In New Hampshire, timber is considered taxable real estate. But since that tax is assessed at the time of harvesting, some worry carbon programs that keep trees standing for decades to offset emissions could cut into local revenue.

A group of lawmakers have proposed a fix, House Bill 123, which they say would simply allow revenue from such programs to be taxed the same as felled trees. The bill comes after action last session to establish a registry of properties in the state enrolled in carbon programs, and amid ongoing debate over the management of the Connecticut Lakes Headwaters forest in the northern part of the state. 

“Our world has and continues to change,” said Rep. Mike Ouellet, a Colebrook Republican and one of the bill’s sponsors, at a hearing for the bill. “HB 123 is nothing more than a reflection of today’s varying timber market.”

The bill faced some pushback from conservation and business groups when it was introduced. It came out of the House Municipal and County Government Committee with a unanimous, 18-0, recommendation that the full chamber pass it with an amendment. But last month, Republican Majority Leader Jason Osborne moved to table it. The Auburn Republican called the issue “important,” but suggested it would be better to wait until the Department of Revenue Administration finished a related report later this year.

His motion failed, 171-185, and the House passed the amended bill, 197-158. Now, it awaits further action in the Senate Energy and Natural Resources Committee. 

Rep. Arnold Davis, a Milan Republican, said when introducing the bill that it had two goals: to keep municipalities “whole,” since the tax is retained locally, and to put timber harvesting on “a fair playing field” with carbon credit projects. 

Davis and other supporters of the bill said it was not a new tax, but simply a new branding of the same tax. Some opponents, though, disagreed, and said it created a tax on carbon credit programs where none currently exists. 

“This is not a new tax. It is still timber tax,” Davis said. “It is simply a way to keep a fairly new way of doing business from circumventing around paying their property tax to the towns, and to push for best forestry management practices.”

Technically, under current state law, standing timber can be taxed when assessors determine a municipality is “unreasonably deprived of revenue because of the failure of an owner” to cut down timber that has “arrived at the degree of maturity most suitable for its use.”

But Davis said this section of the law has never been invoked, and felt the bill provided a simpler avenue to collect the revenue. Before the timber tax was enacted decades ago, officials would visit properties to assess the value of the standing trees — a “cumbersome” and likely inaccurate process, and one property owners could circumvent by chopping down their trees, Davis said. 

Now, and for the better part of the past century, property owners are charged a 10% yield tax upon cutting down timber after a certain amount and under certain circumstances. This made the process simpler for assessors and more accurate, Davis said. 

While that system worked for decades, Davis said, carbon programs have changed the landscape. He pitched the bill as a way to adapt and close what he called a “loophole.”

The bill would require landowners to pay an annual yield tax of 10% of the “estimated net value of the carbon offset credits issued and sold in the previous calendar year.” Similarly, the state’s timber tax is 10% of the “stumpage value” — the value of the timber at the time it is cut, as determined by assessing officials. In 2023, it brought in over $3.4 million across the state, according to the Department of Revenue Administration.