A Federal Income Tax Primer for North Carolina Christmas by qtn19068

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									A Federal Income
Tax Primer for North
Carolina Christmas
Tree Growers


           North Carolina Cooperative Extension Service
           North Carolina State University
Federal Income Tax Primer for North Carolina Christmas Tree Growers

A Federal Income Tax Primer for
North Carolina Christmas Tree Growers


    C    hristmas tree production has expanded rapidly in North Carolina: sales have grown
         from slightly over $1.6 million in 1972 to $73.5 million in 1993, a 46-fold increase.
         A survey conducted in the mid 1980s showed that Fraser fir represented 55 percent
         of the species grown; white pine, 22 percent; and balsam fir, 14 percent. The
         remaining 9 percent of species included redcedar, Virginia pine, Norway spruce, and
         white pine. Traditionally, production was confined primarily to the western part of
         the state, but some production now occurs in the piedmont and coastal plain. As
         production has become more scattered throughout the state, a larger number of
         growers are involved, and both growers and tax preparers are asking an increasing
         number of questions about how the income from sales of evergreen trees is taxed.
              The material presented here is based on an interpretation of the current Internal
         Revenue Service Code and analyses provided by various tax advisory services. Read-
         ers, however, are responsible for any action they take as a result of this information.




                                           Evergreen Trees: Timber or Horticultural Product?

                                           When establishing a stand of ever-      Code as timber, and profit is treated
                                           green trees, growers must choose        as long-term capital gains income
                                           among various species to plant.         (Code Section 631 [a]). The age of a
                                           Different species have different        tree is measured from the time of
                                           growth rates, which affects the time    seed germination to the time of
                                           between planting and harvesting a       harvesting. If trees are not six years
                                           cash crop. The time when trees are      old when cut, or if they are six years
                                           harvested not only affects cash flow    of age or older and dug and sold as
                                           but also determines whether ever-       ball-and-burlapped trees, they are
                                           green trees are harvested and sold as   considered to be horticultural
         Christmas tree farming            horticultural products or as timber     products and profits are classified as
         is a fast-growing indus-          (Christmas trees). An evergreen tree    ordinary income (Reg 1.631-1 [b]
         try among many North              that is more than six years old when    [2]).
                                           it is severed from its roots and sold       The advantage of selling ever-
         Carolina growers.
                                           for ornamental purposes is consid-      green trees as timber and in having
                                           ered by Internal Revenue Service        any gain or loss from the sale




2
considered capital gains or losses is     tion loans, road and fire line mainte-   deducted when income from the sale
that the highest applicable marginal      nance, and depreciation deductions       of trees is realized. In the example
tax rate on long-term capital gains is    on equipment used in the business.       here, the costs of site preparation
less than the highest marginal tax        During the growing period, growers       ($1,226) and establishment ($1,958)
rate on ordinary income. Also,            have the option to deduct annual         must be capitalized. This is assuming
capital gains income is not subject to    expenses from income or to add the       that all first-year costs are establish-
self-employment taxes as is ordinary      expenses to the capital account. This    ment costs. The total amount of
income generated from the sale of         choice is made each year.                $3,184 would be recovered by a
horticultural products.                       The sales period is the time         depletion allowance when the trees
                                          during which trees are sold. Ex-         are sold. For example, if at harvest
Periods in the Life of                    amples of sales costs include the        there were 1,600 salable trees then
Evergreen Trees                           expenses of tree marking, harvesting,    the depletion allowance would be
                                          bagging material, baling, hauling        $1.99 ($3,184 divided by 1,600) per
Growing evergreen trees usually
                                          costs, advertising, and hired labor.     tree. This depletion allowance of
constitutes a trade or business, which
                                          All costs associated with the sale of    $1.99 would be used as a cost to
means that growers can deduct
                                          Christmas trees are recovered by         offset the taxable income per tree
ordinary and reasonable expenses,
                                          deducting them from sales proceeds.      when the trees are sold.
with some exceptions. The costs
                                                                                       During the growing period,
incurred in growing Christmas trees
                                          Budgets for                              growers have the option to either
must be classified into one or more
                                          Establishing a Stand of                  deduct costs as current expenses or
of the three production stages:
establishment, growing, and sales.
                                          Evergreen Trees                          to add these costs to the capital
                                                                                   account. For example, the second
     The establishment period begins      Fraser fir is the most popular variety
                                                                                   year costs of $864 per acre could
with site preparation and ends when       of Christmas trees, so we present a
                                                                                   either be deducted as a current
the last tree is planted. Examples of     summary of budgets for this species
                                                                                   expense for tax purposes or added to
costs include land preparation, lime,     (Table 1) to illustrate the costs and
                                                                                   the capital account. If a grower has a
fertilizer, grass seed, herbicide,        resulting income for a stand of trees
                                                                                   significant taxable income that year,
interest, hired labor, small tools,       from site establishment to harvest.
                                                                                   it probably would be advantageous
seedlings, and depreciation on            These budgets were developed with
                                                                                   to deduct growing costs as a current
equipment and other capital assets.       1994 costs and with the assumptions
                                                                                   expense. If not, the expenses should
Any costs necessary to establish the      that five-year-old seedlings were
                                                                                   be added to the capital account and
stand are considered capital expendi-     transplanted into the field and that
                                                                                   deducted as a depletion allowance
tures, which are not deductible in the    harvest would begin in the sixth year
                                                                                   when the trees are sold.
year incurred. These costs can,           after transplanting. Remember that
                                                                                       To be eligible to deduct growing-
however, be deducted from the gross       costs, income, and growth rate vary
                                                                                   period expenses, however, a grower
income from sales, thereby lowering       among species.
                                                                                   must be “materially participating” in
the amount of taxable income.                 In this example, a grower would
                                                                                   a trade or business. A grower who is
Therefore, it is important that you       have to spend $7,119 (a negative
                                                                                   materially participating can deduct
keep a careful record of these            cash flow) during the first five years
                                                                                   all ordinary and reasonable expenses
expenses; this record is called a         before any income was realized.
                                                                                   incurred in operating a trade or
capital account.                          When harvesting begins in the sixth
                                                                                   business. A grower is considered to
     The growing period begins when       year, cash flow becomes positive.
                                                                                   be materially participating if he or
all the activities that ensure seedling       All expenses incurred while
                                                                                   she meets at least one of the follow-
survival have been completed.             preparing the site and establishing a
                                                                                   ing tests:
Expenses that may be incurred             stand of evergreen trees must be
during this period include hired          capitalized. Again, capitalization       u Participates in the business for
labor, cost of shearing, insect           means that these expenses cannot be      more than 500 hours in the taxable
control, fertilization, weed control,     deducted immediately but must be         year.
rental payments, interest on produc-      placed in a capital account and




                                                                                                                         3
Federal Income Tax Primer for North Carolina Christmas Tree Growers



                                                                                                              retained economic interest
   Table 1. Annual Per Acre Costs, Income, and Cash Flow for Fraser Fir                                       under Code Section
                         Christmas Tree Plantation, 1994.               1,2                                   631(b).
                                                                                                                  For purposes of Code
     Year           Activity                 Total Cost ($)            Income ($)      Cash Flow ($)
                                                                                                              Section 631 (a) and
         0      Establishment period              1,226                     0.00             –1,226           Section (b), the term
                                                                                                              timber includes evergreen
         1      Establishment period              1,958                     0.00             –1,958
                                                                                                              trees that are more than
         2      Growing period                      864                     0.00              –864            six years old at the time
         3      Growing period                      842                     0.00              –842            they are severed from
         4      Growing period                    1,065                     0.00             –1,065           their roots and sold for
                                                                                                              ornamental purposes,
         5      Growing period                    1,164                     0.00             –1,164
                                                                                                              such as Christmas trees.
         6      Harvesting period                 2,164               6,400.00                4,236           Tops and other parts are
         7      Harvesting period                 2,817              14,600.00               11,783           not considered as ever-
                                                                                                              green trees within the
         8      Harvesting period                 1,770               8,050.00                6,280
                                                                                                              meaning of section 631 (a)
   Totals                                       13,870               29,050.00               15,180           or Section 631 (b). The
   1
    Jeff Owen and Ross Young, Extension Agents and Lenny Rogers, Area Farm Management Agent, North            term evergreen trees is
   Carolina Cooperative Extension Service.                                                                    used in its commonly
   2
    Summary prepared from data in the yearly budgets included in the appendix.                                accepted sense and
                                                                                                              includes pine, spruce, fir,
                                                                                                              hemlock, cedar, and other
u Is the sole participant in the                  income.                                         coniferous trees (Reg. 1.631-1 [b]
activity for the year.                                                                            [2]).
                                                  Christmas Trees as                                   Section 631 (a) is not applicable
u Participates for more than 100
hours, and no other individual
                                                  Timber                                          to evergreen trees sold live, whether
                                                                                                  or not they are sold for ornamental
spends more time on the activity.                 Timber is defined by the Internal
                                                                                                  purposes. Dug trees sold live would
                                                  Revenue Code as the wood in
u “Significant participation”                                                                     be considered horticultural prod-
                                                  standing trees that is recovered
exceeds 500 hours in all business                                                                 ucts, and all income would be
                                                  when the trees are cut and pro-
activities, including Christmas trees,                                                            classified as ordinary income.
                                                  cessed. It includes the parts of
for the tax year.
                                                  standing trees that are used or can
u Materially participated in a
                                                                                                  Selling Christmas Trees
                                                  be used for lumber, pulpwood,
Christmas tree activity for five of the           veneer, poles, crossties, piling, or            Net gains from the sale of Christmas
past ten years.                                   other wood products. Generally, the             trees can qualify as capital gains
                                                  gains and losses resulting from the             income if growers use one of two
u The individual meets a facts and
                                                  sale of timber qualify for special tax          selling methods. These methods are
circumstances test.
                                                  treatment as capital gains income. If           (1) cutting standing timber with an
     If a grower does not materially              held as an investment or for a trade            election to treat as a sale (Code
participate in a Christmas tree trade             or business, the sale of timber could           Section 631 [a]), and (2) disposing of
or business, the operation is defined             qualify for capital gains treatment. If         timber with an economic interest
as a passive activity. Generally,                 used in a trade or business, sales              retained (Code Section 631 [b]).
deductions for a passive activity are             should qualify for capital gains
allowed only to the extent of total               treatment if the owner elected to               Summary
income from all passive activities for            treat the cutting of timber as a sale
                                                                                                  Christmas tree production is a long-
the year. Excess deductions must be               under Code Section 631(a) or with a
                                                                                                  term investment of capital, labor,
carried forward until there is passive




4
materials, and land. To take full
                                                              this account will help track estab-                                      through depletion when Christmas
advantage of legal tax deductions, it
                                                              lishment costs and non-deducted                                          trees are sold or disposed of. Most
is essential that growers maintain an
                                                              costs of production (cost basis).                                        annual growing expenses incurred
accurate record-keeping system,
                                                              Growers can recover cost basis                                           after establishment may be deducted
called a capital account. Keeping


  SELLING CHRISTMAS TREES

  Method 1: Cutting Timber with an Election to Treat as a Sale (Section 631 [a])
  Under this sales method, evergreen trees (standing timber) are cut by the owner who then sells or disposes of the trees.
  The owner must cut the trees or have them cut by someone under contract. In all cases the owner must retain title.
  Using this sales method growers report gain in two parts.
       1.    The difference between the depletion cost (depletion allowance x number of trees) and the fair market
  value of the standing trees as of January 1 in the year they are cut is capital gain or loss.
              The fair market value on January 1 is determined by the condition of the trees when they are actually
              cut. This was the opinion of the Ninth Circuit Court in the case of Harold Schudel versus the Commis-
  sioner. It was the opinion of the court that using the beginning of the year date in Code Section 631
  (a) was used by Congress only to simplify preparing and processing tax returns.
      2.    The fair market value on January 1 becomes the new basis. Proceeds from the sale minus the fair
  market value is ordinary income.
              Example: A grower established a 10-acre plot of Christmas trees in 1988 with a planting of 19,000
  trees at a total cost of $31,840. During the growing period, which extended from 1989 through 1993,
  the grower incurred expenses of $60,990 for hired labor, chemicals, weed cutting, shearing, and other
  outlays. The grower elected to capitalize these expenses. In 1994, when the grower began to sell the
  trees, he/she had a basis (from the capital account) of $92,830 ($31,840 plus $60,990) in 16,000
  merchantable trees for a depletion unit of $5.80 per tree ($92,830 divided by 16,000). The grower cut
  4,000 trees in 1994 and sold them to a wholesaler for $64,000. As of January 1, 1994, the fair market
  value for trees averaging 6 ½ feet tall was $2.25 per foot, for a total value of $58,500. This value was
  estimated for tax purposes. The grower incurred harvesting expenses of $2,500. Taxable gain was
  computed in two steps as follows:

  Step 1     Fair market value on January 1, 1994 (tax value) ............................................................................................... $58,500
             (4,000 trees at $14.63 each)
             Less depletion costs ................................................................................................................................................... $23,200
             (4,000 trees at $5.80 per tree)
             Long term capital gain ............................................................................................................................................... $35,300
             Reported on Part 1, Form 4797

  Step 2     Sold trees in November 1994 (sales price) .......................................................................................................... $64,000
             (4,000 trees at $16.00 per tree)
             Less fair market value on January 1, 1994 ............................................................................................................ $58,500
             Less harvesting cost ...................................................................................................................................................... $2,500
             Gain: Ordinary income ................................................................................................................................................ $2,980
             Reported on Part 1, Form 4797




                                                                                                                                                                                                  5
Federal Income Tax Primer for North Carolina Christmas Tree Growers




    SELLING CHRISTMAS TREES

    Method 2: Selling Trees with an Economic Interest Retained (Section 631[b])
    In 1994, a grower sold 4,000 trees by entering into a cutting contract with a wholesaler. A price of $2.50 per foot was
    agreed upon. The taxpayer retained title to the trees until they were cut by the buyer. Title transferred hands at the time
    the trees were cut. The wholesaler cut 4,000 trees averaging 6 feet in height. Gain would be reported as follows:
              Total receipts .......................................................................................................................................................... $60,000
              (4,000 trees x $2.50 per foot x 6 feet)
              Less depletion costs ............................................................................................................................................... $23,200
              (4,000 trees x $5.80 per tree)
              Gain (long-term capital gain) ............................................................................................................................... $36,800
              The gain of $36,800 would be reported on Part 1, Form 4797




in the year incurred if the grower is
                                                                and receipts per acre of such an
active (as defined by the Internal
                                                                enterprise. Remember that only paid
Revenue Service) in the Christmas
                                                                costs and depreciation and depletion
tree business. If growers are consid-
                                                                allowances (based on previously
ered by IRS regulations to be
                                                                paid amounts) are deductible in
“passive” in the business, or if
                                                                determining each year’s taxable
deductions are not needed in the
                                                                income. The costs are itemized and
given tax year, they may choose to
                                                                accounted for by year they are
add annual growing expenses to the
                                                                incurred in production. The subto-
capital account. Carefully analyze
                                                                tals for site preparation, stand
the method you use in selling
                                                                establishment, and yearly growing
Christmas trees to ensure that your
                                                                costs are carried forward with
income qualifies for capital gains
                                                                interest until the harvest years when
treatment.
                                                                a (tree-count based) portion of their
    It is strongly recommended that
                                                                total is deducted as a prorated
you enlist the services of a CPA, a
                                                                depletion allowance from each
tax attorney, or a financial advisor.
                                                                harvest year’s estimated receipts.
For more information, contact your
                                                                    This budget reflects the producer
local county Extension center.
                                                                who owns the undeveloped land,
                                                                manages the business, and who
Appendix
                                                                purchases all the other inputs for the
The appendix contains an example                                enterprise on credit with loans to be
budget of the production of one acre                            repaid from and in proportion to the
of Fraser fir for Christmas trees in                            fraction of the stand sold each
Avery County, North Carolina. It                                harvest year. These budgets are only
was prepared for an enterprise that                             guidelines. Production systems and
was to begin with site preparation in                           costs may vary.
Fall 1993. We present this budget to
show the complete nonland costs




6
Budget for a One-Acre Fraser Fir Farm, Avery County and Surrounding Areas of
Western North Carolina, 1994.1
Category                           Units              Price ($)                Quantity              Value ($)

SITE PREPARATION:
Land clearing                       Acre               750.00                    1.00                 750.00
Lime, pelletized                    Ton                105.00                    2.00                 210.00
0-46-0                              Cwt.                11.80                    5.00                   59.00
33-0-0                              Cwt.                11.00                    3.00                   33.00
Dry fertilizer spread               Acre                 5.50                    1.00                    5.50
Rye seed                            Bu.                   8.15                   1.00                    8.15
Herbicide                           Acre                22.36                    1.00                   22.36
Capital cost:                       Dol.
    Annual operating capital                              0.09                 761.61                   68.54
Tractor                             Acre                23.09                    1.00                   23.09
Machinery                           Acre                  9.91                   1.00                    9.91
Labor:
    Machinery                       Hr.                   6.00                   2.12                   12.72
    Hand                            Hr.                   6.00                   4.00                   24.00
Total site preparation                                                                             $1,226.27

FIRST YEAR:
Transplants (3-2)                   Each                  0.65               1,900.00                1,235.00
18-46-0                             Cwt.                11.50                    3.27                   37.61
Herbicide                           Acre                34.36                    1.00                   34.36
Capital cost
    Annual operating capital        Dol.                  0.09                 914.88                   82.34
    Net accumulated estab. cost     Dol.                  0.09               1,226.27                 110.36
Tractor                             Acre                  9.43                   1.00                    9.43
Machinery                           Acre                29.48                    1.00                   29.48
Equipment                           Acre                10.08                    1.00                   10.08
Labor:
    Machinery                       Hr.                   6.00                   5.01                   30.06
    Hand                            Hr.                   6.00                  63.20                 379.20
Total first year expenses                                                                          $1,957.92

Budget prepared by Jeff Owen and Ross Young, Extension Agents, and Lenny Rogers, Area Farm Management Agent, North
1

Carolina Cooperative Extension Service.



                                                                                                                     7
Federal Income Tax Primer for North Carolina Christmas Tree Growers




    Budget for a One-Acre Fraser Fir Farm, Avery County and Surrounding Areas of
    Western North Carolina, 1994. (continued)
    Category                           Units              Price ($)    Quantity   Value ($)

    SECOND YEAR:
    Transplants (3-2)                   Each                  0.65     285.00      185.25
    19-19-19                            Cwt.                 11.50       3.27       37.61
    Herbicide                           Acre                 80.20        1.00      80.20
    Capital cost:
       Annual operating capital         Dol.                  0.09     212.14       19.09
       Net accumulated estab. cost      Dol.                  0.09    3,184.19     286.58
    Tractor                             Acre                 16.87       1.00       16.87
    Machinery                           Acre                 17.82        1.00      19.82
    Equipment                           Acre                  9.00        1.00       9.00
    Labor:
       Machinery                        Hr.                   6.00        5.87      35.22
       Hand                             Hr.                   6.00      29.00      174.00
    Total second year expenses                                                    $863.64

    THIRD YEAR:
    18-46-0                             Cwt.                 11.50       6.53       75.10
    0-0-50                              Cwt.                 15.00       2.38       35.70
    Insecticide and miticide            Acre                 26.40       1.00       26.40
    Herbicide                           Acre                 80.20        1.00      80.20
    Capital cost:
       Annual operating capital         Dol.                  0.09     152.18       13.70
       Net accumulated estab. cost      Dol.                  0.09    4,047.83     364.30
    Tractor                             Acre                 20.86       1.00       20.86
    Machinery                           Acre                 10.12        1.00      10.12
    Equipment                           Acre                 11.06        1.00      11.06
    Labor:
     Machinery                          Hr.                   6.00        5.78      34.68
     Hand                               Hr.                   6.00      28.32      169.92
    Total third year expenses                                                     $842.04




8
Budget for a One-Acre Fraser Fir Farm, Avery County and Surrounding Areas of
Western North Carolina, 1994. (continued)
Category                         Units   Price ($)       Quantity         Value ($)
FOURTH YEAR:
Lime, pelletized                  Cwt.      5.25           20.00           105.00
46-0-0                            Cwt.     13.50            2.38               32.13
0-0-50                            Cwt.     15.00            2.38               35.70
Insecticide and miticide          Acre     80.00            1.00               80.00
Herbicide                         Acre     57.20            1.00               57.20
Capital cost:
  Annual operating capital        Dol.      0.09          217.02               19.53
  Net accumulated estab. cost     Dol.      0.09        4,889.87           440.09
Tractor                           Acre     24.85            1.00               24.85
Machinery                         Acre     12.98            1.00               12.98
Equipment                         Acre     10.68            1.00               10.68
Labor:
  Machinery                       Hr.       6.00            6.89               41.34
  Hand                            Hr.       6.00           34.32           205.92
Total fourth year expenses                                              $1,065.42

FIFTH YEAR:
Gypsum, pelletized                Cwt.      8.00           10.69               85.52
46-0-0                            Cwt.     13.50            2.38               32.13
0-0-50                            Cwt.     15.00            2.38               35.70
Insecticide and miticide          Acre     61.80            1.00               61.80
Herbicide                         Acre     80.20            1.00               80.20
Capital cost:
   Annual operating capital       Dol.      0.09          206.75               18.61
   Net accumulated estab. cost    Dol.      0.09        5,955.29           535.98
Tractor                           Acre     24.85            1.00               24.85
Machinery                         Acre     12.98            1.00               12.98
Equipment                         Acre     11.06            1.00               11.06
Labor:
   Machinery                      Hr.       6.00            6.89               41.34
   Hand                           Hr.       6.00           37.32           223.92
Total fifth year expenses                                               $1,164.09
Total estab. and growing costs                                          $7,119.38



                                                                                       9
Federal Income Tax Primer for North Carolina Christmas Tree Growers




     Budget for a One-Acre Fraser Fir Farm, Avery County and Surrounding Areas of
     Western North Carolina, 1994. (continued)
     Category                             Units           Price ($)    Quantity     Value
     SIXTH YEAR:
     Production:
        6-7' Trees                         Each                16.00    400.00     6,400.00
     Total receipts                                                               $6,400.00
     Operating inputs:
       19-19-19                            Cwt.                11.50      3.27      $37.61
       15-0-0                              Cwt.                11.80      4.16       49.09
       Herbicide                           Acre                80.20      1.00       80.20
       Insecticide and miticide            Acre               105.00      1.00      105.00
       Baling                              Each                 0.50    400.00      200.00
       Advertising                         Acre                50.00      1.00       50.00
       Tractor fuel and lube               Acre                61.82      1.00       61.82
       Tractor repair cost                 Acre                23.04      1.00       23.04
       Machinery fuel and lube             Acre                18.21      1.00       18.21
       Machinery repair cost               Acre                63.59      1.00       63.59
       Equipment fuel and lube             Acre                17.74      1.00       17.74
       Equipment repair cost               Acre                11.64      1.00       11.64
     Total operating cost                                                          $717.94
     Returns to land, labor, capital,
       machinery, overhead, and management                                         5,682.06
     Capital cost:
       Annual operating capital            Dol.                 0.09     470.51      42.35
       Tractor investment                                       0.09     346.95      31.23
       Machinery investment                                     0.09   1,242.32     111.81
       Equipment investment                                     0.09      40.03       3.60
       Avg. net estab. cost                                     0.09   3,559.84     320.39
     Total capital cost                                                            $509.38
     Returns to land, labor, machinery,
       overhead, and management                                                    5,172.68
     Ownership cost: (depreciation, taxes, insurance), Dol.
       Tractor                                                                        39.35
       Machinery                                                                     196.84
       Equipment                                                                      27.15
       Establishment and
       growing costs                                                               2,373.13
     Total ownership cost                                                         $2,636.47
     Returns to land, labor, overhead, and management                              2,536.21
     Labor cost:
        Machinery labor                  Hr.                    6.00     23.05      138.30
        Other labor                      Hr.                    6.00     89.13      534.78
     Total labor cost                                                   112.18     $673.08
     Returns to land, overhead, and management                                     1,863.13
10
Budget for a One-Acre Fraser Fir Farm, Avery County and Surrounding Areas of
Western North Carolina, 1994. (continued)
Category                         Units               Price ($)         Quantity     Value ($)
SEVENTH YEAR:
Production
   6-7' Trees                      Each                   16.00         200.00       3,200.00
   7-8' Trees                      Each                   19.00         600.00      11,400.00
Total receipts                                                                    $14,600.00
Operating inputs:
  18-46-0                          Cwt.                   11.50           3.56        40.94
  0-0-50                           Cwt.                   15.00           1.19        17.85
  15-0-0                           Cwt.                   11.80           4.16        49.09
  Herbicide                        Acre                   45.20           1.00        45.20
  Insecticide and miticide         Acre                   52.80           1.00        52.80
  Baling                           Each                    0.50         800.00       400.00
  Advertising                      Acre                  110.00           1.00       110.00
  Tractor fuel and lube            Acre                   87.11           1.00        87.11
  Tractor repair cost              Acre                   32.33           1.00        32.33
  Machinery fuel and lube          Acre                   36.44           1.00        36.44
  Machinery repair cost            Acre                   98.77           1.00        98.77
  Equipment fuel and lube          Acre                   17.74           1.00        17.74
  Equipment repair cost            Acre                   11.64           1.00        11.64
Total operating cost                                                                $999.91
Returns to land, labor, capital, machinery, overhead, and management               13,600.09
Capital cost:
  Annual operating capital         Dol.                    0.09          653.51        58.82
  Tractor investment                                       0.09          486.84        43.82
  Machinery investment                                     0.09        1,605.92       144.53
  Equipment investment                                     0.09           40.03         3.60
  Avg. net estab. cost                                     0.09        3,559.84       320.39
Total capital cost                                                                   $571.16
Returns to land, labor, machinery, overhead, and management                        13,028.93
Ownership cost: (depreciation, taxes, insurance), Dol.
 Tractor                                                                               55.21
 Machinery                                                                            256.20
 Equipment                                                                             27.15
 Estab. and growing cost                                                            2,373.13
Total ownership cost                                                               $2,711.69
Returns to land, labor, overhead, and management                                   10,317.24
Labor cost:
 Machinery labor                    Hr.                    6.00          34.28        205.68
 Other labor                        Hr.                    6.00         116.93        701.58
Total labor cost                                                        151.21       $907.26
Returns to land, overhead, and management                                            9,409.98

                                                                                                11
Budget for a One-Acre Fraser Fir Farm, Avery County and Surrounding Areas of
Western North Carolina, 1994. (continued)
Category                         Units              Price ($)          Quantity    Value ($)
EIGHTH YEAR:
Production
   6-7' Trees                      Each                16.00            200.00     3,200.00
   7-8' Trees                      Each                19.00            200.00     3,800.00
   Culls                           Each                 3.50            300.00     1,050.00
Total receipts                                                                    $8,050.00
Operating inputs:
  46-0-0                          Cwt.                13.50               2.38      $32.13
  19-19-19                        Cwt.                11.50               3.27       37.61
  Insecticide and miticide        Acre               105.00               1.00      105.00
  Herbicide                       Acre                80.20               1.00       80.20
  Baling                          Each                 0.50             400.00      200.00
  Advertising                     Acre               150.00               1.00      150.00
  Tractor fuel and lube           Acre                37.51               1.00       37.51
  Tractor repair cost             Acre                14.12               1.00       14.12
  Machinery fuel and lube         Acre                18.21               1.00       18.21
  Machinery repair cost           Acre                41.81               1.00       41.81
  Equipment fuel and lube         Acre                17.74               1.00       17.74
  Equipment repair cost           Acre                 0.77               1.00        0.77
Total operating cost                                                               $735.10
Returns to land, labor, capital, machinery, overhead, and management              $7,314.90
Capital cost:
  Annual operating capital                              0.09             493.29      44.40
  Tractor investment                                    0.09             212.41      19.12
  Machinery investment                                  0.09             562.58      50.63
  Equipment investment                                  0.09              40.03       3.60
  Avg. net estab. cost                                  0.09           3,559.84     320.39
Total capital cost                                                                 $438.14
Returns to land, labor, machinery, overhead, and management                        6,876.76
Ownership cost: (depreciation, taxes, insurance)
  Tractor                                                                             24.08
  Machinery                                                                           90.46
  Equipment                                                                           27.15
  Establishment and
  growing costs                                                                    2,373.13
Total ownership cost                                                              $2,514.82
Returns to land, labor, overhead, and management                                   4,361.94
Labor cost:
   Machinery labor                 Hr.                  6.00             16.87      101.22
   Other labor                     Hr.                  6.00             59.02      354.12
Total labor cost                                                         75.89     $455.34
Returns to land, overhead, and management                                          3,906.60
                                                                        Prepared by
                                                 R. A. Hamilton, Extension Forestry Specialist, Taxation
                                                           W. D. Eickhoff, Extension Economist
                                             C. R. McKinley, Extension Forestry Specialist, Christmas Trees




                              2,000 copies of this public document were printed at a cost of $1,496, or $.74 per copy.




                                                                         Published by
                                          NORTH CAROLINA COOPERATIVE EXTENSION SERVICE
Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. Employment and program opportunities are offered to all people regardless
of race, color, national origin, sex, age, or disability. North Carolina State University, North Carolina A&T State University, U.S. Department of Agriculture,
and local governments cooperating.
11/96—2M—GBB—                                                              (Reprint)                                                                  AG-525
                                                                                                                                                     E97 27302

								
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