Did Virginia's forest-products harvester exemption cover equipment and supplies used by a woodland-renovation land-clearing business?

Subject

Harvester exemption is not applicable to business of woodland renovation land clearing

Plain-English summary

Virginia's forest-products harvester exemption did not cover a woodland-renovation and land-clearing business that was not severing forest products for sale. The audit taxed self-powered mobile mulching equipment, component parts and supplies, off-road fuel, and tools used in the business.

The taxpayer argued that its work related to farming, including clearing horse pastures, preparing for tree replanting, and grinding stumps where local law prohibited burning. It also noted that its grinders shared an insurance classification with logging equipment.

Virginia explained that there was no general agricultural classification making all farming-related purchases exempt. Each of the six statutory agricultural exemptions had its own requirements, and permits, no-burn rules, and insurance classifications did not satisfy them.

The only potentially relevant provision applied to persons harvesting forest products—severing them for sale or for use in a product to be sold—and covered operations before transporting the harvested product. Because the taxpayer was not engaged in that activity, Virginia upheld the paid assessment and denied a refund.

What this means for you

• Work connected with farms or forests is not automatically covered by an agricultural exemption.
• The purchaser must satisfy the exact terms of a specific statutory exemption.
• The harvester exemption requires severing forest products for sale or use in a product to be sold.
• Permitting, environmental requirements, and insurance classifications do not replace the statute's activity test.

Common questions

Why did the land-clearing work not qualify?

The taxpayer renovated and cleared woodland but did not sever forest products for sale or for use in products to be sold.

Did grinding stumps under local no-burn laws help?

No. Virginia said that requirement had no bearing on whether a statutory agricultural exemption applied.

What happened to the assessment?

It was upheld, and no refund was allowed.

Citations and references

• Va. Code § 58.1-609.2(6).
• Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E.2d 619 (1973).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-152

Original ruling text

July 28, 2010

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the Taxpayer), in which you request correction of the retail sales and use tax assessment issued to the Taxpayer as a result of an audit for the period January 2006 through December 2009.

FACTS

The Taxpayer is engaged in woodland renovation land clearing. An audit resulted in the assessment of use tax on Self-powered mobile mulching equipment, component parts and supplies, off road fuel, and tools used or consumed in the Taxpayer's operations.

The Taxpayer contests the entire assessment and contends that all of the contested items qualify for an agricultural exemption pursuant to Va. Code § 58.1-609.2. The Taxpayer indicates that it must obtain permits in several Virginia counties because the grinding is related to farming activities, i.e. , horse pastures, replanting trees, etc. The Taxpayer also indicates that stumps and other wooden debris remaining from tree harvesting must be ground down in Virginia counties with no burn laws. The Taxpayer further indicates that its grinders fall under the same insurance classification as a logging operation.

DETERMINATION

Each of the six agricultural exemptions listed under Va. Code § 58.1-609.2 specifies the types of items and the criteria that must be satisfied to qualify for exemption from the retail sales and use tax. Contrary to the Taxpayer's appeal letter, there is no general agricultural classification that would permit the Taxpayer to make purchases exempt of the tax. The issues raised by the Taxpayer with regard to the required permits, the required grinding in Virginia localities with no burn laws, and the logging insurance classification for grinders have no bearing upon qualifying for any of the individual agricultural exemptions found in Va. Code § 58.1-609.2.

In its appeal, the Taxpayer does not specifically cite the agricultural exemption for which it believes it qualifies. Based on the facts presented and the Taxpayer's business operations, the Taxpayer does not qualify for any of the six agricultural exemptions. The only exemption that could even be considered to relate to the Taxpayer's business is found in Subsection 6 of Va. Code § 58.1-609.2. This subsection provides an exemption from the retail sales and use tax for:

Machinery or tools and repair parts therefor or replacements thereof, fuel, power, energy or supplies, used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold. Harvesting of forest products shall include all operations prior to the transport of the harvested product necessary for (i) removing timber or other forest products from the harvesting site, (ii) complying with environmental protection and safety requirements applicable to the harvesting of forest products, (iii) obtaining access to the harvesting site, and (iv) loading cut timber or other forest products onto highway vehicles for transportation to storage or processing facilities.

Prior to July 1, 1999, the exemption was applicable only to a harvester's purchase of machinery and tools and their repair parts, fuel, power, energy, or supplies used directly in harvesting of forest products for sale or for use as a component part of a product to be sold. Effective on and after July 1, 1999, this exemption was expanded to exempt machinery and tools used by harvesters of forest products in all operations prior to the transport of the harvested product.

Based on the statutory language, it has been the Department's long-standing policy that the harvester exemption is applicable to those persons engaged as a harvester of forest products, i.e. , a person must be engaged in severing forest products for sale or for use as a component part of a product to be sold. Because the Taxpayer is not so engaged, the harvester exemption is not applicable to the Taxpayer.

In making this determination, the Department is bound by the rule of strict construction established by the Virginia courts, i.e. , sales tax exemptions must be strictly construed, with doubts resolved against the exemption. See Commonwealth v. Community Motor Bus , 214 Va. 155, 198 S.E.2d 619 (1973).

CONCLUSION

Based on this determination, the assessment is correct. The assessment has been paid, and the Taxpayer is not entitled to a refund.

The Code of Virginia section cited is available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda Foster

Deputy Tax Commissioner

AR/1-4313554324.R