Tax Type
Retail Sales and Use Tax
Description
Agriculture; Contract landscaping
Topic
Taxability of Persons and Transactions
Date Issued
09-12-1996
September 12, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter of April 18, 1996 in which you seek correction of the sales and use tax audit assessment of ********** (The "Taxpayer") for the period of August 1991 through November 1994.
FACTS
The Taxpayer is in the business of contract landscaping. In 1992, the Taxpayer notified the department that they were dissolving their retail operation, but continuing with their contracting work. The Taxpayer treated themselves as real property contractors with respect to the landscape business and paid the sales tax on all supplies, including bushes, shrubs, etc., at the time of purchase. As the result of a sales and use tax audit, the Taxpayer was assessed tax and interest on the lump sum amount charged to customers in accordance with Virginia Regulation (VR) 630-10-40, Florists and nurserymen (copy enclosed). By way of offer in compromise dated May 17, 1995, the department agreed to allow the Taxpayer to provide a reasonable estimate of transplanting charges, which the department agreed to remove from the audit. The department would also allow a credit for taxes paid to suppliers. This would result in the tax being applied to the mark-up on plants only. The Taxpayer has not provided such information to the auditor.
The Taxpayer is now seeking an exemption for all plants used in fulfilling contracts based on the exemption afforded under Code of Virginia § 58.1-609.2(1).
DETERMINATION
Code of Virginia § 58.1-609.2(1) provides a sales and use tax exemption for the following:
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- Commercial feeds; seeds; plants; fertilizers; liming materials; breeding and other livestock; semen; breeding fees; baby chicks; turkey poults; rabbits; quail; llamas; bees; agricultural chemicals; fuel for drying or curing crops; baler twine; containers for fruit and vegetables; farm machinery; 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 and sold to or purchased by a farmer or contractor; and agricultural supplies provided the same are sold to and purchased by farmers for use in agricultural production, which also includes beekeeping and fish, quail, rabbit and worm farming for market. (Emphasis added).
The intent of the above statute is to provide a sales and use tax exemption to a farmer who produces an agricultural product to be sold on the open market. Agriculture generally involves the cultivation of soil, production of crops, and raising of livestock, which is generally limited to traditional farm animals. It is not the intent of this statute to extend the exemption to a landscape contractor who grows plants and shrubs for transplanting purposes, or purchases plants for use in fulfilling contracts.
The department's policy with respect to landscape contractors is well founded and longstanding. VR 630-10-40.A specifically states that the tax applies to the retail sale of "flowers, potted plants, shrubbery, nursery stock, sod, wreaths, bouquets, and similar items". (Emphasis added). It is only when a landscape contractor goes beyond the sale of shrubbery, sod, etc., and contracts to grade, seed and fertilize, that the contractor becomes the user and consumer of all tangible personal property used in providing such services. The regulation is clear that a landscape contractor is considered a retailer with respect to shrubbery, sod and similar items, whether the contractor cultivates and transplants such items or purchases them for resale.
Based on the above, I find no compelling reason to modify the provisions of my original offer settlements of May 17, 1995 and June 23, 1995. Our auditor will contact the Taxpayer in order to make the proper adjustments.
If you or your client should have any questions, please contact**********Office of Tax Policy, at**************..
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11157K
Rulings of the Tax Commissioner