25,088 i 51.052- 42,541 7545 \ 11,285 j 16,515 25,072 ! 52,985 : 44,560: 60,775 ... 9655 ': 14,442 ': 20,881 S 29,552 : 42,218 S6.781: 77,789 10,560 l 15,796 : 22,858 ; 52,501 j 46,176 :' 62.104! 85.082 - 5 9 -" . * ' Chapter VI The Fibrest X I e l d Tax i n B r i t i s h Columbia A, Theory and forms of the t a x . . As a r e s u l t of the i n h e r e n t i n e q u a l i t i e s of the p r o p e r t y t a x as a p p l i e d t o f o r e s t s , some/new t y p e of - t a x was w i d e l y d e s i r e d by f o r e s t owners. The main t h e o r e t i c a l ob-j e c t i o n t o the p r o p e r t y t a x i s t h a t the t a x has o f t e n t o be p a i d b e f o r e t h e r e c e i p t of any income from the p r o p e r t y . A c c o r d i n g l y , the i d e a of a f o r e s t t a x based on income r a t h e r t h a n p r o p e r t y f i n d s c o n s i d e r a b l e support among f o r e s t owners. Having proceeded t h i s f a r , the next q u e s t i o n i s whether the base s h o u l d be g r o s s or net income. The former possesses two o u t s t a n d i n g advantages.- F i r s t l y , i t i n s u r e s a more r e g u l a r , t a x a b l e income f o r t h e government, and s e c o n d l y , i t i s much e a s i e r t o a s c e r t a i n t h a n the r a t h e r w i l l o' .wisp f i g u r e of r e a l net income. I n most j u r i s d i c t i o n s where i t has been adopted, t h i s t a x has been r e s t r i c t e d i n i t s a p p l i c a t i o n t o the stumpage v a l u e of the t r e e s and the f o r e s t p r o d u c t s , a t the time of t h e i r c u t t i n g . As such, the f o r e s t y i e l d t a x i s a type of severance t a x . I t s most imp o r t a n t a s s e t i s the f a c t t h a t i t e x a c t s nothing, u n t i l a f t e r the r e c e i p t of income. The e s s e n t i a l c h a r a c t e r i s t i c of t h i s p l a n i s the use o f ai l f t r t income b a s i s i n p l a c e of a p r o p e r t y b a s i s . I t s a d o p t i o n can be i n e i t h e r the pure form or a m o d i f i e d form. -I n the pure form b o t h the l a n d and the timber are u t i l i z e d i n th e computation of t h e t a x . On the other hand, i n the modi-f i e d form o n l y t h e t i m b e r i s t a k e n i n t o account and the l a n d i s l e f t s t i l l s u b j e c t t o an annual t a x . I n t h i s s i t u a t i o n the y i e l d t a x a p p l i e s t o the a c t u a l cut of timber and other f o r e s t p r o d u c t s . T h i s v e r y t a x under the name of " r o y a l t y " i s the type_ of y i e l d t a x i n o p e r a t i o n i n B r i t i s h Columbia. A pure y i e l d t a x a l t h o u g h i t might a t f i r s t appear the more l o g i c a l and simple of the two i s on t h e whole l e s s advantageous t h a n the m o d i f i e d form. F o r e s t l a n d s have other uses t h a n the f e l l i n g of the t i m b e r , o n themy such as g r a z i n g and a n i m a l and f i s h p r e s e r v e s . A g a i n , they may be used f o r t h e i r t i m b e r w h i l s t the l a n d i s being h e l d as a s p e c u l a t i o n f o r i n c r e a s e d v a l u e i n the f u t u r e e i t h e r f o r a g r i c u l t u r a l or r e s i d e n t i a l p u r p o s e s . The e x t r a v a l u e the f o r e s t g a i n s from' these p r e s e n t or f u t u r e uses i s not t a x a b l e under a pure y i e l d t a x system* But by p a r t i a l l y keeping a t a x on t h e l a n d ( e i t h e r the p r o p e r t y t a x or r e n t a l as i n B r i t i s h Columbia) t h i s i s t a k e n c a r e o f . Under the m o d i f i e d form of y i e l d t a x , a d e f i n i t e source of revenue i s a l s o a s s u r e d from some type o f . l a n d t a x . ; T h i s b r i n g s us r i g h t up a g a i n s t the f i r s t o b s t a c l e i n the way of- a y i e l d t a x system, t h e danger of i r r e g u l a r revenue. Any t a x oi\ income w i l l tend t o -vary, with- changing b u s i n e s s c o n d i t i o n s . T h i s has not been a d e t e r r e n t t o i t s o p e r a t i o n i n B r i t i s h Columbia f o r two reasons. F i r s t l y , the p r o p o r t i o n . o f o l d - g r o w t h t i m b e r b e i n g cut i s q u i t e - h i g h . Where t h e f o r e s t s a re m o s t l y young growth and the cut i s con-s e q u e n t l y s m a l l t h i s t a x runs i n t o d i f f i c u l t i e s from a f i s c a l p o i n t of view. Secondly, the t a x i s l e v i e d p r o v i n c i a l l y and -61-n o t b y each 'separate m u n i c i p a l i t y or c i t y as i n p a r t s of the U n i t e d S t a t e s of America. T h i s means t h a t the heavy cut of one d i s t r i c t w i l l h e l p t o "balance up the s m a l l cut of another d i s t r i c t . The importance of t h i s f a c t can he seen from the c o m p o s i t i o n of the r o y a l t y f i g u r e s f o r 1938. Table Mo. 11 ' . D i s t r i c t : F o r e s t Area : R o y a l t i e s Vancouver . :' 6,539,700 Ac. j 11,216,787.01 P r i n c e Rupert i 8,490,200Ac. ; 99,559.55 F o r t George : 14,867,900 Ac. : 55,503.01 Kamploops - : 4,542,400 A c : . 81,S72,67 N e l s o n '••:. 6,048,000 Ac. : 95,365.59 -On the assumption t h a t each o f . t h e s e f o r e s t d i s t r i c t s were a s e p a r a t e county u n i t . r u n n i n g i t s own f i n a n c e s , ' a y i e l d t a x would not be p r a c t i c a l f o r P r i n c e Rupert, F o r t George, Kamp-lo o p s or N e l s o n . They would be f o r c e d t o employ a l a n d tax. t o o b t a i n s u f f i c i e n t revenue. But mrhen the s e revenues are p r o v i n c i a l t h e s e s e c t i o n a l d i f f e r e n c e s l o s e t h e i r prominence. The t r u t h ; o f t h i s i n B r i t i s h Columbia i s e v i d e n t from t h e c o n t i n u a l growth i n the importance of r o y a l t i e s as a f o r e s t revenue producer and i n the f o r e s t t a x s t r u c t u r e . I n no year have t h e y been the cause of a shortage i n expected 1. R e p o r t s of the F o r e s t Branch, 1938, and ;IMulholland " F o r e s t s of B r i t i s h Columbia." .".'•"• ; -68-f o r e s t t a x rWenue, but r a t h e r the o p p o s i t e . The f o l l o w i n g t a b l e shows t h i s v e r y c l e a r l y . Table No. 12 Year : % of T o t a l F o r e s t Revenues . % of T o t a l F o r e s t Taxes. 1915 : 18.3 19.6 1920 2 5 • 1 29.B 1925 . - 42.6 .. . .; 43.7 1930 42.5 51.2 : 1935 54.9 64.0 1936 : ) 55.9 65.9 1937 : 54.3 66.3 : 1938 -.. : 50.3 63.1 Another o b s t a c l e i s the d e s t r u c t i o n of the b a s i s f o r comparing th e t a x burden on f o r e s t p r o p e r t i e s , w i t h o t h e r types of l a n d i n v e s t m e n t . Timber owners tend t o l o s e a p r o t e c t i o n a g a i n s t u n e q u a l t a x t r e a t m e n t i n comparison w i t h t h a t under a u n i f o r m p r o p e r t y t a x on a l l types of l a n d . T h i s r e a s o n has done much t o prevent i t s more widespread a d o p t i o n i n the U n i t e d St &Xi es. F i n a l l y , t h e r e i s t h e problem of i t s a d m i n i s t r a t i o n . The percentage t a x has t o be c a l c u l a t e d on some measure of the 2. The p e r c e n t a g e s i n the f i r s t column were c a l c u l a t e d , f r o m t h e f i g u r e s f o r each t a x and the t o t a l F o r e s t Revenue g i v e n i n the R e p o r t s of the F o r e s t Branch f o r the r e s p e c t i v e y e a r s . The second column was o b t a i n e d by adding the t o t a l s f o r t h e r o y a l t i e s , r e n t a l s and the p r o p e r t y t a x , and t h e n computing the per cent of t h e r o y a l t i e s from t h i s t o t a l amount. -63- • stumpage v a l u e , the d e t e r m i n a t i o n of which would be by no means an easy m a t t e r . Even i f i t were based on the p r i c e of l o g s , these.would v a r y from day t o day i n d i f f e r e n t l o c a l i t i e s , and, a c c o r d i n g l y , make any computations somewhat c o m p l i c a t e d . On t o p of t h i s t h e r e i s the d i f f i c u l t y , o f d e t e r m i n i n g the exact amount of the c u t . B r i t i s h Columbia has got over t h i s d i f f i -c u l t y by a d o p t i n g a f l a t r a t e per 1000 board f e e t c u t . This t o g e t h e r w i t h the h i g h l y e f f i c i e n t method of government s c a l i n g p r a c t i s e d i n the p r o v i n c e , g e t s over t h i s o b s t a c l e . Yet i t i s c e r t a i n l y no panacea, the f l a t r a t e per 1000, as w i l l be ex-p l a i n e d i n a l a t e r s e c t i o n . B. The o p e r a t i o n of the t a x . The main schedule of r o y a l t i e s a p p l i e s t o t i m b e r cut on t i m b e r l e a s e s , t i m b e r l i c e n s e s and timber s a l e s . As w i t h t h e ground t a x , a s e p a r a t i o n i s made between the r e g i o n s east and west of t h e Cascade Mountains. I n the former, the r o y a l -t i e s a re l e v i e d a c c o r d i n g t o s p e c i e s o n l y , but i n the l a t t e r , t h e grade of each t y p e of l o g i s a l s o t a k e n I n t o c o n s i d e r a t i o n . On the average, t h e s e r o y a l t y charges range from $1.50 t o $0.60 per 1000 board f e e t c u t . Besides t h i s , t h e r e i s a de-t a i l e d s c h e d u l e f o r p o l e s , p i l i n g ; , hewn r a i l w a y t i e s , mining p r o p s , f e n c e - p o s t s , cordwood, e t c . Crown g r a n t s a r e , however, on a d i f f e r e n t f o o t i n g . Timber cut from l a n d o b t a i n e d i n t h i s manner p r i o r t o A p r i l 7, 1887, i s f r e e from any r o y a l t y , but i s s u b j e c t t o a m a n u f a c t u r i n g oax, a l l of which, except 1 per c e n t , i s r e --64-bated i f the* t i m b e r i s manufactured w i t h i n the p r o v i n c e . 0 T h i s t a x , a l t h o u g h not a r o y a l t y , i s a l w a y s . i n c l u d e d i n the r o y a l t y f i g u r e s f o r each y e a r . Crown g r a n t s bought: from 1887 t o 1914 pay a f l a t r o y a l t y of $0.50 per 1000 board f e e t c u t , r e g a r d l e s s of s p e c i e s or grade. Any l a n d g r a n t e d sub-sequent t o t h i s date f a l l s under th e same r e g u l a t i o n s as the other t e n u r e s . T h i s p r e f e r r e d p o s i t i o n w i t h r e g a r d t o r o y a l t i e s which the e a r l i e r crown g r a n t s possess i s an awkward problem. •Admittedly',, the exemption p r i o r t o 1887 and the lower r a t e from,. 1887 t o 1914' were p r o v i d e d f o r by s t a t u t e at the time at which the tenure was g r a n t e d , and were the c o n d i t i o n s under which the l a n d was purchased.. But a s p e c i a l p r i v i l e g e once g r a n t e d i s s u r e l y r e v o c a b l e w i t h changing t i m e s . The good f o r t u n e of p r i o r p o s i t i o n i n the p a s t cannot of i t s e l f v e s t a permanent p r i o r i t y f o r a l l t i m e . I f t h i s were a l l t h a t c o u l d be s a i d , the s i t u a t i o n would be r e l a t i v e l y easy. The d i f f i c u l t y , however, l i e s i n the f a c t t h a t the o r i g i n a l owner has i n many eases s o l d t h e l a n d , and the subsequent purchaser has p a i d f o r the v a l u e of the p r i v i l e g e i n the s a l e p r i c e . D e s p i t e t h i s f a c t , t h e l e v e l l i n g of these r a t e s w i t h those i n e f f e c t on o t h e r tenures would seem a d v i s a b l e . B e f o r e t h i s c o u l d be...achieved > tke l a n d t a x on crown g r a n t s 3. The t a x i s c a l c u l a t e d a c c o r d i n g t o grade a t a f i x e d sum per 1000 board f e e t c u t . Since I t i s n e a r l y a l l (except 1 per c e n t ) r e b a t e d i f the timber i s manufactured i n the p r o v i n c e , i t i s I n r e a l i t y an e x p o r t t a x on the raw p r o d u c t . -65-anu the ot h e r t e n u r e s would have t o be put on a u n i f o r m b a s i s A l l would have t o be s u b j e c t t o a u n i f o r m p r o p e r t y t a x or ground t a x as. might be d e c i d e d . Then the r o y a l t i e s c o u l d be p l a c e d on an e q u a l b a s i s . R o y a l t i e s have s i n c e t h e i r v e r y i n c e p t i o n g r a d u a l l y been r a i s e d . But t h i s does not mean t h a t the t a x burden has been made more heavy, f o r w i t h the c o n t i n u e d i n c r e a s e d v a l u e of stumpage, t h e government c e r t a i n l y had a r i g h t t o share i n t h i s unearned increment. As one B r i t i s h Columbia M i n i s t e r of Lands said-when-the r o y a l t y was about t o be r a i s e d , "we are c l a i m i n g a modest share i n the r i s i n g v a l u e of Western stumpage." S i n c e 1925 no f u r t h e r . r i s e i n r o y a l t y has been l e g i s l a t e d . The r a t e s i n e f f e c t a t t h a t date have l a s t e d t o " 5 the end of 1939. .As a measure of t h i s r i s e i n stumpage v a l u e s up t o 1925, r e f e r e n c e t o Graph No. 2 shows the average s a l e p r i c e of crown t i m b e r f o r each y e a r . These f i g u r e s , w h i l e not r e p r e s e n t i n g the r e a l v a l u e , r e p r e s e n t i t p r o -p o r t i o n a t e l y . C. The f l a t r a t e . . I n t h e f o l l o w i n g a n a l y s i s of the f l a t r a t e of r o y a l t i e s per 1000 board f e e t c u t , two aims have been kept i n view. The f i r s t aim i s t o attempt t o a s c e r t a i n how heavy t h i s y i e l d t a x i s i n comparison t o ot h e r y i e l d t a x e s i n 4. Ross, W i l l i a m R: B r i t i s h Columbia F o r e s t P o l i c y . Speech! d e l i v e r e d on F e b r u a r y 10, 1913. p. 13. 5. A c t u a l l y i n 1925 t h e r o y a l t y r a t e s were o n l y made t o l a s t u n t i l the end of 1958, but an amendment ( F o r e s t Act Amend-ment Act,' 1958. 2 George V I . e. 18) l a t e r extended them t o the end of 1959. -co-operation." 'And s e c o n d l y , t o see'what e f f e c t s the pre s e n t t a x has on lumbering i n g e n e r a l . The p e r i o d chosen f o r study i s t h a t from 1925 t o 1939, s i n c e the r o y a l t y r a t e s remained s t a b l e throughout t h i s t i m e . I n order t o f i n d out mrhat percentage of the v a l u e these r o y a l t i e s took d u r i n g each of these f i f t e e n years, i t was ne-c e s s a r y t o o b t a i n some stand a r d by which t o measure the v a l u e f o r t h a t y e a r . T h i s was done by p r o c u r i n g average l o g p r i c e s f o r t h e main s p e c i e s and t h e i r d i f f e r e n t grades through the c o u r t e s y of the B r i t i s h Columbia Loggers A s s o c i a t i o n . 6 I t must-be c l e a r l y u nderstood from the s t a r t t h a t i n - u s i n g these f i g u r e s t h i s , a n a l y s i s i s s u b j e c t t o a c e r t a i n margin of e r r o r , s i n c e t h e y do not i n c l u d e every independent producer i n the p r o v i n c e . But w h i l s t t h e y do not r e p r e s e n t a m a j o r i t y of the p r o d u c e r s , due t o the l a r g e number of s m a l l independent men o u t s i d e the o r g a n i z a t i o n , they do r e p r e s e n t the m a j o r i t y of the p r o d u c t i o n , which i s t h e i m p o r t a n t t h i n g f o r t h i s study. T h i s , t h e r e f o r e , i s t h e b e s t d a t a o b t a i n a b l e under the c i r c u m -s t a n c e s . The next q u e s t i o n was the a r e a t o be s e l e c t e d . A f t e r c o n s i d e r a t i o n , the c o a s t r e g i o n appeared much more s u i t a b l e t h a n the i n t e r i o r , s i n c e so g r e a t a percentage of the t o t a l c u t comes from t h i s s e c t i o n . T h i s f a c t i s d i s t i n c t l y demon-6. These I n c l u d e d averages fD I D Douglas F I r , grades 1, 2 and 5} Cedar grades 1, 2 and 3, Hemlock and a g e n e r a l average f o r a l l s p e c i e s . -67-s t r a t e d in>Graph .No. 5, which sep a r a t e s t h e cut a c c o r d i n g t o the two r e g i o n s i n per c e n t s . Consequently, o n l y coast r o y a l t i e s a r e employed i n t h i s study. The grand t o t a l r e -s u l t ; s h o u l d , on the whole, r e p r e s e n t the p r o v i n c e under a l l the s e c o n d i t i o n s j u s t o u t l i n e d . Now, t h e f i r s t n e c e s s i t y was the; average l o g p r i c e s Then, t a k i n g r o y a l t y f o r each s p e c i e s and grade f o r which there-was an average l o g p r i c e , i t -was p o s s i b l e t o compute t h e per cent of the r o y a l t y , o r , i n other words, the per cent the r o y a l t y c o n f i s c a t e d . T h i s was done as f o l l o w s : R o y a l t y on a s p e c i f i c s p e c i e s and grade x 100=rate of , Average l o g p r i c e of t h a t s p e c i e s and grade :'.' The r e s u l t s of t h i s p r o c e s s f o r t h e f if.fee en y e a r s , 1925 t o 1939 are shown i n the Table No. 13. The f i r s t c o n c l u s i o n t o be gai n e d from an I n s p e c t -i o n of t h i s t a b l e i s t h a t the. percentage r a t e i s o b v i o u s l y not even, but v a r i e s from year t o y e a r . And by comparison w i t h the average l o g p r i c e s on Graph No. 6, i t can be seen t h a t t h e r a t e I s a t i t s h i g h e s t l e v e l when l o g p r i c e s are a t t h e i r '."lowest.. ..This means t h a t the t a x i n c r e a s e s when the lumbering b u s i n e s s i s bad and.decreases when p r o s p e r i t y r e -t u r n s . -The d i f f e r e n c e , t o o , i s by no means s m a l l . AS an example* l e t us t a k e Grade 1 Cedar. I n 1929, the r a t e was 5.3 per c e n t , but by 1934, i t was n e a r l y double t h i s f i g u r e a t 10.1 per c e n t . Numerous. Other examples c o u l d be c i t e d t o show t h i s same e f f e c t . 7. See Graph No. 6. -68-GRAPH NO. 5. -60-The s o l u t i o n t o t h i s problem of keeping the r a t e even l i e s i n the a d o p t i o n of some form of s l i d i n g s c a l e , which w i l l v a r y p r o p o r t i o n a t e l y w i t h the r i s i n g and f a l l i n g l o g p r i c e s . Another f a c t o r t h a t should be t a k e n i n t o c o n s i d e r a t i o n i s the p o i n t t h a t c o s t s do not move i n t h e same r a t i o as -fcbsslog p r i c e s . When the p r i c e drops a d o l l a r or more, the c o s t s are not decreased a t a l l . The converse i s , however, not a l t o g e t h e r t r u e , f o r when t h e r e i s any c o n s i d e r a b l e r i s e i n l o g p r i c e s , the demand f o r h i g h e r wages on the p a r t of the l o g g e r s i s an almost i n e v i t a b l e consequence. As a r e s u l t , c o s t s tend t o i n -c r e a s e w i t h r i s i n g p r i c e s . Some attempt, t h e r e f o r e , t o i n -c o r p o r a t e t h i s c o s t f a c t o r i n a s l i d i n g s c a l e f o r r o y a l t i e s would appear j u s t . ' - " • ' The e f f e c t of the change i n l o g p r i c e s from year t o year e m u n d er the p r e s e n t f l a t r a t e of r o y a l t i e s have s e r i o u s consequences on both the lumberman and the government. As an example the drop I n l o g p r i c e s of $1.00 w i l l be t a k e n . That such a drop i s not an e x c e p t i o n a l c i r c u m s t a n c e i s e v i d e n t from the l o g p r i c e s shown on Graph No. 6. A c c o r d i n g l y , i n Table No.14, the e f f e c t o f t h i s $1.00 drop ( f o r convenience i t has been assumed t h a t t h e drop i s even i n a l l s p e c i e s and grades, though i n p r a c t i s e t h i s would v a r y s l i g h t l y ) has been analysed f o r a r e a s o n a b l y good p r o p e r t y . I n t h i s example, the lumber-man a t f i r s t makes p r o f i t s t o the amount of $280,000. How-eve r , when the p r i c e of l o g s drops $1.00, he makes $230,850 i f a l l grades are c u t , and $237,600 I f o n l y the h i g h e r grades are c u t . The net r e s u l t of t h i s i s t h a t he would o b v i o u s l y not -70-GRAFK NO 6. «3 rjl 03 W CV3 H H H CO to • (sKVTioa ia)saoiJH . -71-. p e r c e n t a g e ' r a t e s of R o y a l t y t a x e s on the Coast 1925-59 Table No. 13 :FFIR CEDAR : Year: G r a d e l : Grac le 2 Grade 3 Grade 1 Grade 2 :Grade 3 :Hemlock 1925: 6.5$ : 8.S % 5.8$ : 5.2$ : . 7.8$ :• :.. 6. 6$ : 6.0$ 1926 6.6$ : 8.9 % : 5.9$ : 5.6$ : 9.1$ : 8. 8$ : 5.4$ 1927: 6.6$ 9.C % I 6.0$ : 6.'2$m 9.4$ > 9 . 4$ : 6. 3$ 1928 * 6.6$ : 8.9 % : : 5.9$ : 5.7$ : 8.0$ 6. 8$ 5.7$ •1929: 6.5$ ! 8.7 $ i 5.7$ : 5.5$ : 7.5$ 5. 9$ 5 • 1950- 6.5$ \ 9.2$ : 6.5$ : 6.7$ : 9. 9$ 9. 2$ ' 6.5$ 1951: 7.7% • 11.2$ : 8.4$ : 8.4$ \ 15.5$ 10. o$; . 6.7$ 1952: 8.7$ ': 12.9$ : -11.0$ \ 8.7% \ 12.8$ 10. 8$ 7.1$ 19551 7.1% I 10.5 % : 8.6% \ 7.2$ : 9.9$ 6. 9$ . 7.1$ 1954 \ 7.8% ': 11.1 % \ 8.2% : 10.1$:*: 14,2$ . 10. 9$ : 7.3$ 1955 \ 7v5$ -! 1Q.9 % I 8.4$ : 8.5$ \ 11, 0$ 8. 4$ 7.2$ 1956; 6.1$ : 9.0 % A • 6.1$ • 7.4$ ': 10.4$ ; 9. 0$ ; 7.7$ 1957;: 5.4$ ;: 8.1 % ; 5.2$ : 5.7$ \ 8. 5$ '. '6. 5$ 5.4$ 1958: 5.8% • 8.6 % \ 5.8$ : 6.1$ : 8.9$ : 6. 6$ 7.5$ 1939 \ 5.7£ I . 8,8 % \ 6.0$ \ b.8% \ :8,4$ : 6. 2$ ; 6.3$ Source: The above percentages were c a l c u l a t e d from the average l o g p h r i c e s i n Graph No. 6. The r o y a l t i e s i n each Case were as f o l l o w s : F i r grades 1 and 2, and Cedar grades 1 and 2 — $1.35 per 1000 b d . f t . c u t F i r grade 3 and Cedar grade 3 and Hemlock = $0.60 per 1000 b d . f t . c u t I n 1935 t h e r e was a 15 per cent r e d u c t i o n i n a l l r o y a l t i e s , w hich has been t a k e n I n t o account. -72-bother t o take out the lower grades. The l o s s t o the l o g g e r i n t h e above example i s not v e r y g r e a t , but i n poorer grade p r o p e r t i e s becomes a much more i m p o r t a n t f a c t o r . .TThis i s a f t a l l o n l y one h a l f the damage done. '"Now, l e t us c o n s i d e r how the government f a r e d from a t a x a t i o n p o i n t of vieTf. At the b e g i n n i n g , whenaall' grades were logged they would c o l l e c t r o y a l t i e s as fo l l o w s - ; > - F i r Grade 1 - 15,000 a t $1.55 per M $20,250 F i r Grade 2 - 10,000 a t 1.55 per M 13,500 F i r Grade 3 - 4,000 a t 0.60 per M 2,400 Cedar Grade 1 — 8,000 a t 1.55 per M 10,800 Cedar Grade 2 - 5,000 a t ' 1.35 per M. 6,750 Cedar Grade 3 - 3,000 a t 0,60 per M 1,800 Hemlock .;- 5,000 a t 0.60 per M 5,000 TOTAL $58,500 But when the p r i c e s dropped $1.00 t h e y would l o s e the r o y a l -t y on grade 5 F i r and Cedar and Hemlock. T h i s amounts t o $7,200 or about 12f per cent of the t o t a l r o y a l t y b i l l i f a l l ggades had been-cut. Such a l o s s i s of n o A i m p o r t a n c e and c o u l d be overcome by some form of s l i d i n g s c a l e , e s p e c i a l l y on the lower grades which are m a r g i n a l . The a d j u s t e d t a x would n a t u r a l l y d e c l i n e i n d e p r e s s i o n y e a r s , but t h i s would be i n c o n f o r m i t y w i t h any income t a x ; and, f u r t h e r m o r e , the l a n d t a x e s ( p r o p e r t y t a x and r e n t a l ) would remain f a i r l y con-s t a n t , t h e r e b y i n s u r i n g the government of a c e r t a i n po_r;ti,cinai of i t s r e g u l a r revenue, w h i l e a t the same t i m e , e x a c t i n g the same burden from the lumberman's y i e l d as i n normal t i m e s . Table No. 14 The E f f e c t s of a &L.00 cirop I n l o g p r i c e s c n p c i e s : Grade: Amount of : Timber M.b.f.: R o y a l t y : per M.b.f.: T o t a l Costs per M. F i r : 1 : 15.000 : $1•55 : $10.85 • * F i r • 2 : 10 T000 : 1.35 : 10.55 • F i r - 3 4.000 : 0.60 9.80 flpdsr : 1 \ 8.000 • 1.35 ! 10.55 Cedar • 2 '• 5.000 i 1.35 i 10.35 P.pdpr : 3 ' 3.000 : 0.60 • 9.60 •w* w V-t- • Hemlock ; - 0.60 : 9.25 The t o t a l c o s t s a r e e s t i m a t e d and i n c l u d e t h e f o l l o w i n g : 1. R o y a l t y . 2. Average l o g g i n g c o s t o f $8. 3. Approximate purchase p r i c e of t i m b e r f o r an assumed y e a r . The l o g p r i c e s are approximated a c c o r d i n g t o r a t i o of t h e s e p r i c e s from Graph No. 6 f o r an assumed y e a r . r -73-Net stump- T o t a l p i . 00 drop I n l o g p r i c e s P r i c e of :' Logs per M age per M. : P r o f i t :Net Stumpage : per M. : : P r o f i t on :upper grades :Loss on : Lower grades ISO. 00: $9.15 . |L57,250: $8.15 : $122,250 : $ — -15.00 ; 4.45 44,500 5.45 : 54,500 10.50 0.70 • 2,800 = 0.50 ___ 1,200 ,20.00 . 9.45 : 75,600. 8.45 67,600 14>0Q 3.65 '. 18,250 i 2.65 13,250 p 10.00 !• 0.40 . \ 1,200 \ - 0.60 : 1.800 9.50 • 0.25 \ 1,250 • -0.75 : & _,. -P • • 5.750 $280,850 $237,600 6,750 Net p r o f i t i f lower grades are cut $230,850 Net p r o f i t i f lower grades are not c u t $237,600 $6,750 _74-. F i n a l l y , we-come-to the q u e s t i o n of d e t e r m i n i n g how heavy the t a x i s . R e f e r r i n g a g a i n t o t a b l e No. 15, the h e a v i e s t burden appears t o be on the second grades. These are taxed a t t h e same f l a t r a t e s as the f i r s t grades, a l -though t h e y s e l l a few d o l l a r s per 10®board f e e t cheaper i n each case. Some adjustment here might w e l l be i n or d e r . But i f B r i t i s h Columbia's f l a t r a t e r o y a l t y po-s s e s s e s c e r t a i n i n e a u a l i t i e s and has some bad e f f e c t s i n i t s o p e r a t i o n as have j u s t been e x p l a i n e d , , i t admits of one im-p o r t a n t a s s u a g i n g c h a r a c t e r i s t i c — i t i s not a h i g h t a x . On the average, t h e e f f e c t i v e r a t e ranges from 6 t o 9 per cent . T h i s does h o t , o f course., i n c l u d e the worst y e a r s of the de-p r e s s i o n or y e t the most prosperous t i m e s . The t r u t h of t h i s statement; c a n be s t be seen when we compare the B r i t i s h -Columbia r a t e t o t h e percentage r a t e s t h a t a r e i n e x i s t e n c e i n f o u r t e e n of> the s t a t e s s o u t h of the border.. I n the f o -8 l l o w i n g t a b l e t h e s e are g i v e n . Table No. 15. : S t a t e ; Y i e l d Tax Rate- . : : Alabama 10 per cent : . C o n n e c t i c u t 2 - 10 per cent ; Idaho 12-g per cent : Louisiana:.. 6 ii ti : Massachusetts 6 it ii : M i c h i g a n 10 " " 8. ' F a i r c h i l d , F, R. " F o r e s t T a x a t i o n I n the U n i t e d S t a t e s , pp. 596 - 401. -75-S t a t e : : Y i e l d Tax Rate Minnesota : 10 per cent New York : 6 per cent Ohio ; 5 jt ii Oregon : i s i n I! P e n n s y l v a n i a : 10 1! 1! Vermont : 7 - 10 per cent Washington : 12i per cent W i s c o n s i n : 10 n n The p r o v i n c i a l r o y a l t y r a t e i s c e r t a i n l y , t h e r e f o r e , not a v e r y h i g h or c o n f i s c a t i n g r a t e . -76-Oh&pter V l l The..'Protection Tax. The f o r e s t p r o t e c t i o n t a x l e v i e d i n B r i t i s h Columbia on the owners of a l l types of t i m b e r t e n u r e s , i s a f l a t t a x , o f so many c e n t s per a c r e . I t i s not i n c l u d e d as an i t e m i n the F o r e s t Revenues, and r e a l l y Cannot c o r r e c t l y be deemed revenue, s i n c e the t a x funds thus c o l l e c t e d are r e s e r v e d s o l e l y f o r the use of f o r e s t p r o t e c t i o n . Together .'with a sum c o n t r i -buted a n n u a l l y by the government, t h e y are p l a c e d i n the; F o r e s t P r o t e c t i o n Fund as e s t a b l i s h e d i n 1912.1 JfLst t a k i n g , i n t o c o n s i d e r a t i o n the r a t e , the present f o r e s t p r o t e c t i o n t a x i s a b n o r m a l l y h i g h . When i t was f i r s t l e v i e d i n 1912, t h e r a t e was 1 pent c par. a c r e . S i n c e t h a t time the r a t e has g r a d u a l l y i n c r e a s e d u n t i l t o - d a y, i t has reached the amount of 6 c e n t s per a c r e , s i x times the o r i g i n a l r a t e . I n comparison t o s i m i l a r . t a x e s imposed by other- a u t h o r i t i e s i n Canada, t h i s i s v e r y s t e e p . O n t a r i o has a r a t e of $6.40 per square m i l e which i s e q u i v a l e n t to. 1 cent per a c r e ; New Brunswick charges | cent on each acr e of t i m b e r l a n d ; Nova S c o t i a ha-s a s l i d i n g s c a l e which averages about 2^ cents per a c r e , and t h e Dominion l e v y y i s a t a x . e q u i v a l e n t t o h a l f the c o s t of p r o t e c t i o n . There are .two f a c t o r s , however,, t h a t tend t o o f f s e t t h i s d i s p a r i t y . The f i r s t of t h e s e I s the I n c r e a s i n g p e r c e n t -age of each y e a r ' s p r o t e c t i o n funds which the government has 1. F o r e s t A c t , 1912-. 2 George .V. c. 17. -77-GRAFH NO 7. '•xvsA sxqq. punji uofq.oaq.oja: oq. saoTq.nqfaq.noo OH r e -c o n t r i b u t e d ' t o t h e F o r e s t P r o t e c t i o n Fund. For the f i r s t n i n e y e a r s of the e x i s t e n c e of t h i s fund the government c o n t r i b u t -ed an e q u a l amount t o t h a t c o l l e c t e d under the p r o t e c t i o n t a x from the owners of the d i f f e r e n t timber t e n u r e s . .But s i n c e t h a t time the amounts s u b s c r i b e d by the p r o v i n c i a l government have i n c r e a s e d t o the e x t e n t t h a t they now form about 70 per cent of the t o t a l revenues of t h e fund each y e a r . Graph No. 7 shows the percentage c o n t r i b u t e d by the government and the t a x from 1912 t o the p r e s e n t day. From t h i s i t i s e v i d e n t t h a t the 6 c e n t s per a c r e p r o t e c t i o n t a x o n l y d e f r a y s 30 per cent of. t h e f o r e s t p r o t e c t i o n e x p e n d i t u r e s , . The second f a c t o r i s the extremely h i g h c o s t of p r o t e c t i o n i n B r i t i s h Columbia, The p r i m a r y aim of the fund I s n a t u r a l l y enough the e s t a b l i s h m e n t and maintenance of an e f f i c i e n t system of f i r e p r e v e n t i o n and f i r e c o n t r o l . To a c c o m p l i s h t h i s end i s no i n e x p e n s i v e or easy m a t t e r . The f o r e s t s of B r i t i s h Columbia are v e r i t a b l y s c a t t e r e d over the whole l e n g t h and b r e a d t h of the p r o v i n c e , which cov e r s the enormous scea:of 234,403,000 a c r e s . T h i s a r e a i s f u r t h e r v e r y mountainous and r o c k y and t r a n s p o r t a t i o n f a c i l i t i e s are i n many p l a c e s e n t i r e l y l a c k i n g . Again, l a r g e s e c t i o n s of the p r o v i n c e a r e u n p o p u l a t e d , and, a c c o r d i n g l y , i n such l o c a l i t i e s t h i s form of p o t e n t i a l f i r e - f i g h t i n g h e l p does not e x i s t . 2. M u l h o l l a n d . op. c i t . P. 39. -79-F i n a l l y , , "the l o n g coast l i n e of some 7000 m i l e s i n l e n g t h w i t h i t s l e g i o n of i n l e t s and s m a l l i s l a n d s p r e s e n t s a r e a l d i f f i c u l t y i n f i r e - f i g h t i n g and i n c r e a s e s t h e c o s t s due t o the e x t e n s i v e p a t r o l s r e q u i r e d . An a n a l y s i s of t h e s e f o r e s t p r o t e c t i o n e x p e n d i t u r e s w i l l demonstrate the heavy c o s t s i n c u r r e d . A c c o r d i n g t o the F o r e s t Branch of t h e p r o v i n c e t h e r e are t h r e e main l i n e s of a c t i v i t y t o he p r o v i d e d f o r by t h e F o r e s t P r o t e c t i o n Fund, ' 1)' P r e v e n t i o n . T h i s i n c l u d e s the c o s t of upkeep of the t o o l s and equipment; the making of t r a i l s , t e l e p h o n e l i n e s , l o o k o u t p o s t s ; p u b l i c e d u c a t i o n and any n e c e s s a r y improvements. 2) O r g a n i z a t i o n , T h i s i t e m c o v e r s the s a l a r i e s and.expenses of the o f f i c i a l s . f o r b o th the p e r -manent .. and temporary p r o t e c t i o n s t a f f , g) S u p p r e s s i o n . I n t h i s c a t e g o r y a r e i n c l u d e d the a c t u a l c o s t s of f i r e - f i g h t i n g . I n t h e f o l l o w i n g t a b l e these funds are d e t a i l e d i n t h e manner pr e p a r e d by the d e p a r t m e n t . 4 3. Report of t h e P F o r e s t Branch, 1935. p z. 31. 4. Reports of t h e F o r e s t Branch, 1915, 20, 25, 30, 35-38. -80-Table No. 16 Year P a t r o l s arid F i r e P r e -v e n t i o n Tools and: Equipment F i r e -F F I g h t i n g : . Improve-ment s T o t a l s 1914-1919--15 -20 1228,352.00 198,172.35 i n c l u d e d under : improve-ments 145,461.00 165,688.80 51,585.00 28,597.45-$ 403,198. 592,858. 00 58: 1924- -25 544,532.39 25,418.54 [ 258,055.66- 5,689.64 635,674. 25 1929- -30 575,416.71 , 45,401.56 494,645.42 22,570.79-: 956,054. 48 1954- •35 207,535.05 . 15,600.52. 127,580.59 3,847.75 554,561. 69 1935- •36: 254,255.37 : 59,048.72 24,908.24 8,254.62 586,444. 95 1956- 37 255,175.75 20,548.26 150,495.44 10,555.44 416,550. 87 1957- 38: 524,426.12 DO,859.62 28,555.87. 11,257.57 464,899. 18 F i r e - f i g h t i n g i s the most v a r i a b l e amount and has a v e r y l a r g e share i n the d e t e r m i n a t i o n of the t o t a l f o r e s t p r o -t e c t i o n e x p e n d i t u r e s . The damage done by t h e s e f i r e s i s t r e -mendous. From an i n s p e c t i o n of t h e next t a b l e , some i d e a of 5i : t h i s can be g a i n e d . ' I t must, of co u r s e , be borne i n mind t h a t f i r e s t a t i s t i c s are, the l e a s t a a e l i a b l e of a l l f o r e s t i n -f o r m a t i o n . Many f i r e s , are not seen by f o r e s t e r s , but are o n l y r e p o r t e d t o them. Moreover, the f o r e s t o f f i c i a l has not s u f f i c i e n t time i n the e x e r c i s e of h i s d u t i e s t o make a de-t a i l e d assessment of the damage s u f f e r e d , and i n many cases, has not the t r a i n i n g n e c e s s a r y , where he i s of a v e r y sub-o r d i n a t e rank. Reports of t h e F o r e s t Branch, 1915, 20, 25, 30, 55-58. -81-Table No. 17 Yea: 'No. of F i r e s Area Burned Ac. Timber Burned If, b. f . Timber; S a l v a -b l e DDamag e t o F o r e s t Other Damage T o t a l Damage 1915 1031 244/189 187,250 M . b . f . 43,030 ''108,875 $57,774 $166,647 1920 1251 389,846. 229,255 49,575 485,185 473,900 959,865 1925 2521 1,023,783 (3/524,508 350,770 2^21,672 625,518 2,747,190 1930- . 2271 602,675 590,978 25,216 1,408,185 337,909 0,746,092 1935 1111 47,871 26,115 14,559: .68,-399 221,144 289,545 1936 1547 '. 455,902 952,808 25,814 11.09,475 66,189 3,175,662 1937 1193 ; 54,845 15,265 - 565: 56,584 119,380 155,764 1938: 2412 : 711,818 1047,541 400,527; 1555,849 675,166 2251,015 A f a c t o r t h a t cannot s u c c e s s f u l l y be r e p r e s e n t e d i n the above t a b l e i s the damage done t o young s t a n d s . D i s r e - . g a r d i n g t h e e x c e p t i o n a l case where"the f i r e c l e a r s l a n d f o r a g r i c u l t u r a l p urposes, t h e l o s s i n p o t e n t i a l v a l u e f o r the f u t u r e i s v e r y g r e a t . For example, take a stand t h a t i n 100 ye a r s w i l l c o n t a i n 30,000 board f e e t t o the a c r e . The average" annual growth I n such a case would be 300 board f e e t t o the a c r e . I f the p r e s e n t sale p r i c e i n t h a t r e g i o n averages $1.25 per 1000 board f e e t , and the r o y a l t y averages $1.00 per board f e e t c u t , t h e n assuming t h e p r i c e s s t a y a t t h i s l e v e l f o r some time t o come, a young stand would i n 50 years time be worth i n revenue 2.25 x 300 x 5 0 - §33.75 per acr e 1000 A l l t h i s f u t u r e p o t e n t i a l revenue v a l u e i s l o s t t o t h e govern-ment. And t h i s l o s s i s q u i t e heavy, indeed. -82-A t a x t o meet a l l these p r o t e c t i o n e x p e n d i t u r e s would seem e s s e n t i a l , and the p r o t e c t i o n t a x h e l p s t o serve t h i s purpose. But t h e r e i s another element t h a t i s worthy o f - c o n s i d e r a t i o n . Each year i t i s always found n e c e s s a r y t o Spend q u i t e a c o n s i d e r a b l e amount f o r the p r o t e c t i o n of o r -d i n a r y p r i v a t e p r o p e r t y . A , f i r e t h a t s t a r t s on a non-f o r e s t e d s e c t i o n of l a n d has t o be e x t i n g u i s h e d j u s t as much as one t h a t s t a r t s on t i m b e r l a n d . Yet such owners do not share i n the support of the c o s t s of f o r e s t p r o t e c t i o n . Whether, t h i s s i t u a t i o n would be made more e q u i t a b l e by some c o n t r i b u t i o n from t h e s e l a n d s i s hard t o say. I t depends, r e a l l y , on two t h i n g s ; f i r s t l y , whether p r o t e c t i o n i s a r e a l c o s t o f ^ i n d u s t r y , and s e c o n d l y , whether t h e t a x i s not i n a way l i k e the workmen's compensation l e v i e s , and the govern-ment's c o n t r i b u t i o n t h e n covers p r i v a t e p r o p e r t y . -83-•} Chapter V i l i C o n c l u s i o n s E q u i t a b l e t a x a t i o n i s a l l t h a t the f o r e s t s should and can expec t . S i n c e , however, most s e c t i o n s of timber l a n d y i e l d o n l y p e r i o d i c r e t u r n s , t h e b u l k of the t a x should be l e v i e d a t t h e time the ti m b e r i s c u t , so t h a t i t c o i n c i d e s w i t h the r e c e i p t of income. Under such a p o l i c y , the i d e a of t r e a t i n g the f o r e s t as a crop r a t h e r t h a n a wasting a s s e t l i k e m i n i n g , w i l l g a i n s t r e n g t h . And i f our f o r e s t s are t o remain the permanent h e r i t a g e of the r a c e , the a d o p t i o n of t h i s i£ aim i s e s s e n t i a l . N o t w i t h s t a n d i n g t h i s f a c t a. c e r t a i n p e r -centage of the t a x must be l e v i e d a n n u a l l y i n order t o i n s u r e the government a r e g u l a r income and not make i t dependent upon t h e w i l l o f t h e lumberman as t o when he wishes t o cut h i s t i m b e r . I f our f o r e s t s ever r e a c h a p o i n t of complete annual s u s t a i n e d y i e l d , where a y e a r ' s cut can be h a r v e s t e d i n Steady s u c c e s s i o n , t h e n t h e annua l t a x c o u l d be withdrawn. But u n t i l such a time comes t o pass i t w i l l have t o remain p a r t of the f o r e s t t a x system, a system which . . w i l l be a c o m b i n a t i o n of an annual t a x on the l a n d and a y i e l d t a x on the timb e r severed. Of the t h r e e t a x e s l e v i e d f o r revenue purposes i n . B r i t i s h Columbia (the p r o p e r t y t a x , t h e r e n t a l , and t h e r o y a l -t y ) not one descends t o the n a d i r of u n f a i r n e s s , or y e t , a t the ame t i m e , reaches the z e n i t h of e q u i t a b l e n e s s . I n the case of t h e p r o p e r t y t a x , d e s p i t e the best of a d m i n i s t r a t i o n , t h e .study of .assessment r a t i o s f o r s e l e c t e d d i s t r i c t s i n t h i s p r o v i n c e tend t o shov,- t h a t t h i s i m p o r t a n t p a r t o f the a d m i n i --84-s t r a t i o n i s f f a i r l y o perated; i t possesses c e r t a i n i n h e r e n t elements of I n j u s t i c e . The tendency of the t a x i s always i n the d i r e c t i o n of f a v o u r i n g q u i c k e c u t t i n g , and i s most burden-some on d e f e r r e d y i e l d f o r e s t s . An a l l e v i a t i n g f a c t o r was p r o v i d e d by t h e c u t t i n g of the r a t e i n h a l f i n 1926, but the i n j u s t i c e s as between one type of p r o p e r t y and another, though l e s s marked, s t i l l remain. The o t h e r l a n d t a x , t h e r e n t a l , has the g r e a t d i s -advantage of being a f l a t r a t e , and i s bound t h e r e f o r e t o ex-a c t v a r y i n g burdens on d i f f e r e n t p r o p e r t i e s . Of the two main r a t e s i n e x i s t e n c e , i f a n y t h i n g , the c o a s t r a t e appears t o be low, or the i n t e r i o r r a t e t o o h i g h . Some e q u a l i z a t i o n betv/een each r a t e , e i t h e r by r a i s i n g the former or l o w e r i n g the. l a t t e r , would seem a d v i s a b l e . . Compared t o other r a t e s o p e r a t i v e throughout Canada, B r i t i s h Columbia's main r a t e (the co a s t r a t e ) i s not h i g h . I t has, however, a much h e a v i e r i n c i d e n c e on tim b e r l i c e n s e s , so many of which are l e s s than one square m i l e I n e x t e n t , t h a n i t has. on t i m b e r s a l e s and timb e r l e a s e s . Such- l i c e n s e s a l s o a re a t a disadvantage i n a v a i l i n g themsel-ves of t a x r e d u c t i o n f o r c u t - o v e r l a n d . The t a x d e l i q u e n c y B u l e s a l s o h i t them h a r d e r t h a n a t i m b e r s a l e , and the h i g h , charge i n the second y e a r , f o l l o w e d by c o n f i s c a t i o n and l o s s of the l i c e n s e can o n l y be j u s t i f i e d on p u n i t i v e grounds, or t o s t o p the charges from a c c u m u l a t i n g t i l l the s e c u r i t y i s no l o n g e r adequate. F i n a l l y , the c o s t of c a r r y i n g t h i s ground t a x i s , as i n t h e case of the p r o p e r t y t a x , much more burden-some an the d e f e r r e d y i e l d f o r e s t and the annual s u s t a i n e d y i e l d . -85-t h a n i t i s on a d e p l e t i o n y i e l d p r o p e r t y . W ith the r o y a l t y yre come t o the f a i r e s t of the f o r e s t t a x e s , one which i s o n l y l e v i e d when t h e r e i s income t o meet i t . . . The r a t e a t p r e s e n t i n o p e r a t i o n i n B r i t i s h Columbia i s c e r t a i n l y not h i g h , and the t a x i s v e r y e f f i c i e n t l y a d m i n i s t e r -ed. The o n l y f a u l t i s t h a t the r a t e a g a i n i s a f l a t r a t e r a t h e r t h a n a percentage r a t e , and, as a r e s u l t , has a v a r y i n g e f f e c t i v e percentage r a t e each year dependent on t h e market p r i c e of l o g s . . U n f o r t u n a t e l y , the worst e f f e c t of t h i s f l a t r a t e i s seen i n the d e p r e s s i o n , when i t c a n l e a s t be a f f o r d e d . T h i s i n e q u a l i t y c o u l d be n i c e l y overcome by some form of s l i d -i n g s c a l e f o r . the ' r o y a l t y charges, which would be s e n s i t i v e t o t h e p r i c e of l o g s . Such a scheme would not o n l y be more f a i r t o t h e lumberman, but more advantageous t o t h e govern-ment i n t h a t i t would i n s u r e the c o l l e c t i o n of r o y a l t i e s from the low gr a d e s , t h a t o t h e r w i s e might not be c u t . The prime need i s some form of u n i f o r m i t y as between the t a x e s and t h e i r r a t e s on the d i f f e r e n t types of t e n u r e s . Some c l a s s of annua l l a n d t a x based on the value, of the l a n d and the type of f o r e s t investment concerned, t h a t a p p l i e d t o a l l t e n u r e s i n p l a c e of t h e two l a n d t a x e s now i n use would be the f i r s t s t e p . . Then a l l r o y a l t i e s c o u l d be p l a c e d on an eq u a l f o o t i n g , and a l l . s p e c i a l p r i v i l e g e s w i t h regards t o r o y a l t i e s t h a t have been extended t o e a r l y crown g r a n t s , a b r ogated. Only when t h i s comes .about w i l l i t be p o s s i b l e t o make c e r t a i n t h a t t h e r e i s , i n r e s p e c t t o t a x e s p a i d , an Equality of s a c r i f i c e by each type of t i m b e r l a n d s t a t u s . -86-I n c o n c l u s i o n , t h e r e I s the q u e s t i o n of the pro-t e c t i o n t a x . The pre s e n t r a t e i s v e r y h i g h , but i s necessary f o r the c o s t l y . w o r k of f i r e p r o t e c t i o n , and even a t t h a t p r o v i d e s l e s s t h a n a t h i r d of t h e expenses r e q u i r e d each y e a r . Where a p o s s i b l e i n j u s t i c e r e s t s i s I n the f a c t t h a t many n o n - f o r e s t p r o p e r t i e s r e c e i v e t h i s p r o t e c t i o n w i t h o u t mak-i n g any c o n t r i b u t i o n towards i t s upkeep. The e q u i t y of t h i s s i t u a t i o n depends l a r g e l y on whether or not the government c o n t r i b u t i o n c o v e r s t h i s . As a whole, the f o r e s t t a x a t i o n system i n B r i t i s h Columbia i s not a t y r a n n i c a l Draconian code. I n e q u a l i t i e s e x i s t , but t h a t i s t o be expected. For the f u t u r e a l l e f f o r t must be c o n c e n t r a t e d i n r e f o r m i n g these I n e q u a l i t i e s , "mutatis mutandis." - — A P P E N D I X — PROVINCE OF BRITISH COLUMBIA. FOREST BRANCH. DEPARTMENT OF LANDS. TIMBER S A L E CONTRACT X. Forest District : Description of Timber—1. ©i|tS JfttfrpttfttrJp, made the . _day of , A.D. 19 , between His Majesty the King (herein represented and acting by , :—, Deputy Minister of Lands for the Province of British Columbia), who, with his successors in office, is hereinafter called " the Licensor," of the one part, and .'. , who together with.— _ _—..executors, administrators, and successors, is hereinafter called " the Licensee," of the other part. W I T N E S S E T H that, in consideration of the payments and stipulations to be made and observed by and on the part of the Licensee 'and of the Licensee's offer to purchase made under and subject to the provisions of the "Forest Act," the Licensor doth hereby grant unto the Licensee, subject to the provisions of the said Act, and for the term and subject to the reservations and conditions hereinafter provided, a licence to cut and remove all the dead timber standing or down, and all the live timber designated for cutting by a Forest Officer, merchantable as hereinafter defined, upon an area which is agreed to comprise (see particulars) acres, situated and described as follows, and shown upon the map annexed and thereon coloured red: (see par-ticulars), from the date hereof, for the term of (see particulars) years thence ensuing. Payments—2. In consideration whereof the Licensee hereby covenants, promises, and agrees with the Licensor as follows: The Licensee shall pay to the said Licensor the several sums at the times and in the manner following, namely:— (a.) A stumpage price for the timber at the following rates, payable immediately upon receipt of account: (As bid.) (&;) An annual rental, based on (see particulars) acres, at the rate of . _per acre, amounting to $ (see particulars) ; further payments to be made annually in advance on the.». —day of : in each year hereafter during the continuance of the licence hereby granted: Provided that such annual rental is to be reduced in each year by the omission from its computation of six hundred and forty acres or any multiple thereof as provided in the " Forest Act." (c.) All forest-protection dues as provided in the "Forest Act";'and amendments, payable annually in advance on the..— 1 day of . , ; an each year during the life of this contract. (d.) The cost of cruising and advertising incident to this contract, being the sum of $ (see particulars), (e.) Royalties as provided in the "Forest Act" and amendments, payable immediately upon receipt of account. (/.) The cost of scaling, payable immediately upon receipt of account. Conditions—3. And the Lessee further covenants, promises, and agrees to cut and remove said timber in strict accordance with the following conditions and with all regulations and provisions governing timber sales in the " Forest Act" and amendments:— . (a.) No timber will be removed from the sale area until it has been conspicuously marked with the following registered mark issued for this timber sale: (See particulars.) (6.) Stumps will be cut so as to cause the least practicable wast, and will not be cut higher than the diameter of the tree, at the point where it is cut, and in no case higher than (see particulars) inches on the side adjacent to the highest ground, except in unusual cases in the discretion of the officer of the Forest Branch in charge. All trees will be utilized to as low a diameter in the tops as practicable, so as to cause the least waste, and to the minimum diameter of (see particulars) inches when merchantable in the judgment of the officer of the Forest Branch in charge. Log lengths will be varied so as to provide for the complete utilization of merchantable timber. (e.) .Any (see particulars) tree which, in the judgment of the Forest Officer, contains a net total scale of (see particu-lars) per cent, or more of the total volume of the tree: suitable for the manufacture of (see particulars) shall be considered merchantable under the terms of this contract, and may be designated for cutting by the Forest Officer. (d.) All trees, designated as hereinafter defined, shall be cut: (See particulars.) (e.) No unnecessary damage will be done to young growth or to trees left standing. So far as practicable, trees will be felled uphill, and no trees will be left lodged in the process of felling. If trees designated to be left standing are badly damaged through carelessness during the process of logging, or are cut, they will be paid for at the rate of $ . . per tree. (/.) When operations are begun on any natural logging area the cutting on that area shall be fully completed to the satisfaction of the Forest Officer in charge before cutting may begin on other areas, unless such cutting is authorized in writing with the requirement that cutting shall be completed on the area left unfinished as soon as practicable. (g.) As far as practicable, all branches of the logging operation shall keep pace with one another, and in no instance shall brush-disposal be allowed to fall behind cutting, except with the written consent of the Forest Officer in charge. (h.) Unless other arrangements are made in writing with the District Forester at (see particulars), all timber will be scaled before removal from the sale area in accordance with the provisions of the " Forest Act" and amendments, and in no case will any timber be manufactured or sold until it has been properly scaled as provided in the " Forest Act" and amendments. (i.) Trees designated for cutting in clause (d) which are left uncut, timber wasted in tops and stumps, trees left lodged in process of felling, and any merchantable timber which is cut and not removed from any portion of the cutting area after logging on that portion of the cutting area is completed shall be scaled, measured, or counted as herein-before provided, and paid for as follows: (See particulars.) (j.) Brush will be disposed of as follows: (See particulars.) (k.) Provisions for fire-protection: As provided in the "Forest Act." (I.) Other clauses: (See particulars.) [ o v e r . • j 4. „n y.;