Tax Type
Retail Sales and Use Tax
Description
Exemption, Four species of llamas and any interbred offspring, Llama farmer
Topic
Exemptions
Manufacturing
Date Issued
07-18-2005
July 18, 2005
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter submitted on behalf of ***** (the "Taxpayer"), in which you request a ruling regarding the application of the retail sales and use tax to the purchase and breeding of llamas by a farmer for agricultural production for market. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a farmer engaged in the breeding of llamas, specifically lama pacos commonly known as alpacas. There are four known species of the llama: lama pacos, lama glama, lama guanicoe and lama vicugna. The four species can interbreed resulting in "nonpedigreed" offspring. The Taxpayer questions the applicability of the exemption to the four species and any interbred offspring.
RULING
A. Does a farm for the breeding of any or all of the four species, including crossbred offspring, qualify for the exemption provided in Va. Code § 58.1609.2 1 ?
The 1991 Virginia General Assembly extended the retail sales and use tax exemption for agricultural activities to llama farmers. See Chapter 647, 1991 Acts of Assembly. To qualify for the exemption, tangible personal property must be used in agricultural production for market. Accordingly, the purchase of llamas for breeding purposes is exempt of the tax. Virginia Code § 58.1-609.2 1 does not limit the exemption to one species of llama; therefore, the exemption is available for any species of llama purchased for agricultural production for market.
B. Is the production and sale of offspring from any or all of the four species, including crossbred offspring, from business breeding activities considered agricultural production for market and an agricultural product?
The breeding of any species of llama by a farmer for sale is considered agricultural production for market. As mentioned in the response to the previous question, the term llamas includes the four species of llamas, as well as their offspring and any crossbred offspring. To the extent the Taxpayer uses the llamas in breeding activities, the Taxpayer will qualify for the agricultural exemption in Va. Code § 58.1609.2 1.
If the Taxpayer uses llamas in a nonexempt activity, the animal and all tangible personal property used in supporting that animal become subject to the use tax. Examples of nonexempt activities include showing the llamas in a competitive environment or using them in a petting zoo. The distinction between exempt breeding activities and taxable nonagricultural activities is consistent with the Department's longstanding treatment of other animals used in nonagricultural activities. See Public Document (P.D.) 94-324 (10/24/1994).
C: Is the production and sale of fleece from any or all of the four species, including crossbreeds considered an agricultural product produced for market?
The raising and breeding of llamas for the sale of fleece is considered agricultural production for market. In addition to the questions addressed above, you make several observations in your letter that warrant clarification.
1. Regardless of Va. Code § 58.1-609.2, the purchase of any breeding stock
-
- (and feed and supplies, etc.) is always exempt from the sales tax.
-
- Title 23 of the Virginia Administrative Code (VAC) 10-210-50 states that the tax does not apply to the sale of certain tangible personal property to farmers for use in agricultural production for market. The Department has consistently exempted farmers from the tax on their livestock. In Public Document 94-152 (05/16/94), the Department ruled that the agricultural exemption in Va. Code § 58.1-609.2 1 applies to certain animals based upon the definition of "livestock" found in Va. Code § 3.1-796.66. This definition broadly includes all animals of the genus Lama.P. D.
2. Virginia Code § 58.1-609.2 lists "llamas." Therefore, the purchase of alpaca breeding stock (and feed, supplies, etc.) is exempt from sales tax.
-
- See response to question 1.
3. Virginia Code § 58.1-609.2 does not specifically state "alpacas" so the
-
- purchase of alpaca breeding stock (and feed and supplies, etc.) is not
exempt from sales tax.
- purchase of alpaca breeding stock (and feed and supplies, etc.) is not
-
- See response to question 1.
4. Producing and selling offspring from breeding activities are treated as
-
- "agricultural product for market," as is a foal from horse breeders. As
such, all the other sales tax exemptions from § 58.1-609.2 and wherever
else the qualifier "agricultural product for market" occurs also applies.
- "agricultural product for market," as is a foal from horse breeders. As
-
- This statement is correct.
5. A tractor and other pasture management implements fall under the "farm machinery" exemption since breeding is "agricultural production."
See P.D.'s 87-156 (06/02/87), 92-250 (12/23/92), and 98-197 (11/30/98). These public documents list several areas where equipment is used in agricultural production for market and would, therefore, enjoy the exemption. Depending on the facts and circumstances surrounding the use of the equipment, it may be subject to tax based on a proration of taxable versus exempt activities.
6. Selling animals to other professional breeders.
Such sales may qualify for exemption. The professional breeder (i.e., the purchaser) must present a retail sales and use tax certificate of exemption to the Taxpayer for the transaction to be exempt of the tax.
7. Selling animals to consumers as pets or show animals.
In this instance, the farmer is a seller of tangible personal property and must collect the tax on such sales. The farmer must register for the collection and reporting of the retail sales and use tax. See Va. Code § 58.1-613.
8. Selling alpaca fleece to consumers.
-
- See response to #7.
9. Selling alpaca fleece to businesses for further processing.
While the farmer is a seller of tangible personal property, the sale is made to a manufacturer for further processing into marketable goods for sale or to a business for resale. In either case, the farmer, as a retailer in these instances, must receive a certificate of exemption from the manufacturer or retailer. The certificate of exemption must indicate that the property being purchased is for resale or is to be used as a component part of a finished product for sale. If the farmer receives a properly completed certificate of exemption, he or she is not required to collecting tax on that particular transaction.
The Code of Virginia sections, regulations and public documents cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions regarding the responses in this letter, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.virginia.gov or at *****.
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
- Kenneth W. Thorson
-
-
-
-
-
-
AR/51238Q
Rulings of the Tax Commissioner