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Wednesday, April 24, 2024

The N.C. Christmas tree tax whisperer

Taxation is an important topic for every industry, including the Christmas tree crowd, which is a big crowd in North Carolina, the No. 2 producer of the trees behind Oregon. And Charlotte attorney and CPA Andrew Bosserman is a leading expert on the taxation of tree farms and a frequent speaker to industry groups.

The law allows Christmas tree earnings to be taxed as capital gains, at a rate substantially lower than what a business normally pays, particularly in the top brackets. But this is only true if the Christmas tree farmers know about it and keep good books. And for a small business on thin margins, missing out on this and related tax breaks can mean the difference between profit and loss. Bosserman has gone all over the country spreading the word.

This is kind of an improbable story, of how he ended up the North Carolina Christmas tree tax whisperer, at 33. 

For one thing, he is from Toledo, Ohio.  After studying finance and accounting in college, he worked as an internal revenue agent, including two years in the Cincinnati area. After that, he worked in the private sector as a financial analyst and accountant.

[media-credit name=”Andrew Bosserman” align=”right” width=”300″][/media-credit]

But his passion was Christmas trees.  “As a family, growing up in Ohio, we had always gone out and cut down our own Christmas trees,” says Bosserman.  “I just loved it, and I kept thinking I wanted to do this some day.”

Hiking the Great Wall

Towards the end of 2014, while working as a controller for a Cincinnati apartment firm, he decided to take time off and see the world, which is a splendid idea for 20-somethings. The seven-month journey through 10 Asian countries included a hike along the Great Wall of China. He kept thinking about Christmas trees.

So, when he returned to Ohio in the summer of 2015 — and several months before returning to accounting and tax work — began operating a Christmas tree farm east of Dayton, Ohio.  “I did it in the extra time I had available when I wasn’t working as a CPA,” he says. He knew little about farming or growing trees, but found help. “There’s lots of knowledge out there”  from other Christmas tree farmers,  state associations and extension services

In 2018, he enrolled in law school at Wake Forest. His wife was from Raleigh and Bosserman also wanted to come to North Carolina because, you know, we grow a lot of Christmas trees.

“I knew I wanted to stay involved in Christmas trees even though I wouldn’t directly be growing them during law school. Who knows if I’ll ever get another farm?  It’s definitely what I’m passionate about, helping Christmas tree growers as well as forest landowners.” 

After graduating from law school earlier this year, he joined Shumaker, Loop & Kendrick’s Charlotte office. 

His national reputation has grown as he has written about taxation for industry magazines and been invited to speak to state association meetings. “I thought all of them should know about this, so that’s why I started writing.” Paying at a 15 or 20% rate — rather than marginal rates as high as 37% — could save Christmas tree growers “thousands if not tens of thousands of dollars a year,” says Bosserman. And another wrinkle is that the self-employment tax of 15.3% is not assessed on capital gains.

“So, a normal farmer, say they grow corn or something, they’re going to pay ordinary income tax on all their profits plus another 15.3% on top of that ordinary income tax to cover self-employment tax. But Christmas tree growers don’t have to do that.”

One caveat is that they aren’t paying into Social Security, but, says Bosserman, “tax savings more than make up or it, and if you invest it in other retirement accounts, you’re probably going to come out ahead.”

Now there’s always a catch. The grower needs to keep good records and understand how business decisions can have significant tax implications. “Most people get into the business because they love growing Christmas trees. They’re not accountants by trade.”

To qualify for capital gains treatment, you have to prove that the trees are more than six years old when they were cut. Bosserman recommends that growers do an annual inventory, and they measure trees. There are drone programs that are being developed by N.C. State Extension and others to make this easier. 

There are also important estate tax, corporate structure, and depreciation issues that Bosserman covers in his presentations. Crucial tax preparation details. Form T for choose-and-cut farms.  Like harvesting a seven-foot Fraser fir with a chain saw, Christmas tree taxes require a careful approach. 

Tree economics

You are seeing stories about Christmas tree shortages, and Bosserman thinks there are a couple of factors.

The recession a dozen years ago created uncertainty among growers, who didn’t know about future  demand. The recession was also impacting grower incomes, which dampened planting. But millennials were starting families, having kids and buying homes, which meant greater demand for trees. Then COVID hit, and folks stuck at home decided a real Christmas tree was a family thing for a difficult time.

The pandemic may lead to more Christmas tree farms to meet demand. “During COVID, people were sitting around home and thinking about, ‘Hey, what do I want to be doing for the rest of my life?’ A lot of people probably thought, ‘Oh, I don’t want to go back to the office,’ or ‘Oh, I have this vacant land.’ They’re thinking ‘I’d enjoy starting a Christmas tree farm.’  So, I think COVID has allowed people to re-examine their lives.

“I get contacted regularly about new growers wanting to enter the business across the country, wanting to start growing Christmas trees on their land.  The demand for a lot of new Christmas trees is there. A lot of people want to get into it.”

The bulk of the Christmas trees harvested in North Carolina come from six mountain counties: Ashe, Alleghany, Avery, Jackson, Mitchell and Watauga. Nearly 1.9 million trees were cut on 144 farms in Ashe in 2017, nearly half the state’s harvest that year, according to a recent USDA census. All told, Christmas trees were harvested on 653 farms (more are growing them), with revenue of $86.8 million. Most of them are under 100 acres.

A couple of weekends back, Bosserman drove up to Mistletoe Meadows Farm in Alleghany County, a two-hour drive from Charlotte.

“I went up to the mountains last weekend because I knew there were going to be supply issues,” he says.

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