Did a skid loader and mulching head used to clear land qualify for Virginia's forest-products harvesting sales-tax exemption?

Subject

Virginia retail sales and use tax - equipment used in land clearing business.

Plain-English summary

A contractor used a tracked skid loader and mulching head to clear wooded land and grind vegetation into natural mulch left on the property. It argued that the equipment harvested forest products.

Virginia denied the exemption. The forest-products rule required products severed from forests for sale or for use as a component of a product to be sold. The contractor sold only a land-clearing service and did not sell lumber, mulch, or another harvested product.

Citations and references

• Va. Code § 58.1-609.2 6.
• 23 VAC 10-210-700.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-35

Original ruling text

March 28, 2017

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which * (the “Taxpayer”) requests a ruling on the application of the Virginia retail sales and use tax to equipment used in its land clearing business. I apologize for the delay in responding to your request.

FACTS

The Taxpayer is in the business of clearing wooded land and simultaneously grinding the overgrowth at the job site. The ground material remains on the owner's property and becomes a bed of natural mulch. This process eliminates many of the steps involved in land clearing such as site preparation, the cutting and felling of trees, hauling debris and site cleanup, thus reducing damage to the owner's property. The Taxpayer purchased a Terex PT-110F tracked skid loader and a Fecon mulching head in February 2015 and paid the Virginia retail sales tax on the purchases. The Taxpayer states that this equipment is used to harvest forest products and is exempt from Virginia retail sales and use tax in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-210-700. The Taxpayer seeks a ruling from the Department that the exemption for harvesting forest products applies to the purchase of the equipment.

RULING

Virginia Code § 58.1-609.2 6 provides a retail sales and use tax exemption for the following:

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 used 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. [Emphasis added].

Title 23 VAC 10-210-700 further clarifies the exemption for the harvesting of forest products and defines the term “harvesting of forest products” to mean “the business of severing products from forests for sale or for use as a component part of a product to be sold.” In order to qualify for the exemption, the by-product of the Taxpayer's operation, i.e., the lumber, mulch or other forest products, must be for sale or for use as a component part of a product to be sold. In the present case, the Taxpayer does not sell any product, but instead provides a service to property owners in the form of cutting and grinding vegetation into mulch.

The Virginia courts have consistently followed the "rule of strict construction” of Virginia sales and use tax exemptions. Based on this principle, if there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption. Based on the information provided in your letter and the cited authorities, the Taxpayer's equipment is not used to harvest forest products for sale and does not qualify for the harvesting of forest products exemption in Va. Code § 58.1-609.2 6.

This response is based on the facts provided in your letter as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia and regulation sections cited, along with other reference documents, are available on line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions regarding this response, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/650.S