Tax Type
Retail Sales and Use Tax
Description
Operating a cotton gin /selling cottonseed/grain to farmers; leases or loans equipment
Topic
Exemptions
Property Subject to Tax
Date Issued
10-01-2004
October 1, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the retail sales and use tax assessments issued to ******** (collectively, the "Taxpayer"), for the period of May 1995 through June 1998. I apologize for the unusual delay in responding to your appeal.
FACTS
The Taxpayer is in the business of operating a cotton gin and selling cottonseed and grain to farmers. The Taxpayer also sells, leases or loans equipment to farmers during the cotton picking season. The farmers use this equipment to pick the cotton, build cotton modules, and load and transport the module to the cotton gin. As a part of the financing arrangement for the cotton picking equipment, bale credits are allowed to the farmers and credited against the purchase or lease price of the equipment.
As the result of the Department's retail sales and use tax audit, the Taxpayer protests the inclusion in the Asset Purchases exception list of several pieces of cotton picking equipment under which the Taxpayer entered into lease/purchase agreements or loaner/lease agreements with area farm operators. The Taxpayer believes that the purchase of the equipment in question should be exempt from the sales and use tax because the equipment was resold or leased to farmers.
The Taxpayer is also taking exception to the tax assessed on the purchase of a laptop computer that the Taxpayer claims was purchased from an individual through an ad in the local newspaper. An employee of a local computer dealer from which the Taxpayer has historically purchased computers delivered the computer to the Taxpayer, and the Taxpayer issued a check to the individual from whom it purchased the computer. The Taxpayer believes that this transaction qualifies as an occasional sale and requests that this transaction be removed from the audit findings.
DETERMINATION
It is my understanding that the cotton picking equipment at issue may either be loaned or leased to the farmer. Equipment that is leased to a farmer and used directly in agricultural production for market may be purchased tax exempt by the Taxpayer for re-lease, and leased tax exempt to the farmer under the agricultural exemption provided under Va. Code § 58.1-609.2(1). Equipment that is purchased by the Taxpayer and loaned to a farmer does not qualify for the agricultural exemption because the Taxpayer, who is not a farmer, makes a taxable use of the equipment. Furthermore, the leased equipment does not qualify for the industrial manufacturing exemption because the Taxpayer does not use it directly in a manufacturing process. Therefore, loaner equipment would be taxable to the Taxpayer at the time of purchase.
According to the auditor, all items that were leased to farmers were removed from the audit, but equipment loaned to farmers and equipment leased to harvesting businesses remained in the audit. In your appeal letter of June 30, 1999, it is stated that you had attached documentation in support of your contention that certain cotton picking equipment was incorrectly held taxable in the audit. In fact, this documentation was not attached and has not been received by the Department after two telephone requests for such documentation. In addition, documentation has not been provided to support your claim that the sale of the laptop computer qualifies for the occasional sale exemption under Va. Code § 58.1-609.10(2).
Absent the necessary documentation, there is no basis for adjusting the audit. I will allow the Taxpayer 30 days from the date of this letter to furnish additional documentation to substantiate its claims. If the appropriate documentation is not furnished within the allotted time, the outstanding balance of the two audit assessments totaling ***** (***** for ***** and ***** for *****) will be due and payable in full.
You may forward all additional documentation to *****, Office of Policy and Administration, Policy Development, P.O. Box 1880, Richmond, Virginia 23218-1880. ***** may be reached by telephone at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
-
-
-
-
-
-
PD/27302K
Rulings of the Tax Commissioner