Tax Type
Retail Sales and Use Tax
Description
Tangible personal property purchased by farmers for use in agricultural production
Topic
Exemptions
Date Issued
10-29-1982
October 29, 1982
Re: § 58-1118 Application/Use Tax
Dear ****************
This will reference my determination letter of December 17, 1980, with respect to your § 58-1118 application, and our hearing of June 22, 1981 on the same matter.
FACTS
***********operates greenhouse facilities devoted to the production of horticultural products for market. One hundred and four plastic covered greenhouses are operated, equipped with ventilating, heating and cooling, fertilizing and irrigation and environmental control systems.
The heating/cooling system consists of pipe welded together to create a heating/cooling "zone". The pipe, which carries water for heating/cooling, is hung by "S" hooks from supports resting on the greenhouse frame.
The irrigation system consists of a well, pump, pressure tank, and distribution system. The distribution system consists of plastic pipe which is connected to the particular type of system to be used in distributing the water, which may be a mist system, sprinkler system, drip hose system, or hand held hose. Each of these systems may be disconnected from the main pipe and moved from place to place in the greenhouse.
The fertilizer system consists of a set of lines, connected to the water mains, through which liquid fertilizer mixed with water is forced by water pressure. The liquid fertilizer is stored in a tank on the floor of the greenhouse which is connected by a pipe to injectors. The injector system is connected to the fertilizer lines, which are made of flexible tubing. A system of valves controls the flow of the fertilizer.
The environmental control system controls the temperature and water flow and consists of a metal cabinet connected to an electric power source. The system controls water flow in the irrigation system through electric valves and timers, and further controls the circulating pumps in the heating system. The cabinet may be either on the floor or mounted on a column.
The greenhouses themselves consist of metal frames covered by polyethylene which is specially designed to increase light diffusion and heat retention. the polyethylene is changed annually.
DETERMINATION
Prior to July 1, 1979, § 58-441.6© of the Code of Virginia extended an exemption only to tangible personal property purchased by farmers for use in agricultural production. This exemption, which was in effect during the period of your audit, was restricted to tangible personal property which retained its identity as such and did not extend to property incorporated into or affixed to real property. Effective July 1, 1979, § 58-441.6© was broadened to exempt tangible personal property used in agricultural production, even which such property is affixed to realty. Structural construction materials continue to be subject to the tax despite the fact that structure may be used in agricultural production.
The Department has consistently interpreted sales and use tax exemptions (except where otherwise specified) as applying only to tangible personal property which remains tangible upon its use. Property which is a part of real estate at the time of its use in agricultural production is therefore not exempt from the tax. The concept was implicitly recognized by the legislature when § 58-441.6© was changed in 1979.
After a review of the facts of this case, we have determined that several items which were held taxable in the audit are in fact tangible personal property and remain as such upon their use in agricultural production. These items would be exempt from the tax. Therefore, that portion of the audit liability representing charges for the mist system, sprinkler system, drip hose system, hand-held hoses, and the fertilizer tank and injectors will be removed.
However, the heating system, the irrigation water mains, the environmental control systems, and polyethylene greenhouse covering are affixed to real estate and thus did not qualify for exemption under the statute in effect during the audit period. A representative of our Property Tax Division with considerable expertise in classifying real and tangible personal property confirmed the status of the items in question as a result of a visit to your greenhouse operation.
Although all of these items, with the exception of the polyethylene greenhouse covering, are now exempt from the tax under the provisions of Virginia Code § 58-441.6(c), I find no basis for removing these items from the audit.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner