SALT Report 1378 – The Virginia Department of Taxation ruled that the industrial processing exemption provided under Va. Code §58.1-609.3(2) does not apply to machinery and equipment, which includes a grinder, front-end loader, excavator, and a truck, used by a taxpayer to grind wood chips at job sites in order to transport the wood chips to the taxpayer’s mulch yard.
The Department held that the manufacturing and processing exemption is limited to production activities conduced at a single location. Therefore, the Department’s policy that mobile or portable equipment used for transporting product from temporary sites does not qualify for the industrial processing exemption. The Department also ruled that the wood chipping and grinding activities conducted by the taxpayer did not qualify for the forest products harvesting exemption under Va. Code §58.1-609.2(6).
The forest products harvesting exemption is limited to items that are used to harvest forest products and to operations that are necessary to four specific activities listed in the statute. Based on a review of the four activities, the Department found that wood chipping and grinding was not a necessary operation because:
- The products could be removed from the harvesting site without first grinding or chipping the harvested product
- Grinding and chipping is not an environmental protection or safety requirement
- The grinding and chipping activities are not necessary to access the harvesting site, as this activity occurs after access to the site has been created
- It is not necessary to grind or chip trees prior to their transport, and
- The machinery and equipment used for grinding and chipping are not directly used to harvest forest products