Was a nursery's seasonal white poly film exempt agricultural material or taxable greenhouse construction material?

Subject

Nursery poly film was exempt only for the temporary plant-cover use

Plain-English summary

Virginia drew a line between temporary winter plant covering and taxable greenhouse construction. Disposable white poly film used for three to five months over movable steel supports to protect field plants could qualify for the agricultural exemption because its function resembled exempt shade cloth and ground covering.

The audit evidence, however, indicated that the disputed film covered propagation houses. Those structures had plumbing and electrical hookups, ventilation systems, and doors, making them similar to greenhouses or plastic-covered houses expressly excluded from the exemption as structural construction materials.

The nursery received 45 days to prove that the audited purchases actually supported the temporary winter-cover use it described. If the auditor confirmed that use, the audit could be adjusted; otherwise the assessment would stand.

What this means for you

• The same film can be exempt or taxable depending on where and how it is used.
• Temporary, disposable covering over movable supports was potentially exempt.
• Covering a greenhouse-like propagation structure was taxable structural material.
• Keep photographs, field maps, purchase records, installation details, and seasonal-use evidence tied to each film purchase.

Common questions

Was all nursery poly film exempt?

No. Only the described temporary plant-protection use potentially qualified.

Why was film on propagation houses taxable?

The houses resembled greenhouses and plastic-covered houses listed as structural construction materials.

Did Virginia immediately remove the audit item?

No. It gave the nursery 45 days to prove the exempt use to the auditor.

Citations and references

• Va. Code § 58.1-609.2(1).
• 23 VAC 10-210-50(A).
• P.D. 96-68 and 04-69.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-101

Original ruling text

June 24, 2009

Re: § 58.1-1821 Application: Retail Sales and Uses Tax

Dear *:

This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to * (the "Taxpayer") for the period April 2005 through March 2008. I apologize for the delay in the Department's response.

FACTS

The Taxpayer operates a nursery. The Department audited the Taxpayer and assessed use tax on the purchase and use of white poly film. The Taxpayer represents that the poly film is used during the winter season and is temporarily placed over support structures located in the nursery fields to protect plants from the winter weather. The Taxpayer asserts that the poly film qualifies for the agricultural exemption. The auditor held purchases of the poly film taxable on the basis it was a structural construction material.

DETERMINATION

Virginia Code § 58.1-609.2 1 provides an exemption, in part, 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 agricultural exemption is interpreted by Title 23 of the Virginia Administrative Code (VAC) 10-210-50, which states in Section A that the term "structural construction materials" includes but is not limited to "silos; barns and sheds; storage bins (not portable); greenhouses, including plastic covered houses; permanent fencing; fuel oil storage tanks; ...." Section A of the regulation includes shade cloth in a listing of items that are specifically excluded from the definition of structural construction materials. Thus, shade cloth may qualify for the agricultural exemption.

In Public Document (P.D.) 96-68 (4/26/96), the Tax Commissioner ruled that the function of plastic shade film covering used to protect plants from the winter weather is similar to shade cloth and qualifies for the agricultural exemption. The Department affirmed this policy in P.D. 04-69 (8/24/04), which states that ground covering materials used to protect plants from the winter weather are exempt from the tax.

The Taxpayer states that the poly film at issue is draped over steel tubular supports placed, about 4 feet apart and that the supports can be relocated on the Taxpayer's property. The poly film is used on a seasonal basis for three to five months during the winter and early spring and is discarded after its use. The Taxpayer contends that the support structures covered by the poly film are not real property and that the poly film cannot be considered a real estate fixture because its use is temporary.

In addition, the Taxpayer maintains that the poly film covering is used in the same manner as the plastic shade film and ground covering materials addressed in the public documents cited above. The support system for the plastic shade film discussed in P.D. 96-68 is very similar to the method used by the Taxpayer to support and attach the poly film. The Taxpayer further contends that the support structures to which the poly film is attached are not greenhouses. The Taxpayer notes that it uses a different, heavy-duty plastic to cover the green houses used in its operations and agrees that the use of this type of plastic on greenhouses is a taxable use.

Based on the information presented, I concur that the poly film qualifies for exemption if it is used to protect nursery plants from the winter weather and is used with the support structures described in the Taxpayer's letter. However, the audit report and the auditor indicate that the poly film in the audit was not used in the manner described by the Taxpayer. The auditor agreed that poly film used with the described support structures to protect plants from the winter weather qualifies for exemption. However, the audit findings indicate that the poly film at issue was used to cover propagation houses.

Propagation houses are structures similar to greenhouses that contain plumbing and electrical hookups, ventilation systems and doors. In accordance with Title 23 VAC 10-210-50 A, greenhouses and plastic covered houses do not qualify for the agricultural exemption. Based on the photographs and the descriptions provided, the propagation houses are similar to greenhouses and plastic covered houses. Thus, poly film used to cover propagation houses does not qualify for the agricultural exemption.

CONCLUSION

Notwithstanding the above, I will allow the Taxpayer 45 days to present the Department with evidence that the poly film was used to protect plants from the winter weather and used with the steel support structures described in this appeal. The Department's auditor will review any information the Taxpayer can provide and the audit will be adjusted if it can be confirmed that the poly film was not used on the propagation houses. The auditor will contact the Taxpayer to set up a mutually agreeable time to review this information. If the Taxpayer is unable to provide this information within 45 days from the date of the auditor's contact or the information provided is not sufficient to warrant further adjustments to the audit, the assessment will be considered correct. An updated bill, with accrued interest, will then be issued to the Taxpayer and should be paid within 30 days to avoid the accrual of additional interest.

The Code of Virginia section, regulation and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2809567148.S