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(a) Definitions. The following words and terms, when used in this
section, shall have the following meanings, unless the context clearly
indicates otherwise.
(1) Equipment--An apparatus, device, hand tool, simple machine, or
expendable supply item. Examples include axes, handsaws, ropes, tree
measurement devices, harnesses for tree climbing, eye protection goggles,
ear protection devices, components of above-ground sprinkler systems or
underground sprinkler systems, boards or mats used for access to commercial
timber sites, and expendable supplies such as lubricants, solvents, and
rags. The term "equipment" includes repair, replacement parts, and
accessories for equipment. A computer or software program may qualify, if it
is used exclusively in the production of timber. For example, a computer
used exclusively to measure or track the growth of the trees to determine
harvest time is a timber item. However, computers and software used in
business accounting, bookkeeping, word processing, preparation of payrolls
and employee evaluations, or other non-production activities are not timber
items. The term does not include furniture, office supplies, or office
equipment.
(2) Machinery--A powered-operated machine. Examples include chain
saws, chippers, machinery used to drill holes for planting, machinery used
to fertilize, harvesters, slashers, merchandisers including total
merchandising systems, debarkers, delimbers, grapples, log stackers, feller
bunchers, loaders including knuckleboom loaders, skidders, tractors,
bulldozers, welding machines, compressors, and generators. The term
"machinery" includes repair, replacement parts, and accessories for
machinery. The term does not include motor vehicles or repair, replacement
parts, or accessories for motor vehicles except for motor vehicles that
qualify as timber machines and timber trailers.
(3) Original producer--a person who:
(A) harvests timber that the person owns and continues to own
until the timber is processed, packed, or marketed; or
(B) is the grower of the timber, exercises predominant
operational control over the growth of the timber, and bears the risk of
loss of investment in the timber.
(4) Pollution control equipment--Machinery and equipment that are
used by an original producer to control pollution that results from the
processing, packing, or marketing of timber products by the original
producer.
(5) Production of timber--Activities to prepare the production
site or to plant, cultivate, or harvest commercial timber that will be sold
in the regular course of business. The term includes construction, repair,
and maintenance of private roads and lanes exclusively used for access to
commercial timber sites. Activities at a harvest site to cut down commercial
timber, debark, delimb, chip, slash, and to prepare and load harvested
timber qualify as the production of timber but are not manufacturing
operations as described in subsection (f) of this section. The use of a
timber trailer to haul the harvested logs or chips from the harvest site for
delivery to a saw mill also qualifies as the production of timber.
Transportation of timber products from a location other than a commercial
timber harvest site does not qualify.
(6) Timber machine--A self-propelled motor vehicle specially
adapted to perform a specialized function for use primarily in timber
operations. Timber machine does not include any self-propelled motor vehicle
specifically designed or adapted for the primary purpose of transporting
timber or timber products including a self-propelled motor vehicle designed
to transport cargo and adapted with a cargo loading device. For information
concerning the exemption of a timber machine from motor vehicle sales tax
under Chapter 152 of the Tax Code, see §3.72 of this title (relating to Farm
Machines, Timber Machines and Trailers).
(7) Timber trailer--A trailer or semitrailer designed for and used
primarily in a timber operation. For information concerning the exemption of
a timber trailer from motor vehicle sales tax under Chapter 152 of the Tax
Code, see §3.72 of this title (relating to Farm Machines, Timber Machines
and Trailers).
(b) Qualifying items. Persons may claim a partial refund or credit for
Texas sales or use taxes paid on purchases of the following items:
(1) seedlings of trees commonly grown for commercial timber.
Examples of trees commonly grown for commercial timber include hardwood or
pine trees;
(2) defoliants, desiccants, fertilizers, fungicides, herbicides,
and insecticides that are exclusively used in the production of timber for
sale;
(3) machinery or equipment that is exclusively used in the
production of timber for sale, including accessories, repair or replacement
parts, and lubricants for the machinery or equipment;
(4) tangible personal property sold or used as a component of an
underground irrigation system that is exclusively used in the production of
timber for sale. For example, a contractor who has a lump-sum contract to
install an underground irrigation system as an improvement to realty is the
consumer of the incorporated materials and must pay sales tax on purchases.
As authorized by Tax Code, §151.3162(b)(2), the contractor may request a
partial refund or credit for tax that the contractor paid on the qualifying
components of the irrigation system. For further information on contracts to
improve real property, see §3.291 of this title (relating to Contractors);
and
(5) machinery or equipment, including pollution control equipment,
that the original producer uses to process, pack, or market timber product,
if the machinery or equipment meets the requirements enumerated in
subsection (d)(1) of this section. Examples of eligible machinery and
equipment include stacking sticks used to dry the lumber, forklifts, and
conveyors.
(c) Partial refund or credit for sales or use tax paid on qualifying
items. A person who, during the period beginning October 1, 2001, and ending
December 31, 2007, pays Texas sales or use tax on the purchase, lease, or
rental of a qualifying item as set out in subsection (b) of this section may
either request a partial refund of the tax directly from the comptroller or
take a credit on a sales tax return for a portion of the tax. The amount of
the partial refund or credit is determined by the date that the qualifying
item is purchased, leased, or rented, as provided in paragraphs (1) - (3) of
this subsection. At the time of the purchase, lease, or rental, the
purchaser must pay sales or use tax to the retailer and may not issue an
exemption certificate to the retailer. A purchaser must accrue and pay use
tax to the comptroller on qualifying items purchased out-of-state for use in
Texas (see §3.346, concerning Use Tax). The purchaser may take the partial
credit on the sales and use tax return when the purchaser reports and pays
the tax to the comptroller. The amount of credit will be determined by the
date on which the purchaser brings the qualifying items into this state.
(1) If a qualifying item is purchased, leased, or rented from
October 1, 2001 through December 31, 2003, then the purchaser is entitled to
a refund or credit in an amount equal to 33% of the tax paid on the item.
(2) If a qualifying item is purchased, leased, or rented from
January 1, 2004 through December 31, 2005, then the purchaser is entitled to
a refund or credit in an amount equal to 50% of the tax paid on the item.
(3) If a qualifying item is purchased, leased or rented from
January 1, 2006 through December 31, 2007, then the purchaser is entitled to
a refund or credit in an amount equal to 75% of the tax paid on the item.
(4) A purchaser may seek a refund or take a credit for tax paid on
exempt timber items within the following limitations:
(A) A purchaser who elects to take a credit must claim the
credit on a sales or use tax return for a report period that ends not later
than the first anniversary of the date that the timber item was purchased,
leased, or rented. For example, a quarterly filer who purchases and pays tax
on a qualifying item on October 2, 2001, may take the 33% credit on any
quarterly return up to and including the return for the quarter that ends
September 30, 2002.
(B) A purchaser who elects to claim a refund directly from the
comptroller must submit a written claim not later than December 31 of the
calendar year immediately following the year in which the tax was paid. For
example, a purchaser who purchases a timber item and pays tax on October 2,
2001, must submit a refund claim for 33% of tax paid by December 31, 2002.
(C) A purchaser who fails to take a credit on a return before
the expiration of the limitation period provided in subparagraph (A) of this
paragraph may still request a refund directly from the comptroller within
the limitation period provided in subparagraph (B) of this paragraph.
(5) Interest. Sales or use taxes paid on timber items that are
purchased, leased, or rented from October 1, 2001 through December 31, 2007,
are not taxes paid in error, and no interest under Tax Code, §111.064, is
due on partial refunds or credits taken on timber items.
(6) Taxable services. Sales or use taxes paid on maintenance,
repair, or remodeling performed on qualifying machinery or equipment from
October 1, 2001 through December 31, 2007, are not eligible for the partial
refund or credit. A purchaser may claim a partial refund or take a credit
for tax paid on separately stated charges for parts, accessories, and
lubricants for qualifying machinery or equipment.
(7) Rentals and Leases. The amount of partial refund or credit
will be determined by the date on which the lessee takes possession of the
items. The lessee may not claim a refund or take credit until tax has been
paid. The limitations in which the refund or credit must be claimed or
taken, as provided in paragraph (4) of this subsection, are based on the
date the lessee paid tax.
(d) Original producer.
(1) The original producer may qualify for the partial refund or
credit only if:
(A) the processing, packing, or marketing occurs at or from a
location operated by the original producer;
(B) at least 50% of the value of the timber products processed,
packed, or marketed at or from the location during the most recent calendar
year is attributable to products produced by the original producer and not
purchased or acquired from others; and
(C) the original producer does not for consideration process,
pack, or market timber products that belong to others, unless the value of
the product that belongs to another person is 5.0% or less of the total
value of the timber products processed, packed, or marketed by the original
producer.
(2) Two or more corporations that operate timber activities on the
same or adjacent tracts of land and that are entirely owned by the same
individual or a combination of the individual, the individual's spouse, and
the individual's children may qualify as an original producer for the
purposes of this paragraph.
(e) Exemption for timber items. After December 31, 2007, the purchase,
lease, or rental of timber items will be exempt from sales or use tax, and a
purchaser may issue a retailer a properly completed exemption certificate in
lieu of paying tax on qualifying items that are purchased, leased, or rented
after December 31, 2007. After December 31, 2007, taxable services performed
on qualifying items will be exempt under Tax Code, §151.3111.
(f) Exemption for off-road, heavy-duty diesel equipment. A person who
uses off-road heavy-duty diesel equipment in timber operations may claim an
exemption from the Texas Emissions Reduction Plan Surcharge imposed by Tax
Code §151.0515 provided the equipment is exclusively used in the production
of timber for sale.
(g) Manufacturing. A person who processes or fabricates tangible
personal property to be sold is a manufacturer and may be entitled to
manufacturing exemptions provided by Tax Code, §151.318. See §3.300 of this
title (relating to Manufacturing; Custom Manufacturing; Fabricating;
Processing) for information on tax exemptions for equipment and supplies
used in manufacturing. For information regarding wrapping and packaging
supplies purchased by manufacturers, see §3.314 of this title (relating to
Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, Export
Packers, and Stevedoring Materials and Suppliers).
(h) Gas and electricity exemption. Effective October 1, 2001, natural
gas and electricity used in timber operations are exempt from sales and use
taxes. See §3.295 of this title (relating to Natural Gas and Electricity)
for further information regarding the exemption of natural gas and
electricity.
(i) Buildings. Buildings, structural components of buildings, and/or the
materials used to build, construct, or fabricate buildings are not timber
items and are taxable.
(1) Buildings include any structures or edifices enclosing a space
within their walls, and usually are covered by a roof, the purpose of which
may be to provide storage, shelter, or housing, or to provide work, office,
or sales space. Examples of buildings include residential quarters, offices,
storage facilities, and warehouses.
(2) A building or structure that is essentially an item of
equipment or machinery necessary for timber production may be considered
timber equipment if it is specifically designed for such use and cannot be
economically used for any other purpose. For example, a commercial
greenhouse is timber equipment if it is used to grow seedlings of trees
commonly grown for commercial timber.
| 3) Pollution control equipment and machinery or equipment used in
processing, packing, or marketing by an original producer, may qualify
even if the machinery and equipment are affixed to real property. For a
timber producer to qualify for sales tax refunds or credits on
qualifying items that are installed under a contract to improve real
property, the timber producer must enter into a separated contract.
Additionally, the contract must separately state the charges for the
qualifying items from the charges for other tangible personal property.
See §3.291 of this title (relating to Contractors) for information
regarding new construction contracts. See §3.357 of this title (relating
to Nonresidential Real Property Repair, Remodeling, and Restoration;
Real Property Maintenance) for information regarding nonresidential real
property repair, remodeling, or restoration.
(j) Repeal of previous exemption. Effective October 1, 2001, the
exemption in Tax Code, §151.3161, that took effect on October 1, 1995,
is repealed. That provision allowed a tax exemption for the first
$50,000 of the purchase price of each complete unit of machinery or
equipment used exclusively in a commercial timber operation to prepare
the site, plant, cultivate, or to harvest timber in the regular course
of business.
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| Source Note: The provisions of this §3.367 adopted to be
effective December 31, 2002, 27 TexReg 12367; amended to be effective
April 13, 2005, 30 TexReg 2085 |
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