Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 210 - RETAIL SALES AND USE TAX › Section 23VAC10-210-960 - Mining and mineral processing

Current through Register Vol. 40, No. 24, July 15, 2024
A. Mining and mineral processing generally.
				Section 58.1-609.3(2)(v) of the Code of Virginia exempts tangible personal
				property used directly in mining and processing. Used directly refers to those
				activities which are an integral part of the production of a product including
				all steps of an integrated process, but not including ancillary activities such
				as general maintenance and administration and includes reclamation activities
				required by state or federal law when performed by the mining company on land
				which it has mined previously.
Direct use in mining begins with the drilling of the shaft
				  in deep mining or the removal of the overburden in strip mining, auger mining
				  or quarrying and ends with the conveyance of the mined product to storage or
				  stockpile at the mine site. Direct use in mining processing begins with the
				  handling of the raw material at the processing plant site and ends with the
				  conveyance of the processed product to storage at a stockpile at the plant
				  site. The fact that particular property may be considered essential to the
				  conduct of the business of mining or mineral processing because its use is
				  required either by law or practical necessity does not, of itself, mean that
				  the property is used directly in mining or mineral processing
				  operations.
1. Mining defined.
				"Mining" means both deep and strip mining, quarrying, gas and oil drilling and
				other industrial removal of natural resources, minerals, or mineral aggregates
				from the earth. Mining does not include the extraction from tailing piles which
				because of technological advances in processing have become economic mineral
				deposits. Mining does not include water well drilling.
2. Mineral processing defined. "Processing,"
				as the term is used in this section, is the preparation, refining or
				concentrating of the ore, resource or mineral subsequent to extraction and
				prior to distribution for sale and includes those activities commonly occurring
				at a coal preparation plant as well as the cleaning, grading, washing,
				cracking, crushing and similar processing of other ores, minerals, or natural
				resources. Processing also includes those activities commonly associated with
				the refining of crude oil.
Mining and processing are separate and distinct activities.
				  The mine site and the processing site constitute separate plant sites unless
				  both are owned and operated by the same person and connected by a private
				  transportation system, such as a conveyor or private roadway. If the mine and
				  the processing plant are owned by different entities, private transportation
				  systems, including hauling vehicles, between the two sites will be exempt only
				  if owned by the processing plant operator. In this instance the processing
				  plant site will be deemed to begin at the point the mineral product leaves the
				  mine site via a private transportation system and such transportation will be
				  deemed to be handling of the raw material at the processing plant site. If the
				  transportation system is owned by the mine operator, transportation including
				  hauling vehicles to the processing plant site will constitute distribution
				  subsequent to the end of the mining function.
Where public roadways or public transportation systems are
				  used between the mine site and the processing plant site, each will be deemed
				  to be a separate plant site, and tangible personal property used to transport
				  the product between the two separate plane sites will be taxable. For an
				  illustration of the taxability of transportation systems, see Figure 1.
For Mining and mineral processing, see Virginia
				  Administrative Code print product.
Transportation of a waste product from the processing plant
				  to a waste dump at the plant site is a part of production line quality control
				  and is included in mineral processing. Systems used to transport the waste
				  product from the production line at the processing plant to the dump will not
				  be subject to tax provided both of the following conditions are met:
(1) the transportation to the dump is
				continuous and without interruption, i.e., the waste is not stored or
				stockpiled prior to conveyance; and,
(2) the dump is located at the processing
				plant site. In order for a dump to be deemed located at the processing plant
				site, such dump must be connected to the processing plant via private
				transportation system entirely owned or leased by the processor. If public
				roadways or transportation systems are used between the processing plant and
				the dump, each will be deemed separate sites and no exemption will be available
				for property used to convey the waste between the two sites.
In all instances, the construction of private transportation
				  systems, such as hauling roads and railroad tracks, which upon their completion
				  constitute a fixture upon or improvement to realty is a taxable activity. All
				  materials incorporated into such systems, as well as machinery and tools used
				  in their construction, are subject to the tax.
3. Functions characteristic of the mining and
				mineral processing industry. The following functions are generally
				characteristic of those performed in the mining and mineral processing
				industry: exploration; site preparation; mineral extraction; product inspection
				and testing; repair and maintenance; refining; distribution; reclamation; and
				administration. Each of these activities is discussed below.
a. Exploration. Exploration is the search for
				economic deposits of minerals, ore, gas, oil or coal by geological surveys,
				geophysical processing, boreholes and trial pits, or surface or underground
				headings, drifts or tunnels, and includes the mapping and design of the mine
				site. All tangible personal property used in the exploration function is
				subject to the tax, including drilling equipment used to test the earth and
				surveying equipment.
b. Site
				preparation. Site preparation is the preparation of the mine site or well
				location to facilitate the extraction of the mineral or other resource and
				includes the removal of the overburden, the clearing of the land at the mine
				site, construction of access roads, and the construction of tunnels, shafts,
				and passageways in underground mines.
Removal of the overburden in surface mining operations,
				  removal of the overburden at the opening of a deep mine tunnel or shaft and
				  grading the area of the well location are part of the mining process, and
				  tangible personal property used in these removal processes is not subject to
				  the tax. Construction of tunnels, shafts, and passageways in underground mines
				  is an exempt activity.
Other land clearing activities at the mine site, well
				  location, or the mineral processing plant site, such as for the construction of
				  a processing plant or office buildings, and the construction and maintenance of
				  roads or other private transportation systems, are not a part of mining and
				  property used in such activities is subject to the tax.
c. Extraction. Extraction is the actual
				removal of the mineral, ore or natural resource from the earth. Extraction
				includes severing of the mineral, hauling the mine product from the mine face
				to a stockpile at the mine site for storage, and reconstruction of tunnels,
				shafts, and passageways in deep mines, as well as the drilling, completion, and
				equipping of an oil or gas well. Tangible personal property used directly in
				extraction is not subject to the tax.
d. Product inspection and testing. Product
				inspection and testing is the testing and analysis of the product performed
				during mine production or mineral processing at the mine or plant site.
				Inspection and testing to determine the quality of the product and to determine
				if the product meets industry standard is deemed to be a part of mining and
				mineral processing and is an exempt activity.
Research for the purpose of improving administrative
				  efficiency or any other testing not related to product quality control are not
				  part of mining or mineral processing and are taxable activities. Examples of
				  taxable research are efficiency surveys, management studies, consumer surveys,
				  economic surveys, advertising, or promotions.
e. Repair and maintenance. Repair and
				maintenance is the repair of machinery and tools and equipment, routine
				maintenance in order to insure that machinery and equipment are in good working
				order, and the repair and maintenance of offices, outbuildings, and other real
				or tangible personal property connected with the operation of the mine.
Repair and maintenance is not mining. Therefore, repair and
				  maintenance facilities, either within the mine or elsewhere, including tools,
				  supplies, machinery and equipment used in performing repair and maintenance
				  work are subject to the tax.
Replacement and repair parts which are used to replace worn
				  or damaged parts on exempt machinery and equipment, as well as operating
				  supplies which are actively and continually consumed in the operation of exempt
				  machinery and equipment are deemed used directly in mining and/or mineral
				  processing and are not subject to the tax.
Machinery and tools used by the person engaged in mining or
				  mineral processing to fabricate exempt machinery or equipment are exempt from
				  the tax only if the preponderance of their use is in an exempt manner. For
				  information on the taxability on items used in both a taxable and exempt
				  manner, see subsection C of this section.
f. Mineral processing. Mineral processing as
				defined in subdivision A 2 of this section includes the active cleaning,
				grading, washing, cracking, crushing, refining and similar processing of the
				mineral or resource. Tangible personal property used directly in these
				processes is not subject to the tax.
Ancillary activities such as plant construction and
				  administration are not a part of mineral processing and are taxable activities.
				  Construction materials such as concrete, structural steel, and roofing which
				  become permanently incorporated into the processing plant, and machinery and
				  tools used in the construction of the plant are subject to the tax.
Steel or similar supports which are a component part of
				  exempt processing equipment or machinery and which do not become permanently
				  affixed to realty are not subject to tax. The concrete foundations onto which
				  such supports are bolted, floors on which machinery rests, and structures
				  housing equipment and machinery are not used directly in processing and are
				  subject to the tax.
g.
				Distribution. Distribution is the transport or conveyance after the completion
				of mining or processing of the product and is not a part of mining or mineral
				processing. Distribution includes the storage of the product subsequent to its
				extraction (other than for further processing at the mine site) or processing,
				and the actual transport of the product for sale. All tangible personal
				property used to convey, transport, handle or store the product is
				taxable.
h. Reclamation.
				Reclamation is the restoration or conversion of mined land to a stable
				condition and the ongoing restoration or conversion of land currently being
				mined prior to total site reclamation. The process includes recontouring,
				reseeding, and reforesting the land. Reclamation activities required by state
				or federal law are a part of the mining process when performed by a mining
				company on land which it has previously mined. Reclamation activities which are
				not required by federal or state law are not a part of mining and tangible
				personal property used in such activities is subject to the tax.
i. Administration. Administration is the
				managerial, sales and nonoperational aspects of the mining or mineral
				processing operation and includes management, selling and marketing, employee
				comfort and convenience, and recordkeeping. Tangible personal property used in
				administration is subject to the tax.