Document Number
95-20
Tax Type
Retail Sales and Use Tax
Description
Agriculture; Forest products
Topic
Taxability of Persons and Transactions
Date Issued
02-13-1995
February 13, 1995




Re: §58.1 -1821 Application: Retail Sales and Use Tax


Dear**************

This will reply to your letter of November 8,1994 seeking correction of the retail sales and use tax assessment issued to ********* (the "Taxpayer"). I note that the tax and interest on the uncontested issues have been paid.
FACTS

The Taxpayer operates a logging business, and an audit for the period October 1988 through August 1994 resulted in an assessment for untaxed purchases of equipment and supplies used in its operation. The Taxpayer protests the tax assessed on dragline mats and three tractors and maintains that these items are exempt from the tax pursuant to Code of Virginia §58.1-609.:2 (6).

Dragline mats are made of 20 foot long, 6 by 8 inch timbers which are bolted together to form a mat. These reusable mats provide traction for equipment when crossing creeks and poor terrain.

One of the tractors under protest is used to disc, reseed and drag logging roads. These activities are mandated by the Department of Forestry's Best Management Practices (BMP), which are procedures used to reduce pollution through the control of water erosion. A second tractor is used primarily to complete BMP work and is also used to clear loading deck areas. The third is used exclusively to move a loader from one loading deck to another during the logging operation.
DETERMINATION

Code of Virginia § 58.1-609.2 (6) provides an exemption from the sales and use tax for "[m]achinery or tools... used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold." (Emphasis added). This statute is further explained in the enclosed Virginia Regulation 630-10-45.1 which indicates that the term "used directly" means:
    • those activities which are an integral part of the actual harvesting of the forest product including the severing of the product. Machinery and tools, etc. used in the clearing of land or construction of roads to open up a logging site; the clearing of trash from the harvesting site or the transportation of the severed product from the harvesting site are not "used directly" in harvesting forest products. (Emphasis added).

In Public Document 83-32 (2128183), the department determined that logging mats used to provide logging vehicles with a means of access to or from harvesting operations are not used directly in the harvesting of forest products since they are not used in the actual harvesting of logs. Accordingly, the Taxpayer's dragline mats, which appear to be used in the same way, were properly held subject to the tax.

Since equipment must be "used directly" in the actual harvesting process in order to qualify for the exemption, the fact that BMP procedures are required by federal, state or local law is not, by itself, dispositive of direct usage in the actual harvesting process. Although BMP procedures are required to prevent water pollution, such activities do not play an immediate role in the actual harvesting of forest products and are thus outside the scope of the exemption. Equipment used in BMP work also does not qualify for the exemption provided under Code of Virginia §58.1-609.3 (9) for "certified pollution control equipment and facilities." This is because BMP requirements do not fall under the regulatory authority of the State Water or Air Pollution Control Boards which are the only agencies with the authority to certify equipment qualifying for the pollution control exemption. Therefore, in the absence of a statutory exemption to exempt the tractors used to comply with BMP mandates, the department has no basis to exempt such tractors from the tax.

Of final concern is the tractor used to move the loader. While hauling logs out of the woods is an immediate part of the logging process, moving exempt equipment from one area of the logging operation to another is not an immediate part of the actual harvesting process. Accordingly, this tractor is used in taxable activities.

Based on the foregoing, the assessment is correct. The outstanding balance of **********should be paid within 30 days to avoid the accrual of additional interest charges. If you have any questions regarding this letter, please contact*****************.
                        • Sincerely,




                          Danny M. Payne
                          Tax Commissioner



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