Did Virginia's agricultural sales-tax exemption cover rented water-treatment equipment and salt used to irrigate greenhouse plants for sale?

Subject

Greenhouse water-treatment units and salt were exempt

Plain-English summary

Virginia found that the rented water-treatment equipment and the salt used in it qualified for the agricultural sales-tax exemption. The customer operated a greenhouse that grew plants for wholesale and retail sale.

The units treated well water used for irrigation. Removing iron and hardness kept iron from yellowing the plants and making them less marketable. Virginia therefore treated the equipment as integral and essential to producing agricultural products for market.

The ruling covered both the three rented treatment units and the salt used directly in the treatment process.

What this means for you

• The farmer or grower must be producing agricultural products for sale or resale on the open market.
• Equipment and supplies need a necessary production role, not merely a general business use.
• A valid agricultural exemption certificate should match the customer's actual qualifying use.
• Rental equipment can qualify when the same production-use requirements are satisfied.

Citations and references

• Va. Code § 58.1-609.2.1; 23 VAC 10-210-50.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-151

Original ruling text

August 28, 2014

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling as to the scope of Virginia retail sales and use tax exemption for agricultural operations in Virginia, and the application of this exemption to your customer's operation. I apologize for the delay in responding to your request.

FACTS

* (the "Taxpayer") is in the business of selling and renting water treatment systems. In the situation described in your letter, the Taxpayer has rented three water treatment units to *** (the "Customer") for use in treating its well water for iron and hardness. The Customer is a greenhouse that produces plants for the wholesale and retail market. The treated well water is used to irrigate the Customer's plants in order to keep the iron off the plants, which would result in a yellowing of the plants and make them less marketable. Along with the water treatment units, the Taxpayer also sells the Customer salt used directly in the water treatment process.

The Taxpayer recently received a Form ST-18, Agricultural Sales Tax Exemption Certificate, from the Customer. The Taxpayer is uncertain if the Customer qualifies for the exemption afforded under Form ST-18 and requests a ruling regarding the application of the tax in this case.

RULING

Virginia Code § 58.1-609.2.1 provides an exemption from the retail sales and use tax for persons in the business of producing agricultural products for market. The exemption applies to:

Commercial feeds; seeds; plants; fertilizers; liming materials; breeding and other livestock; semen; breeding fees; baby chicks; turkey poults; rabbits; quail; llamas; bees; agricultural chemicals; fuel for drying or curing crops; baler twine; containers for fruits and vegetables; farm machinery; medicines and drugs sold to a veterinarian provided they are used or consumed directly in the care, medication, and treatment of agricultural production animals or for resale to a farmer for direct use in producing an agricultural product for market; 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; and agricultural supplies provided the same are sold to and purchased by farmers for use in agricultural production, which also includes beekeeping and fish, quail, rabbit and worm farming for market.

The statutory exemption cited above is addressed in Title 23 Virginia Administrative Code 10-210-50, which states that, "the tax does not apply to... farm machinery and agricultural supplies sold to farmers for use in agricultural production for market."

In order to qualify for the agricultural exemption, a person must be raising or growing products for sale or resale on the open market. The statutory exemption and the regulation provide that machinery, equipment, and supplies used by a grower or farmer to produce their product would qualify for the exemption. The Customer in this case is in the business of growing plants at its greenhouse location and selling such plants on the wholesale and retail level from its business location. The water treatment equipment plays an integral part in rendering the Customer's plants more marketable and is essential to the Customer's business.

Based on the specific facts presented and the statutory exemption and regulation cited, I find that the water treatment equipment, and the salt used in the water treatment equipment, would qualify for the sales tax exemption under Va. Code § 58.1-609.2 1.

I trust that the foregoing responds to your inquiry. The Code of Virginia section and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions concerning this ruling, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5690765291.P