Document Number
84-100
Bulletin Number
VTB 84-17
Tax Type
Retail Sales and Use Tax
Description
Mining Industry - Court Case
Topic
Taxability of Persons and Transactions
Date Issued
07-06-1984


Circuit Court Decision Relating to the Application
of the Sales and Use Tax to the Mining Industry

A decision relating to the application of the sales and use tax to various items of property used in the mining and processing of coal was rendered in 1980 by the Circuit Court of Buchanan County in the case of Wellmore Coal Corporation, et al v. Commonwealth.

Of the seven major issues involved in the case, three were decided in favor of the Department of Taxation; however, the department has appealed the court's decision on the remaining four issues to the Virginia Supreme Court. Until the Supreme Court renders an opinion in this case, the department is not required under the provisions of Virginia Code § 58-1138 to acquiesce its position with respect to the contested issues in Wellmore. Therefore, the items of property at issue in Wellmore continue to be deemed taxable by the department, unless otherwise noted below, and the sales and use tax should be remitted upon the purchase, lease. rental or other use of such property.

The Circuit Court validated the department's position with respect to the taxation of the following items of property:

(1) Repair parts and maintenance materials for trucks used to haul coal from mines to preparation plants inasmuch as the mining exemption is Limited to the plant (or mine) site and coal hauling trucks are not used on the plant or mine site;

(2) Property used to build and maintain haul roads in and around mine sites; and

(3) Reclamation equipment and materials inasmuch as such items are not used directly in mining.

Consequently, such items remain subject to the tax; however, it should be noted that by act of the General Assembly purchases of reclamation equipment and materials will become exempt from the sales and use tax starting on July 1, 1984.

The Circuit Court ruled against the department with respect to taxation of the following property, stating that such items were exempt from tax:

(1) Concrete, structural steel, and other materials used to construct a coal preparation plant (or tipple) based
    • upon the conclusion that a coal preparation plant was one large machine entitled to a blanket exemption from tax (the department deemed processing machinery within the plant exempt but construction materials to be taxable);
(2) Coal scoops and laboratory testing equipment inasmuch as such items were considered by the court to be used directly in production line testing and quality control;

(3) Scales used to weigh coal entering the processing plant site as well as all equipment and machinery continuously kept and used at the coal preparation Plant site; and

(4) Methanometers used by mine personnel to detect accumulations of gas and first aid equipment.

The department has subsequently revised its position with respect to coal scoops and laboratory testing equipment. Effective March 15, 1983 with the publication of § 1-65.2 of the Virginia Retail Sales and Use Tax Regulations, the department deems such items to be exempt from tax when used in the testing and analysis of coal during mining or mineral processing activities at the mine or plant site.

As stated previously, with the exception of coal scoops and other testing equipment, the department has not acquiesced its position with respect to the items of property listed above. Consequently, all mine operators and coal processors should remit the sales and use tax on their purchases of such items until such time as an opinion is rendered by the Supreme Court in Wellmore Coal and the application of the sales and use tax to such operations should continue to be governed by Virginia Retail Sales and Use Tax Regulation 1-65.2 on Mining and Mineral Processing.


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Last Updated 08/25/2014 16:44