Tax Type
Consumer Use Tax
Description
Untaxed purchases of equipment, parts and supplies for the equipment; agricultural production
Topic
Agricultural
Persons Subject to Tax
Taxable Transactions
Date Issued
10-21-2013
October 21, 2013
Re: § 58.1-1821 Application: Consumer Use Tax
Dear *****:
This will reply to your letter in which you request correction of the Department's consumer use tax assessment issued to ***** (the "Taxpayer") for the period August 2006 through May 2012.
FACTS
The Taxpayer removes solid waste materials (bio-solids) from municipal waste treatment plants. The Taxpayer then secures an agreement with farmers to spread the bio-solids on farmlands. The Taxpayer purchased equipment, parts and supplies for the equipment for the exclusive purpose of spreading the bio-solids on the farmlands. The Taxpayer also purchased field flags that mark the fields and boundaries where the bio-solids are applied as required by environmental regulations.
The Department's audit identified and held taxable the untaxed purchases of equipment, parts and supplies for the equipment, and the field flags. The Taxpayer disagrees with the audit results and contends the purchases at issue are used by the Taxpayer in the fertilization of farmlands as a necessary part of agricultural production, and the equipment, parts and supplies, and the field flags should be removed from the assessment.
DETERMINATION
Virginia Code § 58.1-609.2 1 provides an exemption for:
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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; medicines and drugs sold to a veterinarian provided they are used or consumed directly in the care, medication, and treatment of agricultural production animals or for resale to a farmer for direct use in producing an agricultural product for market; 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 retail sales and use tax exemption to a farmer who produces an agricultural product to be sold at market. As stated in Title 23 of the Virginia Administrative Code 10-210-50, "A farmer not engaged in the business of producing agricultural products for market cannot claim any agricultural exemptions." [Emphasis added.] This interpretation of the agricultural exemption is supported by an Opinion of the Attorney General. See 1989 Att'y Gen. Ann. Rep. 327. The rationale behind the exemption is that many items purchased by farmers are used to produce or become component parts of products which themselves are subsequently taxed. Therefore, the exemption prevents double taxation by subjecting the retail sale of the product to the tax. See 1995-1999 Virginia Sales and Use Tax Expenditure Study, December 1994, Volume 2, No. 1, p. 76. If an item is not used in producing agricultural products for market, there is no rationale for exempting it under Va. Code § 58.1-609.2 1. In this instance, the Taxpayer is not a farmer and is not engaged in agricultural production for market.
The Taxpayer contends that Public Document (P.D.) 94-301 (9/29/94) supports the Taxpayer's position that Va. Code § 58.1-609.2 1 does not require that farm machinery be purchased or owned by a farmer and that the machinery at issue is used in agricultural production. In P.D. 94-301, the taxpayer was involved in farming operations and sought exemption from the tax 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 taxpayer's use of the service vehicles was in support of exempt farming machinery and was not used to produce agricultural products. Additionally the taxpayer's service vehicles were licensed for off-farm use. The crushed stone that was used to construct haul roads and the grader that was used to maintain such roads were not deemed to be used in agricultural production. These items were deemed to be used to support the taxpayer's farming activities. The Tax Commissioner ruled that the statutory exemption is administered based on agricultural production and not on the ancillary activities that support that production. Therefore, the intent of Va. Code § 58.1-609.2 1 is to provide an exemption from the sales and use tax to farmers who produce agricultural products for market as clearly stated in the statutory language.
In this instance, while the Taxpayer's operations support farmers and help to nourish farmland for future crops, the farmland is not owned by the Taxpayer, the Taxpayer is not a farmer, and the machinery at issue is not used in producing an agricultural product for market. Accordingly, the equipment, parts, supplies and field flags do not qualify for the exemption.
Based on the foregoing, I find no basis for an adjustment of the Department's assessment. The Department's interpretation of the exemption is guided by the rule of strict construction as mandated by the Virginia courts. See Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E.2d 619 (1973).
The assessment is correct as issued. A revised bill, with interest accrued to date, will be sent to the Taxpayer. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of this letter. The Taxpayer should remit payment to: Virginia Department of Taxation, Attention: *****, 600 E. Main Street, 23rd Floor, Richmond, Virginia 23219. If there are any questions concerning the payment of the assessment, you may contact ***** at *****.
The Code of Virginia section, regulation and public document cited are available online in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this determination, please contact ***** of the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5427787733.Q
Rulings of the Tax Commissioner