Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises; Agricultural products
Topic
Taxability of Persons and Transactions
Date Issued
10-05-1994
October 5, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*****
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to***********(the Taxpayer) for the period October 1990 through September 1993.
FACTS
The Taxpayer operates as a retailer of lime, fertilizer and other agricultural products and also provides services to farmers. The only issue under protest is the untaxed purchase of methyl bromide gas used to control weeds within tobacco plant beds.
Using his own equipment, the Taxpayer applies methyl bromide gas to customers' plant beds. Immediately after gassing, the beds are covered with a polyethylene sheet (to prevent the gas from escaping) which remains in place for about 48 hours, after which time the farmer plants the tobacco seeds. The polyethylene becomes the property of the farmer who may use it in further production of tobacco plants. The Taxpayer charges the farmer per 100 yards of plant bed treated with methyl bromide gas and covered with polyethylene.
The auditor determined that the Taxpayer's purchase of polyethylene was exempt from the tax, but assessed the tax on the purchase of methyl bromide gas. The Taxpayer contends that the gas can also be purchased exempt of the tax since it is resold to farmers and also because the farmers may purchase the gas exempt of the tax for their use in agricultural production.
RULING
In the enclosed Commonwealth v. Pounding Mill Quarry, 215 Va. 647, 212 S.E. 2d 428 (1975), the Virginia Supreme Court held that the spreading of agricultural lime for a per-acre charge was a nontaxable service transaction when charges for transporting and spreading the lime were not separate from charges for the lime itself.
It is well established under the Commonwealth's sales and use tax law that service providers are the users and consumers of all tangible personal property used to provide that service and must pay the tax on their purchases of that property. Accordingly, it appears that the auditor erroneously omitted from the audit assessment the Taxpayer's untaxed purchase of polyethylene but correctly assessed the untaxed purchase of methyl bromide gas.
Further, this tax application holds true not only for the methyl bromide and polyethylene used to treat tobacco beds, but for any transaction in which the Taxpayer spreads or applies agricultural chemicals (i.e., lime, fertilizer, etc.) and charges customers on a per-acre or similar basis. Moreover, this application of the tax applies regardless that the Taxpayer's customers are engaged in an exempt farming activity. This is because the Taxpayer in this instance is not selling tangible personal property to farmers, but is rather providing a service.
the above, the Taxpayer will be deemed a retailer when it sells its agricultural products, including fertilizer, bromide gas and polyethylene, and chooses to separately state the charges for these products from the charges for spreading or applying. In this instance, the Taxpayer may purchase such products under the resale exemption. Upon the sale of the products to customers, the Taxpayer must collect the tax or take a properly executed Certificate of Exemption.
In , and in accord with Pounding Mill Ouarry, the Taxpayer operates as a retailer or a service provider as evidenced by how customers are invoiced. When charges are made on a per-acre or similar basis, the Taxpayer is deemed to be providing a service. On the other hand, when charges for products are separately stated from the charges for spreading, the Taxpayer is deemed to be a retailer.
Charges for polyethylene purchased during the current audit period, which were erroneously omitted from the assessment, will not be assessed. However, the assessment for methyl bromide is correct. A revised assessment, with interest accrued to date, will soon be issued.
If you have any questions regarding this determination, please contact the department at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7546I
Rulings of the Tax Commissioner