Tax Type
Retail Sales and Use Tax
Description
Agriculture; Bulldozer used in harvesting forest products
Topic
Taxability of Persons and Transactions
Date Issued
07-19-1996
July 19, 1996
This is in reply to your letter to the department in which you seek correction of sales and use tax assessed to ******* (the "Taxpayer"), for the period August 1990 through August 1995.
FACTS
The Taxpayer is engaged in harvesting forest products and operates a woodyard and excavation business. As a result of the audit, the Taxpayer was assessed tax on purchases of machinery for use in its operations. The Taxpayer specifically protests the tax on a bulldozer used exclusively for harvesting timber.
DETERMINATION
Code of Virginia § 58.1-609.2(6) provides an exemption from the retail sales and use tax for machinery or tools and repair parts therefor or replacements thereof, fuel, power, energy or supplies, used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold. Virginia Regulation (VR) 630-10-45.1 further interprets the exemption and provides that "used directly" means only those activities which are an integral part of the actual harvesting of the forest product including the severing of the product. The regulation goes on to list several items used in the harvesting of forest products and provides their exempt or taxable status.
The Taxpayer disputes the tax on a bulldozer used to clear roads and in the place of a skidder, which generally pulls logs out of the woods (an exempt activity). According to the regulation, a bulldozer used to open roads into woods for trucks or to clear mill sites of trash is deemed taxable. Alternatively, when a bulldozer is used to pull logs out of the woods, the exemption applies. Consistent with the regulation, the exemption may be prorated for an item based on the percentage of time such item is used in an exempt activity.
It is my understanding from the auditor and the audit workpapers that the bulldozers taxed in the audit were used in taxable farm and excavating activities. This includes a bulldozer used to build ponds on farms, which the auditor taxed at only 25% of the cost based on his conclusion that the bulldozer may have been used in an exempt manner the remainder of the time.
The auditor will contact you to adjust the audit to prorate the exemption for the disputed bulldozer. You should provide the auditor with the percentage of time the bulldozer is used to pull logs out of the woods. I am enclosing a copy of the statute and regulation for your review. I am also enclosing an excerpt from the Virginia Sales and Use Tax Expenditure Study, which also discusses the exemption.
I hope this has clarified the application of the exemption. Should you have questions concerning the audit, you may contact*********If you have questions concerning the policy set forth in this determination, you may contact ***** at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11404J
Rulings of the Tax Commissioner