Tax Type
Retail Sales and Use Tax
Description
Recent Virginia Supreme Court Opinion Relating to the Application of the Sales and Use Tax to Mining Operations
Topic
Reports
Date Issued
11-23-1984
Recent Virginia Supreme Court Opinion Relating to the
Application of the Sales and Use Tax to Mining Operations
84-23
On September 7, 1984, the Virginia Supreme Court issued an opinion in the matter of Commonwealth v. Wellmore Coal Corporation, in which the department's interpretation of the sales and use tax law as it applies to various aspects of the mining industry was in question.The issues at question in Wellmore were discussed previously in Virginia Tax Bulletin 84-17. Among the items contested were building materials used in the construction of a tipple (coal preparation plant), scales at a tipple used to weigh coal delivered from mines, methanometers and first-aid equipment, repair parts for trucks used to carry coal from mines to a tipple, machinery and supplies used to build and maintain coal haul roads, and supplies used in the reclamation of mined lands.
In its opinion, the Supreme Court concluded that materials used in the construction of a tipple (as opposed to the processing equipment within the tipple) were not used directly in mining or processing and were therefore taxable. The materials in question included concrete used in footings and floors, structural steel and corrugated steel siding and roofing. The court relied in Wellmore on its previous opinion in Webster Brick v. Department of Taxation (1978) in which was rejected "the taxpayer's contention that the entire manufacturing plant . . . constituted a machine entitled to a blanket exemption.'
In addition, the Supreme Court concluded that scales located at a tipple were used directly in coal processing and therefore exempt from sales and use tax. The scales in question were used to weigh coal prior to processing in order to assure the proper blending of various coal grades. The court found that a tax exemption was available for the scales under the definition of "processing' in Virginia Code § 58-441.3(p). Under that definition, "processing' begins with "the handling and storage of raw materials at the plant site.'
Also, the court concluded that methanometers and first-aid equipment were exempt from the sales and use tax under departmental regulations.
Further, the Supreme Court found that materials used to build and maintain coal haul road between mines and a tipple and parts and supplies used to repair coal hauling vehicles were used directly in mining and were exempt from the sales and use tax. The court's conclusions with respect to transportation of finished products are applicable only to mining operations and not to manufacturers, processors, public utilities, etc. inasmuch as the court's opinion was based upon a portion of a departmental regulation relating only to miners. The applicable regulation states:
- In the case of mining, the exemption generally ends at that point outside the excavation or well where the ore or mineral is entirely severed from the earth and is in such form as to be subject to transportation to another location other than for further mining processing. (emphasis added).
Lastly, the court upheld the taxation of tangible personal property used in mine reclamation. However, such items, effective July 1, 1984, enjoy a statutory sales and use tax exemption. Based upon the Supreme Court's opinion though, reclamation materials and equipment purchased before July 1, 1984 will be subject to the sales and use tax.
The department's sales and use tax regulation on mining and mineral processing (Regulation 630-10-65.2) will be revised to reflect the Supreme Court's opinion in Wellmore.
Rulings of the Tax Commissioner