95-33 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Agriculture; Crushed stone for farm roads; Exemption certificates

Topic

Exemptions

Property Subject to Tax

Taxability of Persons and Transactions

Date Issued

03-01-1995

March 1, 1995

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

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

This is in response to your letter of October 4, 1994 in which you seek correction of sales and use tax assessments for the period March 1991 through February 1994 issued to **************(the Taxpayer).

FACTS

The Taxpayer is in the business of quarrying stone for sale to wholesale and retail customers. The assessments primarily reflect freight charges which were not separately stated on invoices to customers. However, I understand that the Taxpayer has issued corrected invoices showing separately stated freight charges which will allow the department to remove these items from the assessments. I am further advised that a second issue, regarding two retail sales for which no certificates of exemption were on file, has also been resolved.

While the contested issues relating to the assessments have been resolved, the Taxpayer also seeks guidance on the proper acceptance of certificates of exemption, Form ST-18, used by farmers when purchasing gravel and crushed stone from the Taxpayer.

RULING

- Code of Virginia §58.1-609.2(1) provides an exemption for:
  
  Commercial feeds, seeds, plants; fertilizers; liming materials; ... [and] tangible personal property, except for structural construction materials to be affixed to real property owned or leased by a farmer, necessary for use in agricultural production for market.... (Emphasis added)

This same language is used on Form ST-18 and alerts both farmers and dealers that: i) exempt property must be necessary for agricultural production for market, and ii) structural construction materials are not exempt from the tax.

The proper use of certificates of exemption is set out in Virginia Regulation (VR) 63010-20 which indicates that:

- Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax-free purchase of any item of tangible personal property not covered by the exact wording of the certificate. (Emphasis added)

It is the department's experience that in most instances gravel and crushed stone are used by farmers to improve farm roads and access roads. As exemplified in Public Document 94-301 (9129194), the department has determined that such use of gravel and crushed stone is not an exempt use for agricultural production for market. In this regard, crushed stone and gravel are structural construction materials and are taxable when purchased by farmers.

Accordingly, it is appropriate for the Taxpayer to query its customers in order to determine how gravel and crushed stone will be used. If these items will be for road use, then the Taxpayer should not accept the ST-18 but should rather charge the tax on the sale. In this way, the mandate of "reasonable care and judgment" imposed in VR 630-10-20 will be satisfied.

The department is currently revising Virginia Regulation 630-10-4 which sets forth the application of the tax to agricultural purchases, including the purchase of gravel as discussed above. During the revision process, the department will certainly consider any comments you have on this issue.

I trust that this information addresses your concerns. If you have any additional questions you may contact***********.

- - - - Sincerely,
        
        Danny M. Payne
        Tax Commissioner

OTP/8556I

Rulings of the Tax Commissioner