August 24, 2023
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), requesting a ruling on the application of the retail sales and use tax to tangible personal property purchased in your agricultural operations. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer is a Virginia farm that produces apples and grapes for market. The Taxpayer requests a ruling on whether its purchase of salt-treated wood, used as support posts and trellises, qualifies for the agricultural exemption from the retail sales and use tax.
RULING
In relevant part, Virginia Code § 58.1-609.2 (1) provides an exemption from the retail sales and use tax for "…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…” The term “structural construction materials” is explained in further detail in Title 23 of the Virginia Administrative Code (VAC) 10-210-50, which states:
The term “structural construction materials” includes but is not limited to the following: silos; barns and sheds; storage bins (not portable); greenhouses, including plastic covered houses; permanent fencing; fuel oil storage tanks; electrical wiring, except for wiring running from special purpose equipment to an on-off switch; plumbing, except as part of special purpose equipment (e.g., water feeding system in poultry house); cattleguards; farrowing houses; and bulk tobacco barns. These items are subject to tax.
The term “structural construction materials” specifically excludes the following but may also exclude other items: milking systems; feeding systems; heating systems; artificial insemination equipment; lighting fixtures in poultry houses used for the purpose of extending the daily feeding period of chickens; power outage and water pressure alarm systems; egg cooling equipment, including wall mounted egg coolers; ventilating equipment, to include air inlets, curtains and curtain cables, cords and related fixtures, pull-ups, winches, fans and fan belts, louvers, shutters, motors, static pressure gauges, thermostats and replacement parts; shade cloth; and irrigation lines and sprinkler heads. These items are therefore exempt from tax.
The Virginia Sales and Use Tax Expenditure Study issued by the Department in December 1994 as Volume 2, No. 1, explains the statutory exemption and states that many items that are purchased by farmers become component parts or are used in the actual production of agricultural products that are ultimately taxed at the retail level. The exemption for tangible personal property used in the agricultural production of a product for market prevents double taxation of the component parts or products used in the agricultural production of the final product for market. Therefore, tangible personal property used directly in the production of an agricultural product would qualify for the exemption.
The Taxpayer describes temporary support posts used to ensure newly-planted small trees do not fall over, which would cause damage to the developing roots. Generally, supporting young trees with stakes, posts or other types of support system is temporary. Once the plant or tree grows sturdy roots, the support system is removed. The materials used to for tree support posts, are not permanently affixed to the ground and do not be become part of real property. Tangible personal property (i.e. posts or stakes temporarily supporting trees) necessary for use in agricultural production for market are eligible for the exemption under Virginia Code § 58.1-609.2 (1).
Similar materials are used for a trellis system to provide grape vines a vertical surface to be trained upon. While the posts are described as temporary, the trellises become attached to real property and are similar in structure to fencing. Although fencing is considered a structural construction material and does not qualify for the exemption, the trellises are used directly in the production of the Taxpayer’s agricultural products by preventing damage to the plants and encouraging healthy development of the crop. As such, the wood and other materials used to build a trellis by a farmer specifically for providing support for grape vines would be considered to used directly in the production of an agricultural product.
CONCLUSION
Based on the information provided, the Taxpayer’s purchase of salt-treated wood for use as support posts and trellises as described in the ruling request satisfies the requirements of the agricultural exemption to the retail sales and use tax. If claiming the agricultural exemption, the Taxpayer must (1) provide a completed Form ST-18 to dealers in accordance with Virginia Code § 58.1-623 and Title 23 VAC 10-21-280, and (2) keep and preserve adequate records necessary to determine the amount of tax liability for three years in accordance with Virginia Code § 58.1-633 and Title 23 VAC 10-210-470. Because the posts may be utilized for multiple purposes, if the Taxpayer makes a tax-exempt purchase of posts but ultimately utilizes them for a non-exempt purpose, the Taxpayer would need to report the taxable use to the Department and remit the required tax due.
The Taxpayer should also be aware that the Department has published Guidelines for Sales Tax Refund Procedures (the “Guidelines”) as Public Documents 17-98(06/12/17), providing instructions on how to claim a refund of sales tax erroneously paid to a dealer. The Taxpayer should follow the instructions provided to obtain a refund of any sales tax previously paid on exempt items. A copy of the Guidelines is available on the Department’s website.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and regulations cited, along with other reference documents, are available online at www.tax.virginia.gov, in the Laws, Rules and Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at (804) *****, or via email at *****@tax.virginia.gov.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3433.C