Tax Type
Retail Sales and Use Tax
Description
Manufacturing, processing, assembling, or refining
Topic
Taxability of Persons and Transactions
Date Issued
10-27-1993
October 27, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear***************
This will reply to your letter of June 21, 1991 in which you seek correction of two sales and use tax assessments to your client, ***********(the "Taxpayer") for the periods June 1984 through August 1987 and September 1987 through March 1990.
FACTS
The Taxpayer is engaged in the clearing of trees and site preparation for residential and commercial customers. It converts the timber and stumps into wood chips on site with two pieces of equipment, a tree chipper and a waste recycler, and sells the chips to a paper mill for use in producing paper and cardboard boxes as well as for fuel.
The Taxpayer contests the application of the tax to the two pieces of equipment and related repair parts used in producing the wood chips. It maintains that such equipment qualifies for exemption under subdivision 6 of Va. Code §58.1-609.2 (harvesting of forest products) or subdivision 2 of Va. Code §58.1-609.3 (manufacturing/industrial processing).
DETERMINATION
As explained in Virginia Regulation (VR) 630-10-45.1, copy enclosed, the harvesting of forest products exemption is limited to machinery and tools and their repair parts used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold. Machinery and tools, etc. used in the clearing of land or construction of roads to open up a logging site, however, are not used directly in harvesting forest products and thus do not qualify for the exemption. From the information provided, it appears that the tree chipper and waste recycler which are used to produce wood chips in the field qualify for this exemption. You should note, however, that items used in both a taxable and an exempt manner are prorated based upon the percentage of time used in an exempt manner.
In addition, subdivision 2 of Va. Code §58.1-609.3 provides, in pertinent part, an exemption from the sales tax for:
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- machinery or tools or repair Parts therefor or replacements thereof, fuel, power, energy, or supplies used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale....
- machinery or tools or repair Parts therefor or replacements thereof, fuel, power, energy, or supplies used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale....
Based on the information provided I find that the Taxpayer falls within Major Group 24 and qualifies for the industrial manufacturing exemption explained above for machinery, repair parts, etc., used directly in processing timber and stumps into wood chips. However, it appears that the Taxpayer's operations also fall within nonindustrial classifications, Major Groups 7 [Agricultural Services (Tree Services)] and 16 [Heavy Construction Other Than Building Construction - Contractors (Land Clearing)]. Thus, only that machinery, etc. used directly in the actual processing of timber and stumps into wood chips may be purchased exempt from the tax under this exemption. Machinery, etc., used in severing or trimming trees, or in the clearing of land do not qualify for the manufacturing exemption.
In addition, from the information provided it appears that the Taxpayer is subject to the Forest Products Tax on its wood chips as provided in Chapter 16 (Va. Code §§58.1-1600 et seq., copy enclosed) of Title 58.1 of the Code of Virginia, since it produces wood chips from standing timber (the whole tree). Thus, the Taxpayer should be remitting the tax to the department on its wood chip producing operation.
I have enclosed copies of Forms 1034 (Forest Products Tax Return) and 1035 (Forest Products Tax Return (Small Manufacturers and Certain Small Severs)).
Accordingly, the assessment will be adjusted in accordance with the above determination and a revised Notice of Assessment will be sent to the Taxpayer as soon as practicable. In addition, someone from the*************Virginia District Office will be contacting you regarding the Forest Products Tax issue.
Sincerely.
W. H. Forst
Tax Commissioner
OTP/5304H
Rulings of the Tax Commissioner