Tax Type
Retail Sales and Use Tax
Description
Contract tree farming; Application of agricultural exemption
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
07-09-1991
July 9, 1991
Re: §58.1-1821 Application/Sales and Use Tax
Dear****************
This will reply to your letter of October 19, 1989 seeking relief from a sales and use tax assessment resulting from a recent sales and use tax audit of *********** (the Taxpayer).
FACTS
The Taxpayer is in the business of contracting with landowners for the purchase of their trees. once the trees are bought, the Taxpayer fertilizes, prunes, sprays, and cultivates all the trees before they are sold. Once the trees are ready for market, the Taxpayer removes the trees by digging them out of the ground, refills the holes, and grades the land for future harvesting. The Taxpayer is seeking relief from the sales and use tax assessed on machinery used in its operation under Virginia Regulation (VR) 630-10-4© as being agricultural production for market.
DETERMINATION
Va. Code §58.1-608(2)(a) (copy enclosed) provides for the general agricultural exemption and exempts from the sales and use tax the following:
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- Commercial feeds, seeds, plants, fertilizers, liming materials,... all other tangible personal property, except for structural construction materials, necessary for use in agricultural production for market and sold to or purchased by a farmer or contractor to be affixed to real property owned or leased by a farmer; agricultural supplies provided the same are sold to and purchased by farmers for use in agricultural production...
VR 630-10-4© (copy enclosed) deals with commercial tree farming and states the following:
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- The production of trees for sale or resale is regarded as "agricultural production," so any person engaged in commercial tree farming is entitled to the agricultural exemption. prod A person qualifying as a commercial tree farmer must a t as any other farmer producing an agricultural product for market and must prepare the land for sowing, plant the seedlings, mulch the seedlings, nurture the trees and harvest the trees at maturity for future use in commercial operations of producing a product for sale or resale. Emphasis added.
The Taxpayer fertilizes, prunes, sprays, harvests the trees for market, and then reclaims the land for future planting. Even though, in this instance, the Taxpayer does not own the land, the Taxpayer is operating in a manner similar to others who contract to perform all or part of the traditional roles of a farmer. It has become common practice for landowners to contract the "farming" of their land to others.
Accordingly, Taxpayer would qualify for the commercial tree farming exemption. Therefore, the audit will be adjusted to reflect the commercial tree farming exemption.
If you should have any questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner