Tax Type
Retail Sales and Use Tax
Description
Agriculture; Repair parts used for farm vehicles
Topic
Taxability of Persons and Transactions
Date Issued
09-29-1994
September 29, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will reply to your letter of January 19, 1994 and prior correspondence in which you seek correction of a sales and use tax assessment issued to***********(the Taxpayer).
FACTS
The Taxpayer operates as a farm raising agricultural crops for market. An audit for the period May 1988 through September 1991 produced an assessment in part for the untaxed purchase of repair parts for various service vehicles and for the purchase of repair parts for a road grader and crushed stone used to maintain gravel treated dirt roads.
The vehicles for which parts are purchased include a service truck, lube truck, boom truck: and tire loader, all of which are used to repair farm equipment located as far as thirty-five miles from the main farm. The fuel truck provides fuel for farm equipment, and the steel tank transports water, fertilizer and other agricultural supplies to distant fields where they are off-loaded onto spreader equipment. I am advised that these vehicles are licensed as motor vehicles and are used on public roads to access the Taxpayer's satellite farms.
Given the extensive size of the farming operation, the Taxpayer maintains that vehicle parts and the crushed stone are necessary for use in agricultural production for market. The Taxpayer further contends that the crushed stone and grader are exempt pursuant to the findings of the Virginia Supreme Court in Virginia Department of Taxation v. Wellmore Coal Corp., 228 Va. 149, 320 S.E.2d 509 (1984)
RULING
Va. Code §58.1-609.2(1) [formerly § 58.1-608(A)(2)(a)] provides an exemption from the tax for:
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- Commercial feeds, seeds, plants, fertilizers, liming materials, ... agricultural chemicals, fuel for drying or curing crops, baler twine, containers for fruit and vegetables, farm machinery, all other tangible personal property, except for structural construction materials, necessary for use in agricultural production for market and sold to or purchased by a farmer....
Based on this statute, it is apparent that farm machinery is exempt when used for agricultural production for market. By extension, the exemption also applies to repair parts and supplies for that exempt machinery. However, the exemption does not extend to service vehicles since these are not used to produce agricultural products, but rather to support exempt farming machinery. Furthermore, the department's policy of exempting vehicles extends only to those vehicles which are used exclusively on the farm and which are not licensed for off-farm use. In this regard the vehicles lose their identity as exempt "farm machinery."
Similarly, the crushed stone used to construct haul roads, and the grader used to maintain those roads, are not deemed to be used in agricultural production. Rather, these items are used to facilitate the Taxpayer's farming activities. Further, the statute specifically indicates that no exemption exist for structural construction materials. Accordingly, gravel used to construct roads is taxable in the same manner as construction materials used by a farmer to build or repair barns and other structures.
Nor is this determination inconsistent with the Court's decision in Wellmore. In that case the haul roads were used to transport coal from the mine to tipples, at which place further processing of the coal occurred. The haul roads were found to be used in an exempt capacity under a separate statutory for manufacturing, processing and mining. This exemption applies to property used directly in industrial manufacturing, processing, mining, refining, and converting products for sale or resale and-by statute extends "through the last step of production." The Wellmore court held that in the case of mining only, the exemption extended beyond the mine site when minerals are subject to further processing.
Due to the very specific application of the Wellmore decision to the mining industry, the exemptions available to mining activities are not available to the Taxpayer. Further, the mining exemption does not contain the limiting language of the agricultural exemption relating to "structural construction materials."
I appreciate that the size of the farming operation presents the Taxpayer with challenges in transportation, maintenance and repair. Nevertheless, the statutory exemption is administered based on agricultural production and not on the ancillary activities which support that production. In addition, the Virginia courts have consistently adopted a strict construction of sales tax exemption statutes where any doubt to the applicability of an exemption is resolved against the person claiming the exemption. Accordingly, the assessment is correct. If you have any questions regarding this determination, please contact the department at *********
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7615I
Rulings of the Tax Commissioner