Are sales and leases of timber-harvesting (silviculture) equipment exempt from Colorado sales tax as farm equipment?

Plain-English summary

A vendor and lessor of heavy timber-harvesting equipment — machines like a "feller" (which hugs a tree while a saw cuts it) and a "skidder" (which drags cut trees to a clearing) — asked whether selling and leasing this silviculture equipment is exempt under Colorado's farm-equipment exemption (§ 39-26-716). The Department concluded that, post-2013, it likely is — for both sales and leases.

Sales — § 39-26-716(2)(b). This exempts sales of "farm equipment," defined (subsection (1)(d)) to include any "implement of husbandry" as defined in § 42-1-102(44). A 2013 amendment added to "implements of husbandry" any "personal property valued by the county assessor as silvicultural" (silviculture = "the growing and production of trees"). Even though that amendment came after § 39-26-716 was enacted, it's incorporated into the exemption (§ 2-4-209; People v. Jones, 346 P.3d 44 (Colo. 2015)). The Department also noted "implements of husbandry" includes agricultural-commodity handling equipment, and "agricultural commodity" in the sales-tax statute includes timber and timber products (§ 39-26-102(1)). Conclusion: "timber and timber product handling equipment purchased after 2013 and valued by the county assessor as silvicultural equipment likely qualifies for the exemption."

Leases — § 39-26-716(2)(c). This exempts "any farm equipment under lease or contract, if the fair market value … is at least one thousand dollars and the equipment is rented or leased for use primarily and directly in any farm operation." A "farm operation" (subsection (1)(e)) is "the production of … agricultural, viticultural, fruit, and vegetable products" for profit. The company argued timber is an "agricultural product"; the Department agreed. Although the ordinary meaning of "farm operation" might not include state and federal forests, adding silviculture to "implements of husbandry" implies "agricultural" products include timber and that "farm operation" should be read broadly to include timber grown and harvested on state and federal lands — and the lease exemption (2)(c) should be read consistently with the sales exemption (2)(b). Conclusion: the Department would likely interpret (2)(c) to exempt the lease of equipment that (a) has a market value of at least $1,000, (b) is used to harvest timber from state and federal land, and (c) is valued by the county assessor as silviculture personal property.

Two caveats. Equipment that must be registered under § 42-3-103 doesn't qualify for § 39-26-716. And the letter doesn't address pre-2013 purchases — the three-year refund window (§ 39-21-108) has likely closed, making the issue moot. This is a GIL: guidance, not a binding determination.

What this means for you

Timber/logging operators and silviculture equipment dealers/lessors

Heavy equipment used to harvest timber — fellers, skidders, loaders — bought after 2013 and assessed by the county as silvicultural personal property likely qualifies for the farm-equipment sales-tax exemption. The same likely holds for leases, provided the equipment's fair market value is at least $1,000 and it's used primarily and directly to harvest timber (including on state and federal land). Two things to confirm: the county assessor actually values it as silvicultural, and the equipment isn't something that must be registered as a vehicle (registered equipment is excluded).

Buyers/lessees of timber equipment

Keep documentation showing the equipment's silvicultural assessment and its use in timber harvesting; that's the backbone of the exemption claim.

Accountants and tax professionals

The chain: § 39-26-716(2)(b)/(1)(d) → "implement of husbandry" (§ 42-1-102(44)) → 2013 amendment adding county-assessed silvicultural property, incorporated via § 2-4-209 and People v. Jones (346 P.3d 44). "Agricultural commodity" includes timber (§ 39-26-102(1)). Lease exemption (2)(c) requires FMV ≥ $1,000 + primary-and-direct use in a "farm operation," which the Department reads broadly to reach state/federal-land timber harvesting, harmonized with (2)(b). Registered equipment excluded (§ 42-3-103); pre-2013 refunds time-barred (§ 39-21-108). All "likely" — no determination.

Common questions

Q: Is timber-harvesting equipment exempt from Colorado sales tax? A: Likely yes, if it's bought after 2013 and valued by the county assessor as silvicultural personal property. A 2013 amendment added silviculture to the "implements of husbandry" that count as exempt farm equipment.

Q: Does the exemption apply to leases, not just sales? A: Yes, likely. For leases, the equipment must have a fair market value of at least $1,000 and be used primarily and directly to harvest timber — which the Department reads to include timber on state and federal land.

Q: Is timber really an "agricultural product"?
A: The Department agreed it is for this purpose. Adding silviculture to "implements of husbandry" implies "agricultural" products include timber, supporting a broad reading of "farm operation."

Q: What doesn't qualify?
A: Equipment that must be registered as a vehicle (§ 42-3-103) is excluded from the § 39-26-716 exemption. The letter also doesn't cover pre-2013 purchases, since the refund window has likely closed.

Q: Is this letter binding?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no specific determination and says the Department "would likely" interpret the exemption this way.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities and counties set their own rules.

Citations and references

Statutes and cases:

• § 39-26-716(2)(b), (1)(d), C.R.S. (exemption for sales of farm equipment; "implement of husbandry")
• § 39-26-716(2)(c), (1)(e), C.R.S. (exemption for leased farm equipment, FMV ≥ $1,000, used primarily and directly in a "farm operation")
• § 42-1-102(44), C.R.S. (implements of husbandry include property assessed as silvicultural, effective July 1, 2013)
• § 39-26-102(1), C.R.S. ("agricultural commodity" includes timber and timber products)
• § 2-4-209, C.R.S.; People v. Jones, 346 P.3d 44 (Colo. 2015) (referenced statutory amendments are incorporated)
• § 42-3-103, C.R.S. (registered equipment excluded); § 39-21-108, C.R.S. (three-year refund limitations period)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-018.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-17-018

August 29, 2017
XXXXXX
Attn: XXXXXX
XXXXXX
XXXXXX
Re: Exemption for Silviculture Equipment
Dear XXXXXX,
You submitted on behalf of your client (“Company”) a request for guidance relating to the applicability of the exemption set forth in §39-26-716, C.R.S.. The Colorado Department of Revenue (“Department”) issues general information letters and private letter rulings. A general information letter provides a general overview of the relevant tax issues, but is not binding on the Department. A private letter ruling provides a specific determination for a specific set of facts, is binding on the Department but not on the taxpayer, and requires payment of a fee. For more information about general information letters and private letter rulings, please see Department Rule 1 CCR 201-1, 24-35-103.5. The Department treats this request as a general information letter. It is important to remember that general information letters, such as this one, are general discussions of tax law and are not binding on the Department. If Company would like the Department to issue a private letter ruling on the issue raised here, Company can submit a request and pay the fee in compliance with Department Rule 1 CCR 201-1, 24-35-103.5. Issue Is the sale and lease of silviculture equipment exempt from sales and use tax pursuant to §39-26-716, C.R.S.? Background Company is a vendor / lessor of heavy equipment that is used by customers who are in the business of cutting and removing timber from the land. These customers use the equipment to perform such tasks as cutting down the trees,

dragging them to terminal points, and loading them onto trucks for transport. For example, a “feller” uses a metal extension to hug the tree while it is being cut from below by an attached circular saw. Another item of equipment, a “skidder,” uses an extension to grab trees piled together by the “feller” and drag them to a clearing. The items move by large tires or tracks and are designed to operate in dense, uneven terrain. Discussion Colorado exempts from sales and use taxes certain farm equipment described in
§39-26-716(2)(b) and (c), C.R.S.. Subsection (2)(b) exempts all sales and purchases of “farm equipment.”1 “Farm equipment” is defined in subsection (1)(d) to include “any implement of husbandry”, as defined in section §42-1-102(44), C.R.S.” The definition of “implements of husbandry” states, in part: “Effective July 1, 2013, for purposes of this section, ‘implements of husbandry’ includes personal property valued by the county assessor as silvicultural.” Silviculture is the growing and production of trees. Although this 2013 amendment was enacted after the enactment of section 716, it, nevertheless, is incorporated into the exemption in subsection 716(2)(b).2 Moreover, “implements of husbandry” includes “agricultural commodity” handling equipment. “Agricultural commodity” is defined in the sales tax statute to include timber and timber products.3 The definition of “agricultural commodity” was added to the sales tax statute in 2000 in the same legislation (HB 00-1162) that added “agricultural commodity handling equipment” to the definition of “implements of husbandry” in the motor vehicle registration statutes, suggesting that implements of husbandry included timber and timber products handling equipment beginning in 2000. The 2013 amendment adding silviculture to the definition of implements of husbandry limits the exemption to equipment “valued by the county assessor” as silviculture equipment. Therefore, timber and timber product handling equipment purchased after 2013 and valued by the county assessor as silvicultural equipment likely qualifies for the exemption pursuant to subsection 716(2)(b).4 Company also requests guidance on whether leasing (as opposed to transferring title to) the equipment qualifies for the exemption under subsection (2)(c), which exempts “any farm equipment under lease or contract, if the fair market value of the equipment is at least one thousand dollars and the equipment is rented or 1

Equipment that must be registered pursuant to §42-3-103, C.R.S. does not qualify for the exemption set forth in section 716. We assume for purposes of discussion that Company’s equipment is not required to be registered. 2
§2-4-209, C.R.S. See also, People v. Jones, 346 P.3d 44 (Colo. 2015) overruling School District No. 1 v. Hastings, 220 P2d 361 (Colo. 1959) and implicitly overruling Arrington v. Arrington, 618 P.2d 744 (Colo. App. 1980) (amendments to a statute that is specifically referenced by another statute are not incorporated into the referencing statute). 3
§39-26-102(1), C.R.S.
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This letter does not address the application of section 716 to silviculture equipment purchased before 2013 because the three year statute of limitations for claiming a refund of taxes has likely expired and, therefore, the issue is moot. §39-21-108, C.R.S. 2

DR 4010A (06/11/14)

leased for use primarily and directly in any farm operation.” We note that there are some differences in language between subsection (2)(b) (exemption for the “sale” of farm equipment) and subsection (2)(c) (exemption for the “lease” of farm equipment). Specifically, subsection (2)(c) refers to farm equipment used directly and primarily in a “farm operation”. A “farm operation” is defined in subsection (1)(e) as “the production of any of the following products for profit, including, but not limited to, a business that hires out to produce or harvest such products: (I) Agricultural, viticultural, fruit, and vegetable products.” (emphasis added). Company asserts that timber qualifies as an “agricultural product” and, therefore, its lease of the heavy equipment used to harvest timber qualifies for the exemption under subsection (2)(c). We agree. Although the common and ordinary meaning of “farm operation” may not encompass state and federal forests, the addition of silviculture to the definition of “implements of husbandry” suggests that the definition of “farm operation” should be more broadly interpreted to include timber grown and harvested on state and federal lands.5 The addition of silviculture also implies that “agricultural” products include timber. Finally, and notwithstanding some slight differences in the language, this exemption for “leased” farm equipment in subsection (2)(c) should be read consistently with the exemption for the “sale” of farm equipment in subsection (2)(b) (which does not, at least expressly, limit the exemption to equipment used directly and primarily on “farm operations”). Therefore, the Department would likely interpret subsection (2)(c) to exempt the lease of equipment that has a market value of at least $1,000, is used for harvesting timber from state and federal land, and is valued by the county assessor as silviculture personal property. Miscellaneous This letter represents the good faith opinion of Department personnel who are knowledgeable on state taxes issues. However, the Department does not make a specific determination here on any of the issues raised and the Department is not bound by this general information letter. The Department administers state and state-administered local sales and use taxes. This letter does not address sales and use taxes administered by home-rule cities and home-rule counties. You may wish to consult with local governments which administer their own sales or use taxes about the applicability of those taxes. Visit our web site at www.colorado.gov/tax for more information about state and local sales taxes. Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter will be made public within 60 days of the date of this letter. Please let

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It is the Department’s understanding that most timber production in Colorado occurs on state and federal lands. DR 4010A (06/11/14)

me know in writing within that 60 day period whether you have any suggestions or concerns about this redacted letter. Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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DR 4010A (06/11/14)