Tax Type
Retail Sales and Use Tax
Description
Extraction of methane gas from landfill; Mining exemption
Topic
Exemptions
Date Issued
04-12-1990
April 12, 1990
Re: Request for Ruling/ Sales and Use Tax
Dear*****************
This will reply to your August 10, 1989 letter requesting a ruling on the application of the sales and use tax to the extraction of methane gas from a landfill.
Facts
Your client ("the taxpayer") is engaged in the extraction, processing and sale of methane gas. The gas is extracted from a landfill. You request a ruling whether the taxpayer's extraction and production activities qualify for exemption from the sales and use tax.
Ruling
Virginia Code §58.1-608(3)(b) provides an exemption from the sales and use tax for, "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale..." (Emphasis added). This Code section provides further that such items will be deemed exempt of the tax "...if the preponderance of their use is used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale.
" The term "used directly" is defined in Virginia Retail Sales and Use Tax Regulation 630-10-65.2, copy enclosed, as referring to those activities which are an integral part of the production of a product including all steps of an integrated process, but not including ancillary activities such as general maintenance and administration.
§A(1) of the above regulation defines the term "mining" to include deep and strip mining, quarrying, gas and oil drilling and other industrial removal of natural resources, minerals, or mineral aggregates from the earth." (Emphasis added). This regulation provides further that the extraction process of mining, which encompasses the actual removal of minerals, ore or natural resources from the earth, is an exempt function, and tangible personal property used directly in this function qualifies for exemption from the tax. However, not all functions of the mining industry qualify for exemption from the tax. For example, exploration, certain site preparation activities, distribution, reclamation, and administration are taxable functions.
Based on all of the above, the extraction of methane gas from a landfill would qualify as "mining" and the tangible personal property used directly in the mining and processing of the gas for sale or resale would qualify for exemption from the sales and use tax. The taxpayer may purchase such property exempt of the tax, pursuant to sales and use tax certificate of exemption (Form ST-11), copy enclosed.
The exemption is limited, however, to the actual extraction of methane gas. As such, the exemption does not extend to tangible personal property used in the creation or operation of a landfill from which gas will be extracted.
For additional information and specific examples of taxable and exempt items, see the enclosed copies of Virginia Regulations 630-10-65.2 (Mining and mineral processing) and 630-10-63 (Manufacturing and processing).
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner