The Virginia Tax Commissioner recently ruled that equipment used to spread bio-solids on farm ground did not qualify for the agriculture equipment exemption.
The taxpayer removed bio-solids from municipal waste treatment plants, and contracted with farmers to spread the bio-solids on farm ground. The taxpayer purchased equipment necessary to spread the bio-solids and claimed the equipment qualified as exempt agriculture equipment.
Virginia exempts sales of tangible personal property necessary for use in agriculture production for market when sold to a farmer. The rationale behind the exemption, as stated by the Commissioner, is that items purchased by farmers are used to produce products that will subsequently be taxed. The agriculture exemption prevents double taxation by taxing only the ultimate sale of farm products to the consumer.
In this case, the taxpayer was not a farmer. The taxpayer was not engaged in agricultural production for market. Without being a farmer engaged in production for market, the Commissioner found that there was no reason to exempt the taxpayer's purchases.