Does a Virginia locality's farm-equipment BTPP exemption automatically cover aeroponics operations?

Plain-English summary

A Virginia county asked the Department whether its local farm-equipment exemption from the business tangible personal property (BTPP) tax covers an aeroponics operation (growing plants with roots suspended in air and sprayed with nutrients, usually indoors). BTPP tax is imposed and administered locally; the Department issues advisory opinions on local tax matters under Va. Code § 58.1-3983.1.

The short answer: it is not automatic — it depends on the locality's ordinance and a fact-specific call by the local assessor, applied uniformly.

A locality may exempt — and define — farm equipment

Virginia segregates farm animals, feeds, agricultural products, farm machinery, and farm implements as a separate class of tangible personal property (Va. Code § 58.1-3505 A). A locality's governing body may, by ordinance, exempt that class in whole or part, or set a different rate (§ 58.1-3505 B). Because a locality may exempt farm equipment by ordinance, it may also define "farm equipment" for purposes of that exemption. The Department has previously held that whether to classify a business as a farm for the BTPP exemption is the locality's decision (citing P.D. 17-15 and P.D. 18-41).

Uniformity is the limit

Under Article X, § 1 of the Virginia Constitution, taxes must be uniform on the same class of subjects. So if a county exempts all farm equipment, the exemption must apply to all such equipment in the county. Whether particular equipment is used for farming is a fact-specific inquiry:

• Growing and harvesting is clearly farming, but whether equipment is used for farming versus manufacturing is decided case by case (1982-1983 Op. Va. Att'y Gen. 536).
• Aeroponics differs from traditional farming (no soil, usually indoors). Absent an ordinance defining eligible equipment, the local assessor must decide whether it can clearly differentiate equipment by where it is used or the growing medium.
• Equipment used to package or sell produce would not automatically qualify for the farm exemption.

If the locality can conclude aeroponics equipment — which produces the same products as traditional farming — is a separate class, it may impose an appropriate assessment; if it cannot draw that distinction while keeping the class uniform, it must treat the equipment the same as other farm equipment (Va. Const. Art. X, §§ 1-2; Va. Code § 58.1-3503(A)(17); 1991 Op. Va. Att'y Gen. 302).

Common questions

Q: We're a county — does exempting "farm equipment" automatically cover an indoor aeroponics grower?

A: No. Your assessor must determine whether that equipment is farm equipment, and must apply the exemption uniformly to the whole class.

Q: Can we write our own definition of "farm equipment"?

A: Yes. Because a locality may exempt farm equipment by ordinance, it may also define the term for its exemption — subject to the uniformity requirement.

Q: Does the exemption reach packaging and sales equipment?

A: Not automatically. Equipment used to package or sell produce does not automatically qualify as exempt farm equipment.

Q: Who decides — the state or the locality?

A: The locality. BTPP tax is imposed and administered locally; the Department's opinion is advisory guidance, not a binding determination for the locality.

Citations and references

• Va. Code § 58.1-3983.1 — Department's authority to issue local business-tax advisory opinions
• Va. Code § 58.1-3505 A and B — farm machinery/equipment as a separate class; local exemption by ordinance
• Va. Const. Art. X, §§ 1, 2, 4 — uniformity and segregation of property for local taxation
• Va. Code § 58.1-3503(A)(17) — fair market value assessment
• 1982-1983 Op. Va. Att'y Gen. 536; 1991 Op. Va. Att'y Gen. 302 — farming vs. manufacturing; assessment methods
• Related Virginia rulings: P.D. 17-15 (3/10/2017) and P.D. 18-41 (3/30/2018) (locality decides farm classification)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-1

Original ruling text

January 7, 2020

Re: Request for Advisory Opinion

Business Tangible Personal Property Tax

Dear *:

This is in response to your letter in which * (the “County”) requests an advisory opinion regarding the application of the business tangible personal property (BTPP) tax to aeroponics.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue advisory opinions on local business tax matters. The following opinion has been issued subject to the facts presented to the Department summarized below. Any changes in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections and public document cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website.

FACTS

The County has requested an advisory opinion to two questions. The questions and the Department’s opinion are enumerated below.

OPINION

1) If a locality exempts farm equipment by local ordinance, does that extend automatically to aeroponics that grow, package and wholesale their products?

Article X, § 4 of the Constitution of Virginia provides that all real and tangible personal property shall be segregated for local tax in such a manner as the General Assembly provides by law. Virginia Code § 58.1-3505 A segregates farm animals, grains and other feeds, agricultural products, farm machinery, farm implements and equipment as a separate class of tangible personal property. The governing body of any locality may, by ordinance, exempt in whole or in part from taxation, or provide a different rate of tax upon, all or any such property. See Virginia Code § 58.1-3505 B.

Article X, § 1 of the Constitution of Virginia provides that “[a]ll taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects.” If a County, by local ordinance, exempts all farm equipment from local BTPP tax, then the exemption must apply to all such equipment in the County. The Attorney General has found that growing and harvesting is clearly farming, but whether equipment is used for farming or manufacturing is a fact specific inquiry that must be decided on a case by case basis. See 1982-1983 Op. Atty Gen. Va. 536.

Aeroponics is the growing of plants by suspending their roots in the air and spraying them with nutrient solutions. See Merriam-Webster.com , https://www.merriam-webster.com/dictionary/aeroponics (retrieved 10/21/2019). Aeroponics differs from traditional farming in that it does not use soil as a growing medium and is usually conducted indoors. Absent a local ordinance specifically defining the type of equipment eligible for a farm exemption, the question becomes whether a local assessing officer can clearly differentiate equipment based on where it is used or what growing medium is utilized. It is incumbent upon the locality to make such a determination.

Equipment used to package or sell produce would not automatically qualify for the locality’s exemption. Ascertaining whether equipment was used for farming, however, would be a factual determination of the locality.

2) Can a locality through local ordinance create a definition of farm and/or farm equipment to apply local exemptions?

Virginia Code § 58.1-3505, and previous opinions of the Attorney General, do not define the term farming. The Department previously determined that whether to classify a business as a farm for purposes of the BTPP tax exemption is a locality’s decision. See Public Document (P.D.) 17-15 (3/10/2017), and P.D. 18-41 (3/30/2018). Because a locality may exempt farm equipment by ordinance, it may also define the term farm equipment for purposes of the exemption.

In a 1991 opinion, the Attorney General opined, “No constitutional or statutory provision prevents a commissioner of the revenue from changing the method of assessment of a particular class of personal property, as long as the new method meets the uniformity requirement of Article X, § 1, and can reasonably be expected to determine fair market value of the property as required by Article X, § 2 and § 58.1-3503 (A)(17). 1991 Op. Va. Att’y Gen. 302, 303.

Thus, in determining whether aeroponics equipment qualifies for an exemption, the locality must insure all farm equipment is taxed at a uniform rate. If it can conclude that aeroponics equipment, which produces the same products as traditional farming, is a separate class of personal property, then it may impose an appropriate assessment of tax. If it cannot, the equipment should be treated the same as other farm equipment.

If you have any questions regarding this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/2112C

Related Documents

18-41

17-15