Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, harvester of forest products
Topic
Collection of Delinquent Tax
Date Issued
07-28-1999
July 28, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ********
This is in reply to your letter in which you seek a correction of the department's sales and use tax assessment issued to ***** (the "Taxpayer'), for the period February 1995 through January 1998. I apologize for the delay in our response.
FACTS
The Taxpayer is a harvester of forest products. An audit of the Taxpayer's records resulted in an assessment for untaxed purchases of equipment and supplies used in its logging operations. Specifically, the Taxpayer disagrees with the taxation of a knuckleboom loader (loader) which delimbs trees and loads cut logs onto transport trucks, and a bulldozer used in its harvesting operations. The Taxpayer contends that these functions are a part of the harvesting process and requests that the equipment, parts and supplies be removed from the audit.
DETERMINATION
Generally
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). Title 23 of the Virginia Administrative Code (VAC) 10-210-700 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 cutting down of the product. This same section further states that the "Harvesting of forest products' "means the business of severing products from forests for sale or for use as a component part of a product to be sold.'
Harvesting of Forest Products
The department has consistently held that the property at issue, the loader and bulldozer, must be used within the statutory limits of the exemption. Accordingly, the term "direct use' significantly narrows the scope of the exemption to include only that tangible personal property used directly and immediately in the harvesting of forest products.
In Public Document (P.D.) 98-18 (02/16/98), the terms "harvesting' and "gathering' were defined by referencing Black's Law Dictionary, sixth edition, and The American Heritage Dictionary, second college edition, respectively. In that decision, it was noted that the severed trees were collected at the loading deck, and that the exemption was not applicable to machinery and equipment used beyond that point. The logs were moved from where the trees had been cut, to a collection point (loading deck). It is at the loading deck that the felled trees had been gathered or assembled, and any functions subsequent to the movement of the severed trees to the loading deck were not used directly in harvesting forest products and do not qualify for the exemption under Code of Virginia § 58.1-609.2(6).
The information provided indicates that, in the Taxpayer's case, after the trees have been moved to the loading deck, the loader delimbs and tops the trees to size them for subsequent transport. The loader moves the logs from piles at the decks and loads them onto trucks or trailers for transport to a woodyard, mill or other customer. The bulldozer frees stuck equipment, cuts roads, builds fire paths, builds load decks, or pushes debris or trash into burn piles. Based on the statutory reference to "direct use,' I cannot agree that the property in question is used directly or immediately in the actual harvesting of forest products. Accordingly, the auditor properly included the equipment at issue in the audit assessment.
Exemption Expanded Effective July 1, 1999
As a matter of interest, the 1999 Virginia General Assembly passed legislation (Senate Bill 864, 1999 Acts of Assembly, Chapter 229) which amends the agricultural exemption under Code of Virginia § 58.1-609.2(6), copy enclosed. This bill expands the current exemption available to equipment used directly in the harvesting of forest products by applying the exemption to equipment used in certain pre-harvesting and post harvesting activities. This bill is not retroactive, and the expanded exemption became effective July 1, 1999.
Summary
Based on the foregoing, the department's assessment is correct as issued. The Taxpayer should return its payment for the balance of tax and interest totaling to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will accrue on the balance due from the original date of assessment (April 22, 1998). If you should have any additional questions regarding this matter, please contact ***** of the department's Office of Tax Policy at*****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13841Q
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ********
This is in reply to your letter in which you seek a correction of the department's sales and use tax assessment issued to ***** (the "Taxpayer'), for the period February 1995 through January 1998. I apologize for the delay in our response.
FACTS
The Taxpayer is a harvester of forest products. An audit of the Taxpayer's records resulted in an assessment for untaxed purchases of equipment and supplies used in its logging operations. Specifically, the Taxpayer disagrees with the taxation of a knuckleboom loader (loader) which delimbs trees and loads cut logs onto transport trucks, and a bulldozer used in its harvesting operations. The Taxpayer contends that these functions are a part of the harvesting process and requests that the equipment, parts and supplies be removed from the audit.
DETERMINATION
Generally
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). Title 23 of the Virginia Administrative Code (VAC) 10-210-700 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 cutting down of the product. This same section further states that the "Harvesting of forest products' "means the business of severing products from forests for sale or for use as a component part of a product to be sold.'
Harvesting of Forest Products
The department has consistently held that the property at issue, the loader and bulldozer, must be used within the statutory limits of the exemption. Accordingly, the term "direct use' significantly narrows the scope of the exemption to include only that tangible personal property used directly and immediately in the harvesting of forest products.
In Public Document (P.D.) 98-18 (02/16/98), the terms "harvesting' and "gathering' were defined by referencing Black's Law Dictionary, sixth edition, and The American Heritage Dictionary, second college edition, respectively. In that decision, it was noted that the severed trees were collected at the loading deck, and that the exemption was not applicable to machinery and equipment used beyond that point. The logs were moved from where the trees had been cut, to a collection point (loading deck). It is at the loading deck that the felled trees had been gathered or assembled, and any functions subsequent to the movement of the severed trees to the loading deck were not used directly in harvesting forest products and do not qualify for the exemption under Code of Virginia § 58.1-609.2(6).
The information provided indicates that, in the Taxpayer's case, after the trees have been moved to the loading deck, the loader delimbs and tops the trees to size them for subsequent transport. The loader moves the logs from piles at the decks and loads them onto trucks or trailers for transport to a woodyard, mill or other customer. The bulldozer frees stuck equipment, cuts roads, builds fire paths, builds load decks, or pushes debris or trash into burn piles. Based on the statutory reference to "direct use,' I cannot agree that the property in question is used directly or immediately in the actual harvesting of forest products. Accordingly, the auditor properly included the equipment at issue in the audit assessment.
Exemption Expanded Effective July 1, 1999
As a matter of interest, the 1999 Virginia General Assembly passed legislation (Senate Bill 864, 1999 Acts of Assembly, Chapter 229) which amends the agricultural exemption under Code of Virginia § 58.1-609.2(6), copy enclosed. This bill expands the current exemption available to equipment used directly in the harvesting of forest products by applying the exemption to equipment used in certain pre-harvesting and post harvesting activities. This bill is not retroactive, and the expanded exemption became effective July 1, 1999.
Summary
Based on the foregoing, the department's assessment is correct as issued. The Taxpayer should return its payment for the balance of tax and interest totaling to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will accrue on the balance due from the original date of assessment (April 22, 1998). If you should have any additional questions regarding this matter, please contact ***** of the department's Office of Tax Policy at*****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13841Q
Rulings of the Tax Commissioner