We harvest timber and later use lime and tractors to reseed the land afterward -- does Virginia's tax exemption for forest-product harvesting equipment cover that reseeding work too?

Plain-English summary

A Virginia company that harvests forest products, runs a sawmill, and farms was audited for a three-year period (December 2013 - November 2016). The auditor found the company had purchased lime and two tractors tax-free under Virginia's sales and use tax exemption for equipment used directly in harvesting forest products, but concluded those specific purchases didn't actually qualify -- and assessed use tax on them. The company appealed, explaining the lime and tractors were used for reseeding and remediating the ground AFTER timber had already been harvested, and arguing that work should still count as exempt.

The exemption only covers the harvesting itself, not what comes after. Virginia's exemption statute (Va. Code § 58.1-609.2 6) and its implementing regulation define "harvesting of forest products" narrowly: removing timber or other forest products from the site, complying with environmental/safety requirements tied to that removal, accessing the harvest site, and loading the cut product for transport to storage or processing. The regulation is explicit that a harvester's INDIRECT use of equipment or supplies -- or use in "any other activity" -- remains taxable, though a harvester can prorate tax between exempt harvesting uses and non-exempt uses of the same equipment. The Tax Commissioner also cited an earlier ruling (P.D. 17-35) holding that equipment used for mulching and land-clearing BEFORE a timber harvest similarly fell outside the exemption because it supported the harvesting operation rather than being used to remove or transport the forest product itself.

Reseeding and remediating the land is, by definition, something that happens once harvesting is done -- it isn't removing timber, complying with removal-related environmental rules, accessing the site to harvest, or loading product for transport. Because Virginia tax exemptions are construed strictly against the taxpayer (with any doubt resolved against exemption), and the company's own explanation confirmed the lime and tractors were for post-harvest reseeding, the assessment was upheld.

What this means for you

Forest-products harvesters, loggers, and sawmill operators

The harvesting exemption is limited to equipment and supplies used DIRECTLY in the harvesting process itself -- removing timber, safety/environmental compliance tied to that removal, site access, and loading for transport. Equipment used before harvesting begins (like mulching or land-clearing) or after harvesting ends (like reseeding or remediation) falls outside the exemption, even if it's part of your overall forestry operation.

Businesses using the same equipment for both exempt and non-exempt activities

If a tractor or similar piece of equipment gets used partly for direct harvesting work and partly for other purposes, the regulation allows you to prorate the tax due between the exempt and non-exempt uses -- don't assume an all-or-nothing outcome; document how the equipment's time/use actually splits.

Anyone claiming a Virginia sales tax exemption generally

Remember that Virginia courts and the Department construe exemption statutes strictly against the taxpayer -- when it's a close call whether an activity falls inside or outside an exemption's specific wording, the doubt gets resolved against exemption, so the burden is on you to show your use clearly fits within the statute's actual language.

Common questions

Q: Does the forest-products harvesting exemption cover equipment used to prepare land for a FUTURE harvest, like mulching or clearing?
A: No -- a separate Department ruling (P.D. 17-35) already held that pre-harvest mulching and land-clearing equipment doesn't qualify, because that work supports the harvesting operation rather than being direct harvesting activity itself.

Q: What if I use the same tractor for both harvesting and other farm work?
A: The regulation allows proration -- you can allocate tax between the exempt (direct harvesting) use and the taxable (other) use of the same equipment, rather than losing the exemption entirely or claiming it entirely.

Q: Is reseeding after a timber harvest ever exempt under Virginia's forest-products rules?
A: Not under this exemption -- reseeding and remediation happen after the harvesting activity (removing timber, safety compliance, site access, and loading for transport) is already complete, so they fall outside the statute's specific list of covered activities.

Citations and references

• Public Document 17-35 (3/28/2017) -- held that equipment used for pre-harvest mulching and land clearing didn't qualify for the forest-products harvesting exemption because it supported the harvesting operation rather than providing a harvested product for sale
• Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 198 S.E.2d 619 (1973) -- statutes granting tax exemptions are construed strictly against the taxpayer
• Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1972) -- exemption from taxation is the exception, and doubt is resolved against the party claiming exemption

Subject

Lumber Harvesting: Exemption; Forest Product - Used Directly

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-66

Original ruling text

May 25, 2021

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

Dear *:

This is in response to your letter in which you seek correction the retail sales and use tax assessments issued to * (the Taxpayer) as a result of an audit for the period from December 2013 through November 2016. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a Virginia company engaged in harvesting forest products, sawmill operations, and farming. The Department conducted a second generation audit, and the auditor found the Taxpayer made tax exempt purchases of lime and two tractors based on the sales and use tax exemption for the harvesting of forest products stated in Virginia Code § 58.1-609.2 6 and Title 23 of the Virginia Administrative Code (VAC) 10-210-700. The auditor determined the Taxpayer used the lime and tractors for purposes not included under the statute and regulation. The auditor assessed the use tax on the purchases. The Taxpayer appeals the assessments on the grounds that its purchases of lime and the two tractors were used for reseeding the grounds after harvesting timber, and therefore exempt from the tax.

DETERMINATION

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

Machinery or tools and repair parts 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.

Furthermore, Title 23 VAC 10-210-700 explains the exemption and the requirement that purchases subject to the exemption be used directly and be indispensable to the harvesting of forest products to be sold. The regulation also states “a harvester’s use of machinery and tools, fuel, power, energy, or supplies indirectly in the harvesting of forest products or in any other activity is subject to the tax.” The regulation authorizes a harvester to prorate any tax due between exempt harvesting activities and non-exempt activities. The Department issued Public Document (P.D.) 17-35 (3/28/2017) in which the Tax Commissioner ruled that a taxpayer’s purchases of equipment for mulching and land clearing in preparation for timber harvesting were not exempt from the tax under the exemption statute due to that taxpayer’s provision of a service to the timber harvesting operation rather than providing a harvested forest product for sale.

The Taxpayer states the lime and tractors are used for the reseeding and remediation process conducted after forest products have been harvested. The statute and regulation do not permit an exemption from the retail sales and use tax for items purchased to reseed and remediate a forest after harvest because such activity and items are not used directly in the harvesting of forest products for sale.

Under the doctrine of strict construction, “Statutes granting tax exemptions are construed strictly against the taxpayer.” See Commonwealth v. Community Motor Bus Co., Inc. , 214 Va. 155, 198 S.E.2d 619 (1973). “Exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption.” See Golden Skillet Corp. v. Commonwealth , 214 Va. 276, 199 S.E.2d 511 (1972).

Based on the information provided by the Taxpayer, the lime and tractors are not used to harvest forest products for sale, and do not qualify for the exemption for the harvesting of forest products authorized under Virginia Code § 48.1-609.2 6.

CONCLUSION

The assessments are upheld in accordance with this determination. The outstanding balance should be paid within 60 days of this determination to avoid additional interest charges. If the Taxpayer has a question concerning payment of the assessments or bills, the Taxpayer may contact the Delinquent Collections Unit at (804) 367-8045.

The Code of Virginia section, regulation and public document cited are available online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website. If you have any questions about this determination, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1903.W

Related Documents

17-35