August 11, 2014 1 V I R G I N I A D E P A R T M E N T O F T A X - - PowerPoint PPT Presentation

Vir irginia Depar ginia Department of tment of T Taxa axation tion

August 11, 2014

Forest Products Tax Working Group

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Overview

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Ov Over erview view of

• f the Issue

the Issue

• Rising concern that the point of imposition of the tax may not

reflect current industry practices

• In general, the tax was intended to be paid by mills and other

manufacturers when first enacted

• Shift in the industry to more “in-woods” processing of forest

products

• Forest products may now be subject to the tax earlier in the

chain of commerce than previously contemplated

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Obje Objectiv ctives es of

• f the W

the Wor

• rking

king Gr Group

• up
• Forward – focused

– Issues of prior compliance will be handled on a case-by-case basis with a focus on ensuring that someone paid the tax

• Obtain a consensus of industry representatives on what

legislative change, if any, is needed

• If legislative change is desired, make certain the proposal is
• ne that the industry understands, agrees with, and can

comply with

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V I R G I N I A D E P A R T M E N T O F T A X A T I O N

Current Tax Structure

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Bac Backg kground

• und
• Imposed on Forest Products Severed from Land in Virginia

– Exemption for forest products:

• Severed from land owned by the U.S. and VA government, and
• For experimentation or teaching of forestry in state educational

institutions

– Exemption for owners severing timber from their own premises used for:

• Construction or repair of own structures
• Home consumption
• Processing their own farm products

– No Exemption for forest products:

• Severed from land owned by the U.S. and VA government, but
• Entering commercial channels of trade for competitive markets

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V I R G I N I A D E P A R T M E N T O F T A X A T I O N

Bac Backg kground

• und Cont.

Cont.

• Levied on every Manufacturer and Shipper

– A “Manufacturer” is a person who:

• operates a sawmill;
• Other mill, chemical plant, or other operation for processing forest

products;

• purchases forest products for use in connection with mining, piles or

poles;

• severs posts, fuel wood, fish net poles and similar products

– A “Shipper” is a person who sells or ships any forest product in an unmanufactured condition outside the Commonwealth – Tax is imposed only once on any forest product

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Scena Scenario rio #1 #1 – Cur Current ent Tax ax

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Severer Cuts Trees into Firewood for Sale Current Tax Treatment Severer = Manufacturer for posts, fuel wood, and fish net poles and is liable for the tax

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Scena Scenario rio #2 #2 – Cur Current ent Tax ax

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Severer Cuts Trees for Sale to a Paper Mill in Virginia Current Tax Treatment Paper Mill = Manufacturer and is Liable for the Forest Products Tax

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Scena Scenario rio #3 #3 – Cur Current ent Tax ax

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Severer Cuts Trees for Sale to a Paper Mill in North Carolina Current Tax Treatment Severer = Shipper and is Liable for the Tax

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Scena Scenario rio #3 #3 – Cur Current ent Tax Cont. ax Cont.

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Severer Cuts Trees for Sale to a Paper Mill in North Carolina What if the Paper Mill Pays the Tax?

• Severer is still liable for the tax
• Paper Mill may receive a refund for overpayment of tax

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Scena Scenario rio #4 #4 – Cur Current ent Tax ax

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Severer Cuts and Chips Trees with a Portable Chipper for Sale to a Paper Mill in Virginia Current Tax Treatment Severer = Manufacturer (Chipper) and is Liable for the Tax

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Scena Scenario rio #5 #5 – Cur Current ent Tax ax

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Severer Cuts Trees for Sale as Fuel Wood to a Biomass Plant in Virginia Current Tax Treatment Severer = Manufacturer and is Liable for the Tax (Scenario #1)

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Scena Scenario rio #6 #6 – Cur Current ent Tax ax

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Severer Cuts and Chips Trees with a Portable Chipper for Sale as Fuel Wood to a Biomass Plant in Virginia Current Tax Treatment Severer = Manufacturer (Chipper) and is Liable for the Tax (Same as Scenario #4)

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Scena Scenario rio #7 #7 – Cur Current ent Tax ax

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Severer Cuts Trees for Sale to a Biomass Plant in Virginia and the Biomass Plant Chips the Trees to Use as Fuel Wood Current Tax Treatment Biomass Plant = Manufacturer (Chipper) and is Liable for the Tax

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Proposal

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Obje Objectiv ctives es of

• f the Pr

the Propos

• posal

al

• Represent current industry practices
• Avoid unintended consequences
• No loss in tax revenues
• Have the tax paid by commercial businesses

– Taxpayers with fixed places of businesses – Not in-woods processors

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V I R G I N I A D E P A R T M E N T O F T A X A T I O N

Background

• Imposed on Forest Products Severed from Land in Virginia

– Same Exemptions as current tax – Due when forest products are severed, shipped, used, consumed, processed, or sold

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Background Cont.

• Levied on First Manufacturer

– A “Manufacturer” is a person who for commercial purposes at a fixed place of business:

• Processes forest products into various sizes and forms, including chips,
• Processes forest products into other products, or
• Uses or consumes forest products

– Manufacturers without nexus with Virginia may register and pay the tax’ but are not required to be registered

• If the manufacturer is registered for the tax, the manufacturer is liable

for the tax on taxable transactions

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Background Cont.

• Manufacturer is not liable for the tax if:

– Paid by the severer, shipper, or seller of the forest products, and – Proper documentation is received

• If no manufacturer, or the manufacturer is not registered for

the tax, then the tax is levied on the severer, shipper, or seller

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Scena Scenario rio #1 #1 – Pr Propos

• posal

al

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Severer Cuts Trees into Firewood for Sale Proposed Treatment As there is no manufacturer, the severer is Liable for the tax when the Forest Products are Sold

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Scena Scenario rio #2 #2 – Pr Propos

• posal

al

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Severer Cuts Trees for Sale to a Paper Mill in Virginia Proposed Treatment Paper Mill = First Manufacturer and is Liable for the tax when the Forest Products are Processed

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Scena Scenario rio #3 #3 – Pr Propos

• posal

al

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Severer Cuts Trees for Sale to a Paper Mill in North Carolina Proposed Treatment

If Paper Mill is Registered for the Tax = First Manufacturer and is Liable for the Forest Products Tax when the Forest Products are Processed If Paper Mill is Not Registered for the Tax = Severer is a Shipper and is Liable for the Forest Products Tax when the Forest Products are Shipped

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Scena Scenario rio #3 #3 – Pr Propos

• posal

al Cont. Cont.

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Severer Cuts Trees for Sale to a Paper Mill in North Carolina What if the Paper Mill is Registered for the Tax and the Severer/Shipper Pays the Tax Anyway? Paper Mill is Not Liable for the Tax if Received Proper Documentation that the Shipper Paid the Tax

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Scena Scenario rio #4 #4 – Pr Propos

• posal

al

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Severer Cuts and Chips Trees with a Portable Chipper for Sale to a Paper Mill in Virginia Proposed Treatment

• Severer is Not a Manufacturer as No Fixed Place of Business
• Paper Mill = First Manufacturer and is Liable for tax when the Forest

Products are Processed

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Scena Scenario rio #5 #5 – Pr Propos

• posal

al

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Severer Cuts Trees for Sale as Fuel Wood to a Biomass Plant in Virginia Proposed Treatment Biomass Plant = First Manufacturer and is Liable for the Forest Products Tax when the Forest Products are Used or Consumed

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Scena Scenario rio #6 #6 – Pr Propos

• posal

al

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Severer Cuts Trees and Chips Trees with a Portable Chipper for Sale as Fuel Wood to a Biomass Plant in Virginia

Proposed Treatment

• Severer is Not a Manufacturer as No Fixed Place of Business
• Biomass Plant= First Manufacturer and is Liable for the tax when the

Forest Products are Used or Consumed

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Scena Scenario rio #7 #7 – Pr Propos

• posal

al

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Severer Cuts Trees for Sale to a Biomass Plant in Virginia and the Biomass Plant Chips the Trees to Use as Fuel Wood Proposed Treatment Biomass Plant = First Manufacturer and is Liable for the tax when the Forest Products are Processed

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Alternatives?

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Concerns?

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Next Steps

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