Tax Type
Retail Sales and Use Tax
Description
Exemptions was disallowed for equipment used in mining activities
Topic
Assessment
Exemptions
Date Issued
07-07-2010
July 7, 2010
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period May 2003 through April 2007. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a general contractor. Its business includes a heavy construction and excavation division, a bridge division and a railroad division. As a result of the Department's audit, the Taxpayer was assessed tax on certain untaxed purchases. The Taxpayer contends the assessment includes equipment that was and still is being used for gas well sites, gathering lines, and state required reclamation in and around coal mine sites, which includes but is not limited to reconstruction of ponds for strip jobs, clearing land to be stripped, and reclamation of highways.
The Taxpayer contends that it was disallowed the exemptions for equipment used in mining activities as detailed in Va. Code § 58.1-609.3. The Taxpayer maintains that it was eligible to use the ST-11A exemption form provided by its customers to make the contested purchases, and the projects for which the purchases were made were considered mining. The Taxpayer contests the assessment of tax on certain assets on the basis that such assets are used in mining operations.
DETERMINATION
Mining
Pursuant to Va. Code § 58.1-609.3 2 v, "[m]achinery, tools and equipment, or repair parts therefor or replacements thereof, shall be exempt if the preponderance of their use is directly in processing, manufacturing, refining, mining or converting products for sale or resale. The provisions of this subsection do not apply to the drilling or extraction of oil, gas, natural gas and coalbed methane gas."
Virginia Code § 58.1-609.3 12 states, in pertinent part, the retail sales and use tax shall not apply to "raw materials, fuel, power, energy, supplies, machinery or tools or repair parts therefor or replacements thereof, used directly in the drilling, extraction, or processing of natural gas or oil and the reclamation of the well area .... Machinery, tools and equipment or repair parts therefor or replacements thereof, shall be exempt if the preponderance of their use is directly in the drilling, extraction, refining or processing of natural gas or oil for sale or resale, or in well area reclamation activities required by state or federal law."
Virginia Code § 58.1-602 defines "used directly":
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- When used in relation to manufacturing, processing, refining, or conversion, [as] those activities which are an integral part of the production of a product, including all steps of an integrated manufacturing or mining process, but not including ancillary activities such as general maintenance. When used in relation to mining, it shall refer to the activities specified above, and in addition, any reclamation activity of the land previously mined by the mining company required by state or federal law.
Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-960 A, "[t]he fact that particular property may be considered essential to the conduct of the business of mining or mineral processing because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in mining or mineral processing operations."
In accordance with the statute and regulation sections referenced above, the mining exemption is only available in those instances where the property at issue is being used directly for mining operations. The Taxpayer contends that the assets at issue are used in mining operations. However, the Taxpayer has not presented evidence to support its contention that the assets at issue in the audit are used directly in mining operations.
Virginia Code § 58.1-205 states "Any assessment of a tax by the Department shall be deemed prima facie correct." Furthermore, statutes granting tax exemptions are construed strictly against the taxpayer. Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 198 S.E.2d 619 (1973). Accordingly, the burden of proving that the assessment is incorrect lies with the Taxpayer, and the Taxpayer has not met its burden of proof.
Exemption Certificate
Exemption certificates relieve "the person who takes such certificate from any liability for the payment or collection of the tax . . . ." See, Va. Code § 58.1-623 B. Exemption certificates are used by customers to make exempt purchases of tangible personal property from the customers' vendors.
Title 23 VAC 10-210-960 E provides, "[t]he mining and mineral processing exemption extends to persons engaged in any phase of mining or mineral processing, provided such activities qualify for exemption as set forth in subsections A and B of this section. This requires that activities be performed at the mine or mineral processing site ...Contractors engaged in mine construction must apply to this Department for exemption." [Emphasis added].
In this instance, the Taxpayer contends that it properly made purchases exempt of the tax using its customer's Form ST-11A exemption certificate. In accordance with Title 23 VAC 10-210-960 E, the Taxpayer would need to apply to the Department to be authorized to make purchases exempt of the tax pursuant to a mining exemption certificate. As such, its customer's mining exemption is not transferable to the Taxpayer, and the Taxpayer's use of the customer's exemption certificate was improper.
Based on this foregoing, there is no basis to revise the assessment. However, the Taxpayer will be given the opportunity to present evidence to support its contention that the mining exemption applies to the property at issue. The Taxpayer will be contacted by the audit staff to discuss the receipt of documentation from the Taxpayer. The Taxpayer will be given 30 days from the date of such contact to provide the documentation to the audit staff. Based on a review of this documentation, revisions to the audit will be made if warranted. If the documentation is not received within the allotted time, the outstanding balance of the assessment will become immediately due and payable.
An updated bill, with interest accrued to date, will be mailed to the Taxpayer following the review of the documentation presented. The updated bill will reflect the revisions made, if warranted. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, Attention: *****, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Linda Foster
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- Deputy Tax Commissioner
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- Linda Foster
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AR/1-3207687371.P
Rulings of the Tax Commissioner