Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. Timber harvest
operations generally consist of a variety of different activities. These
activities may be subject to different tax rates or classifications under the
business and occupation tax and public utility tax, depending on the nature of
the activity.
(a)
Scope of rule.
This rule explains the application of the business and occupation (B&O),
public utility, retail sales, and use taxes to persons performing activities
associated with timber harvest operations. This rule explains how the public
utility tax deduction provided by
RCW
82.16.050 for the transportation of
commodities to an export facility applies to the transportation of logs. It
also explains how the B&O tax exemption provided by
RCW
82.04.333 for small timber harvesters
applies.
(b)
Additional
information sources for activities associated with timber harvest
operations. In addition to the taxes addressed in this rule, the forest
excise and real estate excise taxes often apply to certain activities or sales
associated with timber harvest operations. Persons engaged in timber harvest
operations should refer to the following rules for additional information:
(i) WAC
458-20-135
Extracting natural products;
(ii)
WAC
458-20-136
Manufacturing, processing for hire, fabricating;
(iii) WAC
458-20-13601
Manufacturers and processors for hire-Sales and use tax exemption for machinery
and equipment;
(iv) Chapter 458-40
WAC Taxation of forest land and timber; and
(v) Chapter 458-61A WAC Real estate excise
tax.
(c)
Examples. This rule contains examples that identify a number of
facts and then state a conclusion. The examples should be used only as a
general guide. The tax results of other situations must be determined after a
review of all the facts and circumstances.
(d)
Information regarding
short-rotation hardwoods. Persons cultivating short-rotation hardwoods
are considered farmers. Refer to WAC
458-20-209
and
458-20-210
for tax-reporting information for farmers and persons selling property to or
performing horticultural services for farmers. "Short-rotation hardwoods" are
hardwood trees, such as, but not limited to, hybrid cottonwoods, cultivated by
agricultural methods in growing cycles shorter than fifteen years.
RCW
84.33.035.
(2)
Timber harvesters. Timber
harvesters may engage in business activities that require them to report under
the extracting, manufacturing, wholesaling, or retailing B&O tax
classifications. Timber harvesters may qualify for preferential B&O tax
rates on certain qualifying business activities.
RCW
82.04.260(12).
The definition of "extractor" found in
RCW
82.04.100 relates to the harvesting of trees
(other than plantation Christmas trees) and is generally identical to the
definition of "harvester" found in
RCW
84.33.035. An exception is the specific
provisions in the definition of "harvester" relating to trees harvested by
federal, state, and local government entities. Both definitions include every
person who from the person's own land or from the land of another under a right
or license granted by lease or contract, either directly or by contracting with
others for the necessary labor or mechanical services, fells, cuts (severs), or
takes timber for sale or for commercial or industrial use. Both definitions
exclude persons performing under contract the necessary labor or mechanical
services for the extractor/harvester.
(a)
Timber purchasers to file
information report. A purchaser must report to the department of revenue
(department) purchases of privately owned timber in an amount exceeding two
hundred thousand board feet, if purchased in a voluntary sale made in the
ordinary course of business. The report must contain all information relevant
to the value of the timber purchased including, but not limited to, the
following, as applicable: Purchaser's name, address and contact information;
seller's name, address, and contact information; sale date; termination date in
sale agreement; total sale price; legal description of sale area; sale name;
forest practice application/harvest permit number if available; total acreage
involved in the sale; estimated net volume of timber purchased by tree species
and log grade; and description and value of property improvements.
This report must be filed on or before the last day of the
month following the purchase of the timber. A two hundred fifty dollar penalty
may be imposed against a purchaser for each failure to satisfy the requirements
for filing this report. These filing requirements are scheduled to expire July
1, 2018.
RCW
84.33.088.
(b)
Extracting. The felling,
cutting (severing from land), or taking of trees is an extracting activity as
defined in
RCW
82.04.100. The extracting B&O tax
classification applies to the value of the products extracted, which is the
value of the severed trees prior to any manufacturing activity.
(i) Until July 1, 2045, timber extractors are
eligible for a preferential B&O tax rate for timber extracting activities.
RCW
82.04.260(12)(a). Taxpayers
reporting under the preferential Extracting Timber B&O tax classification
in the current year are required to complete an Annual Tax Performance Report
by May 31st of the following year.
(ii) Small harvesters, as defined in
RCW
84.33.035, are not required to complete an
Annual Tax Performance Report with the department.
(c)
Manufacturing. The cutting
into length (bucking), delimbing, and measuring (for bucking) of felled, cut
(severed), or taken trees is a manufacturing activity as defined in
RCW
82.04.120. The manufacturing B&O tax is
measured by the value of the products manufactured, which is generally the
gross proceeds of sale. For more information regarding the value of products
see
RCW
82.04.450 and WAC
458-20-112.
If the product is delivered to a point outside the state,
transportation costs incurred by the seller from the last point at which
manufacturing takes place within Washington may be deducted from the gross
proceeds of sale when determining the value of the product.
Example 1. In each of the following situations
presume that the timber harvester delivers the product to the customer at a
point outside the state:
(i) If there
is no further manufacturing subsequent to manufacturing conducted at the
harvest site, the measure of tax is the gross proceeds of the sale of the logs
less transportation costs incurred by the seller from the harvest site to
delivery to the customer;
(ii) If
logs are hauled to a facility for processing into lumber, poles, or piles, the
measure of tax is the gross proceeds of sale of the lumber, poles, or piles
less transportation costs incurred by the seller from the facility to delivery
to the customer; and
(iii) If logs
are hauled to a facility that only removes the bark, the measure of tax is the
gross proceeds of sale of the logs less transportation costs incurred by the
seller from the harvest site to the customer. This is because the mere removal
of bark is not a manufacturing activity.
However, if at that facility the debarking is a part of a
manufacturing process (e.g., cutting the logs into lumber), the entire process,
including the debarking, is a manufacturing activity. In such a case, the
measure of tax is the gross proceeds of sale of the products manufactured from
the logs less transportation costs incurred by the seller from the facility to
the customer.
(iv) Until
July 1, 2045, persons who manufacture (A) timber into timber products or wood
products; (B) timber products into other timber products or wood products; or
(C) mass timber products defined in
RCW
19.27.570(1), are eligible
for a preferential B&O tax rate multiplied by the gross proceeds of sale.
RCW
82.04.260(12)(b). Taxpayers
reporting under the preferential Manufacturing of Timber or Wood Products
B&O tax classification in the current year are required to complete an
Annual Tax Performance Report by May 31st of the following year.
(v) Small harvesters, as defined in
RCW
84.33.035, are not required to complete an
Annual Tax Performance Report with the department.
(d)
Selling. The income from the
sale of the logs is subject to tax under either the wholesaling or retailing
B&O tax classification, as the case may be, unless exempt by law. The
measure of tax is the gross proceeds of sale without any deduction for
transportation costs.
(i) When determining the
gross proceeds of sale, the timber harvester may not deduct amounts paid to
others.
Example 2. A timber harvester enters into a
contract with another person to perform the necessary labor and mechanical
services for the harvesting of timber. The harvester is to receive sixty
percent of the log sale proceeds, and the person contracting to perform the
services is to receive forty percent. The log buyer purchases the logs for five
hundred thousand dollars. The buyer pays three hundred thousand dollars to the
harvester and two hundred thousand dollars to the person performing the
harvesting services. The harvester's gross proceeds of sale is five hundred
thousand dollars.
(ii)
Retail sales tax must be collected and remitted on all sales to consumers,
unless exempt by law. For wholesale sales, sellers must obtain and retain
copies of their customers' reseller permits to document the wholesale nature of
the transaction. For information on reseller permits see WAC
458-20-102 and
458-20-10201.
(iii) Until July 1, 2045, persons who sell at
wholesale (A) timber extracted by the seller; (B) timber products manufactured
by the seller from timber or other timber products; (C) wood products
manufactured by the seller from timber or timber products; or (D) mass timber
products defined in
RCW
19.27.570(1) manufactured by
the seller, are eligible for a preferential B&O tax rate multiplied by the
gross proceeds of sale.
RCW
82.04.260(12)(c). Taxpayers
reporting under the preferential Wholesaling of Timber or Wood Products B&O
tax classification in the current year are required to complete an Annual Tax
Performance Report by May 31st of the following year.
(iv) Small harvesters, as defined in
RCW
84.33.035, are not required to complete an
Annual Tax Performance Report with the department.
(e)
Multiple activities tax credit
(MATC). An extractor or manufacturer who sells the product extracted or
manufactured must report under each of the appropriate "production" (extracting
or manufacturing) and "selling" (wholesaling or retailing) classifications on
the excise tax return. The extractor or manufacturer may then claim a multiple
activities tax credit (MATC) as described in
RCW
82.04.440 for the extracting tax
(RCW 82.04.230
) or manufacturing tax (RCW
82.04.240 ), provided the credit does not
exceed the wholesaling or retailing tax liability. For a more detailed
explanation of the MATC reporting requirements see WAC
458-20-19301.
(3)
Extractors for hire. Persons
performing extracting activities (labor or mechanical services), such as
independent contractors, for timber harvesters are subject to tax under the
extracting for hire B&O tax classification measured by the gross income
from those services.
RCW
82.04.280.
Until July 1, 2045, persons who extract timber for hire are
eligible for a preferential B&O tax rate for timber extracting for hire
activities.
RCW
82.04.260(12)(a). Taxpayers
reporting under the preferential Extracting for Hire Timber B&O tax
classification in the current year are required to complete an Annual Tax
Performance Report by May 31st of the following year.
Example 3. Tree Severing Corporation (TSC) is
hired by Timber Harvester to fell trees owned by Timber Harvester. TSC is
performing an extracting activity, and is considered an extractor for hire with
respect to those services. TSC is subject to tax under the Extracting for Hire
Timber B&O tax classification measured by its gross income from the
services.
Extracting activities commonly performed by extractors for hire
include, but are not limited to:
(a)
Cutting or severing trees;
(b)
Logging road construction or maintenance;
(c) Activities related to and performed on
timber-producing property that are necessary and incidental to timber
operations, such as:
(i) Slash cleanup and
burning;
(ii)
Scarification;
(iii) Stream and
pond cleaning or rebuilding;
(iv)
Restoration of logging roadways to a natural state;
(v) Restoration of wildlife habitat;
and
(vi) Fire trail work.
(4)
Processors for
hire. Persons performing services as independent contractors for timber
harvesters during the manufacturing portion of a timber harvest operation are
subject to tax under the processing for hire B&O tax classification
measured by the gross income from those services.
RCW
82.04.280. For information regarding
processors for hire see WAC
458-20-136.
Until July 1, 2045, persons who process for hire (a) timber
into timber products or wood products; (b) timber products into other timber
products or wood products; or (c) mass timber products defined in
RCW
19.27.570(1), are eligible
for a preferential B&O tax rate multiplied by the gross proceeds of sale.
RCW
82.04.260(12)(b). Taxpayers
reporting under the preferential Processing for Hire Timber Products B&O
tax classification in the current year are required to complete an Annual Tax
Performance Report by May 31st of the following year.
Example 4. Tree Services Inc. (TSI) is hired to
delimb and buck severed trees at the harvest site by the owner of the severed
trees, the TTT Company. TSI is a processor for hire and is subject to tax under
the Processing for Hire Timber Products B&O tax classification. TTT then
hires Chopper Services to transport the logs by helicopter from where the logs
were delimbed and bucked to a location from which the logs will be transported
to a mill. Under these circumstances, Chopper Services is a processor for hire
as the manufacturing of the logs has started. However, if the manufacturing
process on those logs had not yet begun Chopper Services would be an extractor
for hire. In either case, the measure of tax is the gross income from the
services.
Persons performing processing for hire or extracting for hire
services for consumers must collect and remit retail sales tax on those
services unless otherwise exempt by law.
(5)
Hauling activities. Persons
performing services for timber harvesters are often required to haul logs by
motor vehicle from the harvest site over public roads. The income attributable
to this hauling activity is subject to the public utility tax (PUT).
Effective August 1, 2015,
RCW
82.16.020 provides a reduced PUT rate for
most log transportation businesses. A "log transportation business" means the
business of transporting logs by truck, except when the transportation meets
the definition of urban transportation business or occurs exclusively on
private roads.
RCW
82.16.010. The distinction between motor and
urban transportation is explained in WAC
458-20-180. If the
hauling is exclusively performed over private roads, the gross income from the
transportation activity is subject to tax under the service and other
activities B&O tax classification, not the PUT.
Example 5. Hauler A hauls logs over private roads
from the harvest site to the transfer site where the logs are unloaded. Hauler
B hauls these logs over both private and public roads from the transfer site to
a mill. The income received by Hauler A is subject to tax under the service and
other activities B&O tax classification. The income received by Hauler B is
subject to the public utility tax.
(a)
Subcontracting hauls to a third party. If the person hired to haul
logs by motor carrier subcontracts part or all of the hauling to a third party,
the amount paid to the third party is subject to the public utility tax if any
part of the transportation performed by the third party occurred on a public
road, and is subject to the B&O tax if the transportation occurred
exclusively on private roads. The person originally hired to haul the logs by
motor carrier may be entitled to claim the deduction for jointly furnished
services in computing its PUT liability, depending on the circumstances. See
WAC
458-20-179
for more information on the PUT deduction for services furnished jointly. No
similar deduction is available under the B&O tax.
(b)
Hauls using own equipment.
If the person hauls the product using his or her own equipment, and has
established hauling rates that are paid to third-parties for comparable hauls,
these rates may be used to establish the measure of tax for the hauling
activity. Otherwise, the measure of the tax should be all costs attributable to
the hauling activity including, but not limited to, the following costs
relative to the hauling equipment: Depreciation; repair parts and repair labor;
and wages and benefits for employees or compensation to contractors driving or
maintaining the equipment. If appropriate records are not maintained to
document these costs, the department will accept one-third of the gross income
derived from a contract for all labor or mechanical services beginning with the
cutting or severance of trees through the hauling services as the measure of
the tax under the motor transportation PUT classification.
(c)
Deduction for hauls to export
facilities. Refer to subsection (13) of this rule for information
regarding the deduction available for certain log hauls to export
facilities.
(6)
Common timber sale arrangements. Persons who sell and/or take
timber may be subject to various taxes including the B&O tax, timber excise
tax, and real estate excise tax. There are a number of ways in which harvesting
activities are conducted and timber is sold. The timing of the transfer of
ownership of, or the contractual right to sever, standing timber determines
which taxes are due and who is liable for remitting tax.
The following examples briefly identify two common types of
timber sale arrangements and then state a conclusion as to the taxes that
apply. These examples are not an all-inclusive list of the different types of
timber sale arrangements, or the variations that may occur. These examples
presume that the trees being harvested are not Christmas trees, and that no
participant is a federal, state, or local government entity.
(a)
Example 6. Sale of standing timber
(stumpage sales). In this type of arrangement, Seller (landowner or
other owner of the rights to standing timber) sells standing timber to Buyer.
Buyer receives title to the timber from Seller before it is severed from the
stump. Buyer may hire Contractor to perform the harvesting activity.
The tax consequences are:
(i) Seller is liable for real estate excise
tax. A sale of real property has occurred under
RCW
82.45.060. Refer to chapter 458-61 WAC for
information on the real estate excise tax.
(ii) Buyer is liable for both timber excise
tax and B&O tax. Buyer is a "harvester" under
RCW
84.33.035 and an "extractor" under
RCW
82.04.100 because Buyer "from the...land of
another under a right or license...fells, cuts (severs), or takes timber for
sale or for commercial or industrial use." See subsection (2) of this
rule.
(iii) Contractor is liable
for B&O tax and possibly public utility tax because Contractor "is
performing under contract the necessary labor or mechanical services for the
extractor/ harvester." See subsections (3), (4), and (5) of this
rule.
(b)
Example
7. Sale of harvested timber (logs). In this type of sales transaction,
Seller (landowner or other owner of the rights to standing timber) hires
Contractor to perform the harvesting activity. Contractor obtains all the
necessary cutting permits, performs all of the harvesting activities from
severing the trees to delivering the logs for scaling, and makes all the
arrangements for the sale of the logs. Contractor, in effect, is performing the
harvesting and marketing services for Seller. Seller retains title to the logs
until after they are scaled, at which time title transfers to Buyer.
The tax consequences are:
(i) Seller is liable for both timber excise
tax and B&O tax. Seller is a "harvester" under
RCW
84.33.035 and an "extractor" under
RCW
82.04.100 because Seller is "the person who
from the person's own land or from the land of another under a right or license
granted by lease or con-tract...fells, cuts (severs), or takes timber for sale
or for commercial or industrial use." See subsection (2) of this
rule.
(ii) Contractor is liable for
B&O tax and possibly public utility tax because Contractor "is performing
under contract the necessary labor or mechanical services for the extractor/
harvester." See subsections (3), (4), and (5) of this rule.
(iii) There is no real estate excise tax
liability because there is no sale of real property under chapter 82.45
RCW.
(7)
Equipment and supplies used in timber harvest operations. The
retail sales tax applies to all purchases of equipment, component parts of
equipment, and supplies by persons engaging in timber operations unless a
specific exemption applies. Purchases of fertilizer and spray materials (e.g.,
pesticides) for use in the cultivating of timber are also subject to the retail
sales tax, unless purchased for resale as tangible personal property. If the
seller fails to collect the appropriate retail sales tax, the buyer is required
to remit the retail sales tax (commonly referred to as "deferred retail sales
tax") or use tax directly to the department.
If a person using property in Washington incurs a use tax
liability, and prior to that use paid a retail sales or use tax on the same
property to another state or foreign country (or political subdivision of
either), that person may claim a credit for those taxes against the Washington
use tax liability.
(a)
Exemption
available for certain manufacturing equipment.
RCW
82.08.02565 and
82.12.02565
provide retail sales and use tax exemptions for certain machinery and equipment
used by manufacturers. Persons engaged in both extracting and manufacturing
activities should refer to WAC
458-20-13601
for an explanation of how these exemptions may apply to them.
(b)
Property manufactured for
commercial use. Persons manufacturing tangible personal property for
commercial or industrial use are subject to both the manufacturing B&O tax
and use tax on the value of the property manufactured, unless a specific
exemption applies. WAC
458-20-134
defines and provides information on commercial or industrial use, and WAC
458-20-112
describes how to determine the value of products. If the person also extracts
the product, B&O tax is due under the extracting tax classification, and a
MATC may be taken.
Example 8. ABC Company severs trees, manufactures
the logs into lumber, and then uses the lumber to construct an office building.
The use of the lumber by ABC in constructing its office building is a
commercial or industrial use. ABC is subject to tax under the Extracting Timber
and Manufacturing of Timber or Wood Products B&O tax classifications and
may claim a MATC. ABC is also responsible for remitting use tax on the value of
the lumber incorporated into the office building.
(8)
Seeds and seedlings. Persons
cultivating timber often purchase or collect tree seeds that are raised into
tree seedlings. The growing of the seed may be performed by the person
cultivating timber, or through the use of a third-party grower. In the case of
a third-party grower, the seed is provided to the grower and tree seedlings are
received back after a specified growing period.
(a)
Responsibility to remit retail
sales or use tax. The purchase of seeds or seedlings by a person
cultivating timber is subject to the retail sales tax. If the seller fails to
collect retail sales tax, the buyer must remit retail sales tax (commonly
referred to as "deferred sales tax") or use tax, unless otherwise exempt by
law. The use of seed collected by a person cultivating timber is subject to use
tax. In the case of seed provided to third-party growers in Washington, the
seed owner, and not the third-party grower, incurs any use tax liability on the
value of the seed. The value of seedlings brought into and used in Washington
is subject to the use tax, unless retail sales or use tax was previously paid
on the seedlings or on the seed from which the seedlings were grown.
(b)
Limited sales and use tax
exemptions for conifer seeds.
RCW
82.08.850 and
82.12.850
provide retail sales and use tax exemptions for certain sales or uses of
conifer seeds. A deferral mechanism is also available if the buyer cannot at
the time of purchase determine whether the purchase is eligible for the sales
tax exemption.
(i)
Retail sales tax
exemption. Retail sales tax does not apply to the sale of conifer seed
that is immediately placed into freezer storage operated by the seller if the
seed is to be used for growing timber outside Washington. This exemption also
applies to the sale of conifer seed to an Indian tribe or member and is to be
used for growing timber in Indian country, again only if the seed is
immediately placed into freezer storage operated by the seller. For the
purposes of this exemption, "Indian country" has the meaning given in
RCW
82.24.010.
This exemption applies only if the buyer provides the seller
with an exemption certificate in a form and manner prescribed by the
department. The seller must retain a copy of the certificate to substantiate
the exempt nature of these sales.
(ii)
Deferring payment of retail sales
tax if unable to determine whether purchase qualifies for the retail sales tax
exemption. If a buyer of conifer seed is normally engaged in growing
timber both within and outside Washington and is not able to determine at the
time of purchase whether the seed acquired, or the seedlings germinated from
the seed acquired, will be used for growing timber within or outside
Washington, the buyer may defer payment of the sales tax until it is determined
that the seed, or seedlings germinated from the seed, will be planted for
growing timber in Washington. A buyer that does not pay sales tax on the
purchase of conifer seed and subsequently determines that the sale did not
qualify for the tax exemption must remit to the department the amount of sales
tax that would have been paid at the time of purchase. It is important to note
that the sales tax liability may be deferred only if the seller immediately
places the conifer seed into freezer storage operated by the seller.
(iii)
Tax paid at source
deduction. A buyer who pays retail sales tax on the purchase of conifer
seed and subsequently determines that the sale qualifies for the tax paid at
source deduction may claim a deduction on its excise tax return. The deduction
is allowed only if the buyer keeps and preserves records that show from whom
the seed was purchased, the date of the purchase, the amount of the purchase,
and the tax that was paid.
(iv)
Use tax exemption. Use tax does not apply to the use of conifer
seed to grow seedlings if the seedlings are grown by a person other than the
owner of the seed. This exemption applies only if the seedlings will be used
for growing timber outside Washington, or if the owner of the conifer seed is
an Indian tribe or member and the seedlings will be used for growing timber in
Indian country. If the owner of the conifer seed is not able to determine at
the time the seed is used in a growing process whether the use of the seed
qualifies for this exemption, the owner may defer payment of the use tax until
it is determined that the seedlings will be planted for growing timber in
Washington. For the purposes of this exemption, "Indian country" has the
meaning given in
RCW
82.24.010.
(9)
Activities or income incidental to
timber operations. The following activities or income, and the
applicable tax classifications are often associated with timber operations.
These tax-reporting requirements apply even if these activities are incidental
to the person's primary business activity.
(a)
Taking other natural products from timberland. The value of
natural products such as boughs, mushrooms, seeds, and cones taken for sale or
commercial or industrial use is subject to the tax under the extracting B&O
tax classification. The sale of these products is subject to B&O tax under
the wholesaling or retailing tax classification, as the case may be. Persons
both extracting and selling natural products should refer to WAC
458-20-19301
for an explanation of the MATC reporting requirements. The retail sales tax
applies to sales to consumers, unless a specific exemption applies.
(b)
Timber cruising, scaling, and
access fees. Gross income from timber cruising, scaling services, and
allowing others to use private roads is subject to tax under the service and
other activities B&O tax classification. This tax classification also
applies to access fees for activities such as hunting, taking firewood, bough
cutting, mushroom picking, or grazing. Charges to allow a person to take an
identified quantity of tangible personal property are considered sales of that
property. See subsection (9)(d) of this rule.
(c)
Planting, thinning, and
spraying. The service and other activities B&O tax applies to the
gross proceeds of sale received for planting trees or other vegetation,
precommercial thinning, and spraying or applying fertilizers, pesticides, or
herbicides.
(d)
Sales of
firewood and Christmas trees. Sales of firewood, Christmas trees, and
other tangible personal property are either wholesale (subject to B&O tax
under the wholesaling tax classification) or retail (subject to B&O tax
under the retailing tax classification and also to retail sales tax) sales,
depending on the nature of the transaction. These sales are often made in the
nature of charges allowing the buyer to select and take an identified quantity
of the property (e.g., six cords of firewood or two Christmas trees).
(e)
Unloading logs from logging
trucks. Gross income from the unloading of logs from logging trucks onto
rail cars at transfer points is subject to the retailing B&O and retail
sales taxes when the activity is a rental of equipment with operator.
RCW
82.04.050. For more information regarding the
rental of equipment with an operator see WAC
458-20-211.
If this activity is not a rental of equipment with operator, gross income from
the activity is subject to tax under the service and other activities B&O
tax classification. The income from unloading of logs from logging trucks is
subject to tax under the stevedoring B&O tax classification if performed at
an export facility as a part of or to await future movement in waterborne
export. For tax-reporting information regarding services associated with
interstate or foreign commerce see WAC
458-20-193D.
(f)
Transporting logs by water.
Gross income received for transporting logs by water (e.g., log booming and
rafting) or log patrols is subject to tax under the "other public service
business" classification of the public utility tax.
This tax classification applies to the gross income from this
activity even if the person segregates a charge for boom-sticks used while
transporting the logs. In many cases logs will be towed to a location specified
by the customer for storage. Any charges for boomsticks while the logs are
stored are rentals of tangible personal property and subject to the tax under
the retailing B&O tax classification and retail sales tax if to a consumer.
For information regarding the rental of tangible personal property see WAC
458-20-211.
(g)
Export sorting yard
operations. Export sorting yard operations generally consist of multiple
activities. These activities can include, but are not necessarily limited to,
services such as weighing, tagging, banding, appraising, and sorting of logs.
Other incidental activities, such as the debarking, removal of imperfections
such as crooks, knots, splits, and seams, and trimming of log ends to remove
defects, are also performed as needed. Income received by persons performing
the export sorting yard activities as identified in this subsection is subject
to tax under the service and other activities B&O tax
classification.
(10)
Harvesting Christmas trees. Persons growing, producing, or
harvesting Christmas trees are either farmers or extractors under the law, as
explained below. Activities generally associated with the harvesting of
Christmas trees, such as cutting, trimming, shearing, and bailing (packaging)
are not manufacturing activities because they are not the "cutting, delimbing,
and measuring of felled, cut, or taken trees" under
RCW
82.04.120.
(a)
Plantation Christmas tree
operations. Persons growing or producing plantation Christmas trees on
their own lands or on lands in which they have a present right of possession
are farmers.
RCW
82.04.213. Plantation Christmas trees are
Christmas trees that are exempt from the timber excise tax under
RCW
84.33.170. This requires that the Christmas
trees be grown on land prepared by intensive cultivation and tilling, such as
irrigating, plowing, or turning over the soil, and on which all unwanted plant
growth is controlled continuously for the exclusive purpose of raising
Christmas trees.
RCW
82.04.035 and
84.33.035.
(i) Gross income from wholesale sales of
plantation Christmas trees by farmers is exempt from B&O tax.
RCW
82.04.330. Gross income from retail sales of
plantation Christmas trees by farmers is subject to the retailing B&O tax
and to retail sales tax. For information on sales of agricultural products by
farmers see WAC
458-20-210.
(ii) Farmers growing or producing plantation
Christmas trees may purchase seeds, seedlings, fertilizer, and spray materials
at wholesale.
RCW
82.04.050 and
82.04.060.
(iii) Persons performing cultivation or
harvesting services for farmers are generally subject to the service and other
activities B&O tax on the gross income from those services. See WAC
458-20-209
for information on farming for hire and horticultural services performed for
farmers.
(b)
Other
Christmas tree operations. Persons who either directly or by contracting
with others for the necessary labor or mechanical services fell, cut, or take
Christmas trees other than plantation Christmas trees are extractors.
RCW
82.04.100. The tax-reporting instructions
regarding extracting and extracting for hire activities provided elsewhere in
this rule apply.
(11)
Timber harvest operations in conjunction with other land clearing or
construction activities. Persons sometimes engage in timber harvest
operations in conjunction with the clearing of land for the construction of
residential communities, golf courses, parks, or other development. In such
cases, these persons are engaging in separate business activities, and income
from each may be subject to different tax liabilities. Income attributable to
the timber harvest operations is subject to tax under the tax classifications
as described elsewhere in this rule. Income attributable to the clearing of
land for the construction of the residential community, golf course, park, or
other development is subject to the wholesaling, retailing, retail sales, or
public road construction tax, as the case may be. Refer to WAC
458-20-170,
458-20-171,
and
458-20-172
for tax-reporting information regarding these construction activities. Persons
performing landscape and horticultural services such as cutting or trimming
trees after the land is developed should refer to WAC
458-20-226.
(12)
Logging road construction and
maintenance. Constructing or maintaining logging roads (whether active
or inactive) is considered an extracting activity. Income derived from this
activity is subject to the extracting or extracting for hire B&O tax, as
the case may be. This income is not subject to the retail sales tax. A person
constructing or maintaining a logging road is a consumer of all materials
incorporated into the logging road. The purchase or use of these materials is
subject to either the retail sales or use tax.
(a)
Logging road materials provided
without charge. Landowners/timber harvesters may provide materials
(e.g., crushed rock) without charge to persons constructing or maintaining
logging roads. In such cases, while both the person providing the materials
without charge and the person applying the materials to the road are consumers
under the law, tax is due only once on the value of the materials. The person
constructing or maintaining the roads is responsible for remitting use tax on
the value of the materials, unless that person documents that the landowner or
timber harvester previously remitted the appropriate retail sales or use tax.
Alternatively, the person may take a written statement from the
landowner/timber harvester certifying that the land-owner/timber harvester has
remitted (for past periods) and/or will remit (for future periods) all
applicable retail sales or use taxes due on materials provided without charge.
This statement must identify the period of time, not to exceed four years, for
which it is effective. The statement must identify the landowner/timber
harvester's tax reporting account number and must be signed by a person who is
authorized to make such a representation.
(b)
Extracted or manufactured logging
road materials. Persons constructing or maintaining logging roads are
subject to the B&O and use taxes on the value of applied materials they
extract or manufacture from private pits, quarries, or other locations. The
measure of tax is the value of the extracted or manufactured products, as the
case may be. See WAC
458-20-112 for
additional information regarding how to determine the "value of products."
(i) If the person either directly or by
contracting with others extracts and crushes, washes, screens, or blends
materials to be incorporated into the road, B&O tax under the extracting
classification is due on the value of the extracted product before any
manufacturing. B&O tax under the manufacturing classification, and use tax
are also due upon the value of manufactured product. If the "cost basis" is the
appropriate method for determining the value of products under WAC
458-20-112,
this value includes the cost of transportation to a processing point, but does
not include any transportation from the processing point to the road site. A
MATC may be taken when computing the B&O tax as explained in WAC
458-20-19301.
(ii) In the case of fill dirt, sand, gravel,
or rock that is extracted from a location away from the logging road site, but
not further processed, B&O tax under the extracting classification, and use
tax are due upon the value of the extracted product. If the "cost of production
basis" is the appropriate method for determining the value of products under
WAC
458-20-112,
this value does not include transportation costs to the road site.
(iii) The mere severance of fill dirt, sand,
gravel, or rock from outcroppings at the side of a logging road for placement
in the road is a part of the logging road construction or maintenance activity.
The person incorporating these materials into the road does not incur a tax
liability for either the extracting or the use of these
materials.
(13)
Deduction for hauling logs to export yards.
RCW
82.16.050 provides a public utility tax
deduction for amounts derived from the transportation of commodities from
points of origin within this state to an export elevator, wharf, dock, or
shipside ("export facility") on tidewater or navigable tributaries of
tidewaters. The commodities must be forwarded from the facility, without
intervening transportation, by vessel and in their original form, to an
interstate or foreign destination. No deduction is allowed when the point of
origin and the point of delivery are located within the corporate limits of the
same city or town.
(a)
Conditions for
deduction. This deduction is available only to the person making the
last haul, not including hauls within the export facility, before the logs are
put on the ship. This deduction is not available if the haul starts in the same
city or town where the export facility is located.
The deduction is available only if:
(i) The logs eventually go by vessel to
another state or country; and
(ii)
The form of the logs does not change between the time the logs are delivered to
the export facility and the time the logs are put on the ship. The mere removal
of bark from the logs (debarking) or the incidental removal of imperfections
(see subsection (9)(g), of this rule) while the logs are at the export facility
is not itself a manufacturing activity, nor does it result in a change in the
"original form" of the logs as contemplated by
RCW
82.16.050.
(b)
Documentation requirements for
deduction. The log hauler must prove entitlement to the deduction.
Delivery tickets that show delivery to an export facility are not, alone,
sufficient proof. A certificate from the export facility operator is acceptable
additional proof if it is substantially in the following form. Rather than a
certificate covering each haul, a "blanket certificate" may be used for a
one-year period of time if no significant changes in operation will occur
within this period of time.
Exemption certificate for logs delivered to an export
facility
The undersigned export facility operator hereby
certifies:
That percentage or more of all logs hauled to the storage
facilities at, the same located on tidewater or navigable tributaries thereto,
will be shipped by vessel directly to an out-of-state or foreign destination
and the following conditions will be met:
1. The logs will not go through a process to
change the form of the logs before shipment to another state or
country.
2. There will be no
intervening transportation of these logs from the time of receipt at the export
facility until loaded on the vessel for the interstate or foreign journey.
Trucking Firm ______________________________
Trucking Firm Address _______________________
Trucking Firm UBI# _________________________
Export Facility Operator ______________________
Operator UBI# ______________________________
Person Giving Statement ______________________
Title of Person Giving Statement _______________
(c)
Examples. The following examples identify a number of facts and
then state a conclusion regarding the deduct-ibility of income derived from
hauling logs to export facilities. Unless specifically provided otherwise,
presume that the logs are shipped directly to another country from the export
facility.
(i)
Example 9. Logs are
hauled from the harvest site to an export facility. While the bark will be
removed from fifty percent of the logs, no other processing takes place.
Because the mere removal of bark is not considered a change in the form of the
logs, the export facility may provide a certificate in the above form
indicating that all logs at this facility will ultimately be shipped to another
country. The hauler may then claim a deduction for one hundred percent of this
haul.
(ii)
Example 10.
Logs are hauled from the harvest site to an export sorting area. At this
location further sorting takes place and eighty percent of the logs are hauled
approximately one mile on public roads to shipside and shipped to another
country. The other twenty percent of the logs are sold to local sawmills. The
haul to the sorting yard is subject to tax because there is another haul from
the sorting yard to ship-side. It is immaterial that the hauler may be paid
based on an "export" rate.
The haul from the sorting yard to shipside is deductible if it
does not start and end within the corporate limits of the same city or town,
and the hauler obtains the appropriate exemption certificate. The haul to the
local sawmills is not deductible.
(iii)
Example 11. Logs are
hauled from the harvest site to an export facility. The hauler is aware that
all logs will need to be hauled a distance of approximately one-half mile
across the export facility yard to reach the ship when it arrives at the dock.
The dock is located next to the export facility. The hauler may take the
deduction, provided the appropriate exemption certificate is obtained. Movement
of the logs within the export facility is not an intervening haul.
(14)
Small timber
harvesters - Business and occupation tax exemption.
RCW
82.04.333 provides a limited exemption from
B&O tax for small harvesters. A small harvester may take a deduction for an
amount not to exceed one hundred thousand dollars per tax year from the gross
receipts or value of products proceeding or accruing from timber harvested. A
deduction may not reduce the amount of tax due to less than zero.
A "small harvester" means every person who from his or her own
land or from the land of another under a right or license granted by lease or
contract, either directly or by contracting with others for the necessary labor
or mechanical services, fells, cuts, or takes timber for sale or for commercial
or industrial use in an amount not exceeding two million board feet in a
calendar year. When the United States or any instrumentality thereof, the
state, including its departments and institutions and political subdivisions,
or any municipal corporation therein so fells, cuts, or takes timber for sale
or for commercial or industrial use, not exceeding these amounts, the small
harvester is the first person other than the United States or any
instrumentality thereof, the state, including its departments and institutions
and political subdivisions, or any municipal corporation therein, who acquires
title to or a possessory interest in the timber. Small harvester does not
include persons performing under contract the necessary labor or mechanical
services for a harvester, and it does not include the harvesters of Christmas
trees or short-rotation hardwoods.
RCW
84.33.035.
(a)
Registration - Tax return. A
person whose only business activity is as a small harvester of timber and whose
gross income in a calendar year from the harvesting of timber is less than one
hundred thousand dollars, is not required to register with the department for
B&O tax purposes. This person must nonetheless register with the forest tax
division of the department for payment of the timber excise tax. See chapters
84.33 RCW and 458-40 WAC for more information regarding the timber excise tax.
An unregistered small harvester of timber is required to
register with the department for B&O tax purposes in the month when the
gross proceeds received during a calendar year from the timber harvested exceed
the exempt amount. The harvester must then file and report on an excise tax
return all proceeds received during the calendar year to the time when the
filing of the excise tax return is required.
(b)
Examples. In each of the
following examples, the harvester must register with the department's forest
tax division for the payment of timber excise tax, and must report under the
appropriate tax classifications as described above in this rule.
(i)
Example 12. A small
harvester not currently registered with the department for B&O tax purposes
harvests timber in June and again in August, receiving fifty thousand dollars
in June and two hundred thousand dollars in August from the sale of the logs
harvested.
B&O tax is due on the entire two hundred fifty thousand
dollars received from the sale of logs. The small harvester must register with
the department in August when the receipts from the timber harvesting business
exceed the one hundred thousand dollars exemption amount. An excise tax return
is to be filed in the appropriate period as provided in WAC
458-20-22801.
(ii)
Example 13. A person is
primarily engaged in another business that is currently registered with the
department for B&O tax purposes and has monthly receipts of two hundred
fifty thousand dollars. The person is a small harvester as defined in
RCW
84.33.035 and receives sixty thousand dollars
from the sale of the timber harvested.
B&O tax remains due on two hundred fifty thousand dollars
from the other business activities. The sixty thousand dollars received from
the sale of logs is exempt and is not reported on the person's excise tax
return. The exemption applies to the activity of harvesting timber and receipts
from the sale of logs are not combined with the receipts from other business
activities to make the sale of logs taxable.
(iii)
Example 14. A small
harvester not otherwise registered with the department for B&O tax purposes
contracts with a logging company to provide the labor and mechanical services
of the harvesting. The small harvester is to receive sixty percent and the
logging company forty percent of the log sale proceeds. The log purchaser pays
two hundred fifty thousand dollars for the logs during the calendar year,
paying one hundred fifty thousand dollars to the small harvester and one
hundred thousand dollars to the logging company.
For the small harvester, B&O tax is due on the entire two
hundred fifty thousand dollars paid for the logs. The small harvester is taxed
upon the gross sales price of the logs without deduction for the amount paid to
the logging company.
RCW
82.04.070. The small harvester must register
with the department for B&O tax purposes in the month when, for the
calendar year, the proceeds from all timber harvested exceed one hundred
thousand dollars. The logging company is taxed on the one hundred thousand
dollars it received under the appropriate business tax classification(s). The
logging company is not a small harvester as defined in
RCW
84.33.035.
Statutory Authority:
RCW
82.32.300. 01-13-042, § 458-20-13501,
filed 6/14/01, effective 7/15/01.