(1)
Introduction. Timber harvest operations generally consist of a
variety of activities. Depending on the nature of the activity, different tax
types and tax rates may apply, such as the business and occupation (B&O)
tax, public utility tax (PUT), retail sales tax, use tax, real estate excise
tax (REET), and timber harvest excise tax (timber excise tax). See chapters
82.04, 82.08, 82.12, 82.16, 82.45, and 84.33 RCW.
(a)
Scope of rule. This rule
explains the application of the B&O tax, PUT, retail sales, and use taxes
to persons performing activities associated with timber harvest operations,
including timber harvesters, manufacturers of timber or wood products,
extractors for hire, processors for hire, sellers of real property, and
consumers of tangible personal property typically used in timber harvest
operations. In addition, this rule explains how the PUT deduction provided by
RCW
82.16.050 for the transportation of
commodities to an export facility applies to the transportation of logs and
provides details on how to apply the B&O tax exemption for small timber
harvesters.
(b)
Other rules
that may be relevant.
(i) Persons
engaged in timber harvest operations should refer to the following rules for
additional information:
(B) WAC
458-20-136 Manufacturing,
processing for hire, fabricating;
(C) WAC
458-20-13601 Manufacturers and
processors for hire-Sales and use tax exemption for machinery and
equipment.
(ii) Persons
engaged in timber harvesting activities may be subject to the timber excise tax
or REET. This rule does not cover either of those taxes in detail. For more
information on timber excise tax and REET, readers should refer to:
(A) Chapter
458-40 WAC Taxation of forest
land and timber; and
(B) Chapter
458-61A WAC Real estate excise tax.
(iii) Persons cultivating short-rotation
hardwoods are considered farmers. "Short-rotation hardwoods" are hardwood
trees, such as hybrid cottonwoods, cultivated by agricultural methods in
growing cycles shorter than 15 years.
RCW
84.33.035. For tax-reporting information for
farmers and persons selling property to, or performing horticultural service
for, farmers, readers should refer to:
(A)
WAC
458-20-209 Farming for hire and
horticultural services performed for farmers; and
(B) WAC
458-20-210 Sales of tangible
personal property for farming-Sales of agricultural products by
farmers.
(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.
(2)
Timber harvesters. Timber
harvesters may engage in a variety of business activities, each subject to
different tax reporting and collection obligations, including B&O tax under
the extracting, manufacturing, wholesaling, or retailing classifications;
retail sales tax; and use tax. Timber harvesters are eligible for preferential
B&O tax rates on certain qualifying business activities until July 1, 2045.
RCW
82.04.260(12).
(a)
Definition of "harvester."
With respect to timber, the term "harvester" means, 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, or takes timber for sale
or for commercial or industrial use.
RCW
84.33.035.
(i) When a government entity, i.e., the
United States or any instrumentality thereof; the state, including its
departments and institutions and political subdivisions; or any municipal
corporation, fells, cuts, or takes timber for sale or for commercial or
industrial use, the first person other than that government entity who acquires
title to or possessory interest in the timber is considered the
harvester.
(ii) The term
"harvester" does not include persons performing, under contract, the necessary
labor or mechanical services for a harvester.
(iii) For purposes of B&O tax, a timber
"harvester" is considered an "extractor," as that term is defined in
RCW
82.04.100. In general, an extractor is
subject to extracting B&O tax upon the value of the extracted products.
RCW
82.04.230 and WAC
458-20-135. A timber harvester
may also be a "manufacturer" as defined in
RCW
82.04.110 if the harvester subsequently
performs a manufacturing activity as defined in
RCW
82.04.120 (1)(c) involving
the extracted trees. The type of excise tax under which a timber harvester must
report and pay is dependent on the business activities the timber harvester
conducts. See (b) through (g) of this subsection for additional
information.
(b)
Timber purchasers - Special reporting requirements. A purchaser of
privately owned timber in excess of 200,000 board feet in a voluntary sale made
in the ordinary course of business must report the particulars of the purchase
to the department of revenue (department) on or before the last day of the
month following the purchase of the timber.
RCW
84.33.088.
(i) 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.
(ii) The report must
be filed on or before the last day of the month following the timber purchase
date. A penalty of $250 may be imposed against a purchaser for each failure to
file this report. These filing requirements are scheduled to expire September
30, 2025. RCW 84.33.088.
(c)
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 generally
is the gross proceeds of sales, whether such sales are at wholesale or at
retail. See
RCW
82.04.230 and WAC
458-20-112.
(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.
(d)
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.
(i) For timber harvest operations, the
manufacturing portion of the operation begins after the standing timber has
been extracted (felled, cut (severed from land), or taken) if the severed trees
are subsequently measured, delimbed, and bucked at the manufacturing (harvest)
site. The manufacturing site includes the entire contiguous area that is being
actively logged (known as a "cutting area" or "harvest unit"). For timber
harvest operations, manufacturing activities include bucking (cutting into
length), delimbing, and measuring of felled, cut (severed from the land), or
taken trees.
(ii) 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, depending on the extent of the additional manufacturing activity
conducted subsequent to the manufacturing conducted at the harvest site. See
WAC
458-20-112.
(A) 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
out-of-state;
(B) If logs are
hauled to a separate manufacturing 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
manufacturing facility to the place of delivery to the customer out-of-state;
and
(C) 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 place of delivery to the customer out-of-state. 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
broader manufacturing process (e.g., cutting the logs into lumber), the entire
process, including the debarking, is a manufacturing activity. In this 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
manufacturing facility to the place of delivery to the customer
out-of-state.
(iii) Until July 1, 2045, persons who
manufacture timber into timber products or wood products; timber products into
other timber products or wood products; or mass timber products defined in
RCW
19.27.570(1), are eligible
to report their gross proceeds of sales under a preferential manufacturing of
timber or wood products B&O tax classification.
RCW
82.04.260 (12)(b). Taxpayers
claiming this preferential B&O tax rate in the current year are required to
complete an Annual Tax Performance Report by May 31st of the following year.
Small harvesters, as defined in
RCW
84.33.035, are not required to complete an
Annual Tax Performance Report with the department.
(e)
Selling. Sales of felled
timber and timber products are subject to B&O tax under either the
wholesaling or retailing classification, as the case may be, unless exempt by
law. The measure of tax is the gross proceeds of sales without any deduction
for transportation costs.
(i) When
determining the gross proceeds of sales, the timber harvester may not deduct
amounts paid to others.
Example 1. Measure of B&O tax for timber
harvester.
Facts: UVW Company (UVW), a timber harvester and a
timber manufacturer, enters into a contract with QRS Company (QRS), in which
QRS agrees to perform the necessary labor and mechanical services for
extracting the timber, and for manufacturing (measuring, delimbing, and bucking
of) the felled timber. UVW receives 60 percent of the gross proceeds from sales
of the logs, and QRS receives 40 percent. A third-party buyer located in
Washington purchases the logs from UVW for $500,000. The buyer pays $300,000 to
UVW for the log sales and $200,000 to QRS for performing the harvesting
services.
Result: UVW is required to report the entire
$500,000 in sales proceeds for B&O tax purposes, regardless of the fact
that QRS received $200,000 of the sales proceeds directly from the buyer. In
accordance with
RCW
82.04.070, there is no deduction for the cost
of doing business; therefore, UVW may not deduct the amount UVW paid to QRS for
performing harvesting services. As a harvester and manufacturer, UVW must
report $500,000 under extracting B&O tax, manufacturing B&O tax, and
retailing or wholesaling B&O tax, depending on whether the third-party
buyer is buying the logs for resale. UVW is eligible for a multiple activities
tax credit (MATC) because UVW is selling the logs it extracted and manufactured
in Washington to a Washington customer. See (g) of this subsection for more
information on the MATC.
(ii) Retail sales tax must be collected and
remitted on all sales to consumers, unless a statutory exemption applies. For
wholesale sales, sellers must obtain and retain copies of their customers'
reseller permits to document the wholesale nature of the transaction or
otherwise comply with
RCW
82.04.470. For information on reseller
permits see WAC
458-20-102 and
458-20-10201.
(iii) Until July 1, 2045, persons who make
wholesale sales of eligible products may report their gross proceeds of sales
under the preferential wholesaling of timber or wood products B&O tax
classification.
RCW
82.04.260 (12)(c). Taxpayers
who claim this preference in the current calendar year must complete an Annual
Tax Performance Report by May 31st of the following calendar year. The
following are eligible products:
(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; and
(D) Mass timber products, as defined in
RCW
19.27.570(1), manufactured
by the seller.
(iv)
Small harvesters, as defined in
RCW
84.33.035, are not required to complete an
Annual Tax Performance Report with the department.
(f)
Engaging in multiple
activities. Persons who extract, manufacture, or both extract and
manufacture the timber products they sell are engaged in multiple activities.
Timber harvesters who are engaged in multiple activities are required to report
their gross proceeds of sales under each applicable production B&O tax
classification (extracting or manufacturing) and, under the appropriate selling
B&O tax classification (wholesaling or retailing).
(g)
Multiple activities tax credit
(MATC). The MATC will apply in cases where a person sells products to
Washington customers that they have also extracted and/or manufactured in
Washington. For a detailed explanation of the MATC reporting requirements see
WAC
458-20-19301.
Example 2. Computing the MATC.
Facts: ZYX Tree Company (ZYX) is in the business
of manufacturing and selling wood siding products used in building
construction. All of ZYX's products are manufactured by ZYX using timber that
ZYX harvested. For the month of July 2023, ZYX had $100,000 in gross income
from its sales of specialty wood siding products. All of the sales were made at
wholesale and occurred in Washington.
Result: ZYX must report $100,000 in gross revenue
under each of the following B&O tax classifications: Extracting timber,
manufacturing of timber or wood products, and wholesaling of timber or wood
products. Additionally, ZYX is eligible to claim the MATC. Because the
preferential B&O tax rates are the same for all three of the
classifications reported by ZYX, the MATC will fully offset both the extracting
timber and manufacturing timber or wood products B&O tax liabilities. ZYX's
tax liability after applying the MATC is $290.40 ($100,000 multiplied by the
wholesaling of timber or wood products B&O tax rate of 0.2904 percent under
RCW
82.04.260 (12)(c)). Note: An
additional B&O tax surcharge imposed on those persons who are subject to
any of the taxes imposed under
RCW
82.04.260(12) may apply. See
RCW
82.04.261 for more information.
(3)
Extractors
for hire. Persons performing extracting activities (labor or mechanical
services) for timber harvesters as independent contractors for hire must report
gross income from these activities under the extracting for hire B&O tax
classification.
RCW
82.04.280. Persons performing extracting for
hire services for consumers must collect and remit retail sales tax on those
services unless otherwise exempt by law.
RCW
82.04.050(2).
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.
Extracting activities commonly performed by extractors for hire
include, but are not limited to the following:
(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.
Example 3. Extracting timber for hire.
Facts: Timber Harvester, a harvester and
manufacturer, pays Tree Severing Corporation (TSC) $100,000 to fell trees owned
by Timber Harvester.
Result: TSC is performing an extracting activity
for hire. The $100,000 TSC receives is subject to B&O tax under the
preferential extracting for hire timber classification. TSC must timely file an
Annual Tax Performance Report as required under
RCW
82.04.260(12). This
transaction is not subject to retail sales tax because Timber Harvester is not
the consumer of the extracted timber.
(4)
Processors for hire. Persons
that perform labor and mechanical services as independent contractors for
timber harvesters upon property belonging to others, so that as a result a new,
different, or useful article of tangible personal property is produced for sale
or commercial or industrial use during the manufacturing portion of a timber
harvest operation are subject to B&O tax under the processing for hire
classification, measured by the gross income from those services. A processor
for hire is any person who would be a manufacturer if that person were
performing the labor and mechanical services upon his or her own materials.
RCW
82.04.280 and WAC
458-20-136. Persons performing
processing for hire services for consumers must collect and remit retail sales
tax on the charges for those services unless otherwise exempt by law.
RCW
82.04.050(2).
(a) For timber harvest operations, the
manufacturing portion of the operation begins after the standing timber has
been felled, cut (severed from the land), or taken if the felled trees are
subsequently delimbed, measured, and bucked at the manufacturing (harvest)
site. The subsequent activities of cutting, delimbing, and measuring of the
felled, cut (severed from the land), or taken timber by third parties are
considered processing for hire activities when performed at the site of the
harvest.
(b) Until July 1, 2045,
persons who process for hire (i) timber into timber products or wood products;
(ii) timber products into other timber products or wood products; or (iii) mass
timber products defined in
RCW
19.27.570(1), are eligible
to report their gross proceeds under the preferential processing for hire
timber products B&O tax classification.
RCW
82.04.260 (12)(b). Taxpayers
claiming this B&O tax preference in the current year are required to
complete an Annual Tax Performance Report by May 31st of the following year.
Example 4. Processing timber for hire.
Facts: TTT Company (TTT), a harvester and a
manufacturer, owns a parcel of land comprised of standing timber. TTT fells the
timber on its own behalf. Subsequently, TTT pays Tree Services, Inc. (TSI)
$300,000 to delimb, measure, and buck the severed trees at TTT's harvest
site.
Result: TSI is a processor for hire. The $300,000
TSI received is subject to B&O tax under the preferential processing for
hire timber products classification. TSI must timely file an Annual Tax
Performance Report as required under
RCW
82.04.260(12). This
transaction is not subject to retail sales tax because TTT is not the consumer
of the harvested timber, assuming TTT will resell the logs it extracted and
manufactured.
Example 5. Tax treatment of services related to the
manufacturing portion of a timber harvest operation.
Facts: With the same facts from Example 4, TTT
pays Chopper Services Inc. (CS) $200,000 to transport severed timber by
helicopter from the location within the harvest site where the timber was
felled to a staging location where the severed timber can be delimbed,
measured, and bucked (manufactured into logs) by TSI, prior to being loaded
into trucks by TTT and transported to a mill for further processing.
Result: CS's provision of helicopter
transportation services for transporting severed timber to a staging area
within the manufacturing (harvest) site where the severed timber will be
processed (measured, delimbed, and bucked) into logs are part of the
manufacturing operation (which began after the timber was felled), and are
themselves manufacturing activities. See
RCW
82.08.02565 (2)(c)(ii). The
$200,000 CS received from TTT is subject to B&O tax under the processing
for hire timber products classification. CS must timely file an Annual Tax
Performance Report as required under
RCW
82.04.260(12).
(5)
Log hauling
activities. Persons performing services for timber harvesters are often
required to haul logs by motor vehicle from the harvest site to separate
locations, over public roads. The income attributable to this hauling activity
is subject to PUT.
(a) Effective August 1,
2015,
RCW
82.16.020 provides a reduced PUT rate for
most log transportation businesses. A "log transportation business" means a
business engaged in 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. WAC
458-20-180 explains the
distinction between motor and urban transportation. If the hauling is
exclusively performed over private roads, the gross income from the
transportation activity is subject to B&O tax under the service and other
activities classification, not a PUT classification.
Example 6. Tax consequences of hauling logs (private
roads, public roads, or both).
Facts: Bob's Logging Company (Bob's Logging) pays
HHH Log Hauling Company (HHH) $4,000 to haul logs over private roads from Bob's
harvest site to a transfer site located 10 miles away, where Bob's Logging will
unload, sort, and reload the logs for further distribution. Separately, Bob's
Logging pays JJJ Log Hauling Ltd (JJJ) $6,000 to haul logs from the transfer
site to a mill located 30 miles away. JJJ will transport the logs over both
private and public roads. The harvest site, transfer site, and mill site are
all located in unincorporated parts of Mason County.
Result: HHH is subject to B&O tax under the
service and other activities classification because the haul of the logs
performed by HHH is exclusively on private roads. HHH must report $4,000 in
gross income under the service and other activities B&O tax
classification.
JJJ is subject to PUT under the motor transportation
classification because the haul occurs on both private and public roads. JJJ
must report $6,000 in gross income under the motor transportation PUT
classification.
(b)
Jointly provided hauling services. In cases where log hauling
services are jointly provided by two or more motor carriers, the motor carrier
that contracts with the purchaser of the hauling services may be eligible to
claim a PUT deduction for amounts paid to third-party motor carriers that
jointly furnish some portion (or all) of the haul. See WAC
458-20-179 and
RCW
82.16.050 for more information on the PUT
deduction for services furnished jointly.
Example 7. Hauling services jointly provided.
Facts: Assume the facts from Example 6, except
that JJJ contracts with Bob's Logging to perform all necessary hauling services
from the harvest site to the transfer site, then from the transfer site to the
mill. The portion of the haul from the harvest site to the transfer site will
be performed over private and public roads. JJJ receives $10,000 from Bob's
Logging in exchange for the contracted services. After entering into the
contract with Bob's Logging, JJJ enters into a contract with HHH, in which HHH
will perform the first portion of the haul from the harvest site to the
transfer site. HHH receives $4,000 from JJJ in exchange for its portion of the
jointly provided services.
Result: JJJ must report $10,000 in gross income
under the log hauling over public highways PUT classification. Additionally,
JJJ may take a $4,000 deduction for "Amounts Paid to Another for Services
Jointly Provided" from the amount reported.
HHH must report $4,000 in gross income under the log hauling
over public highways PUT classification. HHH is not eligible for a
deduction.
Example 8. Hauling services jointly
provided.
Facts: Assume the facts from Example 6, except
that JJJ contracts with Bob's Logging to perform all necessary hauling services
from the harvest site to the transfer site, then from the transfer site to the
mill. The portion of the haul from the harvest site to the transfer site will
be performed entirely over private roads. JJJ receives $10,000 from Bob's
Logging in exchange for the contracted services. After entering into the
contract with Bob's Logging, JJJ enters into a contract with HHH, in which HHH
will perform the first portion of the haul from the harvest site to the
transfer site. HHH receives $4,000 from JJJ in exchange for its portion of the
jointly provided services.
Result: JJJ must report $10,000 in gross income
under the log hauling over public highways PUT classification. JJJ may not
claim a deduction for "Amount Paid to Another for Services Jointly Provided,"
as HHH's hauling services are not performed over a public road and are
therefore not subject to PUT.
HHH must report $4,000 in gross income under the service and
other activities B&O tax classification. HHH is not subject to PUT, as the
log hauling services were provided entirely over private roads.
(c)
Hauling logs using own
equipment. In cases where a person hauls timber or wood products using
their own equipment and has established hauling rates that they pay to third
parties for comparable hauls, such rates may be used to establish the measure
of tax for the person's 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 or log hauling over public highways PUT
classification.
(d)
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 or take timber
may be subject to various taxes including B&O tax, sales tax, use tax,
timber excise tax, and REET. 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.
(a) In general, when a timber sale
arrangement meets the definition of "selling standing timber" as defined in
RCW
82.04.260 (12)(d), the gross
income is subject to B&O tax under chapter 82.04 RCW. Until July 1, 2045,
persons engaging in "selling standing timber" are eligible to report gross
receipts from sales of standing timber under the preferential B&O tax rate
of 0.2904 percent in
RCW
82.04.260 (12)(d). Persons
claiming the preferential B&O tax rate in the current year must file a
complete Annual Tax Performance Report with the department under
RCW
82.32.534 by May 31st of the following
year.
(b)
RCW
82.45.195 provides a REET exemption for a
sale of standing timber if the gross income from such sale is taxable under
RCW
82.04.260 (12)(d); also see
WAC
458-61A-113. However, when a sale
of standing timber does not meet the definition of "selling standing timber" in
RCW
82.04.260 (12)(d) or when a
sale of standing timber is a sale, conveyance, or transfer of the ownership of
or title to real property as defined in
RCW
82.45.010 and WAC
458-61A-113, REET is due. "Real
property" or "real estate" means any interest, estate, or beneficial interest
in land or anything affixed to land, including an ownership interest or
beneficial interest in any entity that owns land, or anything affixed to land,
including standing timber or crops. WAC
458-61A-102(18).
For more information on sales that are subject to RE-ET, see chapters 82.45 RCW
and
458-61A WAC.
(c) The following
examples briefly identify two common types of timber sale arrangements. The
examples are intended to provide general guidance only. The tax treatment of a
particular timber sale arrangement depends on the facts and circumstances in
each case. These examples presume that the trees being harvested are not
Christmas trees, and that no participant is a federal, state, or local
government entity. The examples do not detail the timber excise tax
consequences.
Example 9. Sale of standing timber (stumpage
sales).
Facts: ABC Company (ABC) owns a large tract of
standing timber. ABC sells the right to cut the standing timber to XYZ
Partnership (XYZ) for $100,000 on March 1, 2021. The sale agreement does not
require XYZ to harvest (sever) the standing timber within 30 months from the
date of the original contract. XYZ receives title to the timber from ABC prior
to harvesting it. When the timber is ready for harvest on May 1, 2024, XYZ
hires DEF Company (DEF) (third-party timber harvest contractor) to sever the
timber on its behalf. XYZ pays DEF $50,000. After the timber is extracted, XYZ
sells the harvested timber to UVW Company (an unrelated third-party Washington
manufacturer) at wholesale for $250,000. UVW Company will measure, delimb, and
buck the severed timber, then haul the logs from the harvest site to its own
manufacturing facility, using its own trucks.
Result: ABC is not subject to B&O tax, PUT, or
retail sales or use tax. ABC is liable for REET on the sale of standing timber
to XYZ, because the transaction is a sale of real property. See
RCW
82.45.010(1),
82.45.060, WAC
458-61A-102, and
458-61A-113. ABC is not liable
for B&O tax, in this example, because the sale between ABC and XYZ does not
meet the definition of "selling standing timber" in
RCW
82.04.260 (12)(d). However,
if the sale arrangement between ABC and XYZ were to require that XYZ sever or
cut the timber within 30 months from the date of the original sale contract,
ABC would then be subject to B&O tax on its proceeds from "selling standing
timber" as defined in
RCW
82.04.260(12), and the
transaction would be exempt from REET in accordance with
RCW
82.45.195.
XYZ (as the owner of the standing timber) must report $250,000
in gross income under the following B&O tax classifications: Extracting
timber and wholesaling of timber or wood products. XYZ is eligible to claim the
MATC equal to its extracting timber B&O tax liability. XYZ must timely file
an Annual Tax Performance Report as required under
RCW
82.04.260(12). XYZ is also
subject to timber excise tax. See chapters 84.33 RCW and 458-40 WAC.
DEF must report $50,000 in gross income under the extracting
for hire timber B&O tax classification and is not eligible for a credit or
deduction. DEF must timely file an Annual Tax Performance Report as required
under RCW
82.04.260(12).
Example 10. Sale of harvested timber (logs).
Facts: Assume the facts from Example 9, except
that ABC hires DEF to harvest the timber on ABC's behalf, rather than selling
the standing timber to XYZ. ABC agrees to pay DEF $50,000 in exchange for DEF's
harvesting and manufacturing (measuring, delimbing, and bucking of felled
trees) services. After the timber has been severed, measured, delimbed, and
bucked into logs by DEF, ABC sells the logs to GHI Lodge, Inc. (GHI) for
$250,000. GHI is purchasing the logs to construct a new lodge (for GHI's own
use) in unincorporated Skamania County (which is also the location of the
harvest site).
Result: ABC (as the owner of the timber) must
report $250,000 in gross income under the following B&O tax
classifications: Extracting timber, manufacturing of timber products, and
retailing. ABC is eligible to claim the MATC equal to its extracting timber
B&O tax and manufacturing of timber products B&O tax liabilities. ABC
must timely file an Annual Tax Performance Report as required under
RCW
82.04.260(12). ABC is
required to collect retail sales tax at the current combined state and local
rate for unincorporated Skamania County. ABC is also subject to timber excise
tax. See chapters 84.33 RCW and 458-40 WAC.
DEF must report $50,000 in gross income under the extracting
for hire timber and processing for hire timber products B&O tax
classifications. DEF must timely file an Annual Tax Performance Report as
required under
RCW
82.04.260(12). DEF is not
eligible for the MATC.
(7)
Equipment and supplies used in
timber harvest operations. Retail sales tax applies to all retail sales
of tangible personal property, including 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 retail
sales tax, unless purchased for resale. If a seller fails to collect the retail
sales tax, the buyer is required to remit what is commonly referred to as
"deferred retail sales tax" directly to the department.
If a person acquires tangible personal property in a
transaction that is not subject to retail sales tax, the person is subject to
use tax based on the place of first use of the tangible personal property in
Washington. In cases where a person has already paid a retail sales or use tax
on the same tangible personal property to another state or foreign country (or
political subdivision of either), that person may claim a credit for those
taxes against their Washington use tax liability.
(a)
Exemption available for certain
manufacturing machinery and equipment.
RCW
82.08.02565 and
82.12.02565 provide retail sales
and use tax exemptions for certain machinery and equipment (M&E) 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.
Example 11. Retail sales tax exemption for M&E
(qualifying and nonqualifying M&E).
Facts: GHI LLC (GHI) is a timber harvester and a
manufacturer, engaged in felling, delimbing, bucking, measuring, cutting,
yarding, and loading logs at a logging operation site. GHI specializes in
harvesting timber in remote locations with steep and challenging terrain. In
performing its business activities, GHI uses a feller buncher to sever (cut)
the standing timber. GHI also uses chainsaws to fell snags. After the trees are
severed, GHI uses a yarder to create a cable yarding system to yard (transport
or drag) the severed trees through the harvest unit to a staging area where
they will be processed into logs and loaded onto trucks for transportation to
an off-site mill. At the staging area, GHI uses a log processor to delimb,
measure, and buck the trees, and a log loader to sort and stack the logs by
species and length. The yarder, log processor, and the log loader are
exclusively used by GHI as described in this example.
Result: For purposes of the retail sales and use
tax exemptions in
RCW
82.08.02565 and
82.12.02565, GHI may be eligible
to claim an exemption for the yarder, log processor, and the log loader as (a)
GHI is a manufacturer; (b) the manufacturing operation process has begun; (c)
the three pieces of equipment are used directly in the manufacturing operation;
(d) the three pieces of equipment are used a majority of the time in a
qualifying manner; and (e) all other requirements under WAC
458-20-13601 are met (including
the one year useful life requirement). In general, yarding (the process of
transporting or dragging felled trees or logs to a landing area) as a
standalone activity is not a manufacturing activity. Thus, whether yarding is a
part of a manufacturing operation depends on whether such activity takes place
at a manufacturing site. In this example, yarding occurs at the manufacturing
(harvest) site.
GHI is not eligible to claim an exemption for the feller
buncher or chainsaws as the majority use of both types of equipment are for
extracting activities (cutting or severing trees from the land). Had the
majority of use of the chainsaws and the feller buncher been for delimbing,
measuring, and bucking the felled trees, both pieces of equipment may have been
eligible for the M&E exemption if all the other requirements for the
M&E exemption in WAC
458-20-13601 are
satisfied.
Example 12. Retail sales tax exemption for M&E
(majority use test).
Facts: Assume the facts from Example 11. In
addition, GHI uses a bulldozer for a variety of purposes in its operations. The
bulldozer is used exclusively to (a) support GHI's feller buncher in performing
extracting activities (cutting or severing of timber); (b) support GHI's yarder
in performing manufacturing activities upon the timber that has already been
severed (yarding or transporting the severed trees to the staging area where
the severed trees will be processed into logs and loaded onto trucks and
transported to an off-site mill); and (c) clear debris and generally assist in
the restoration of timber harvest sites. GHI does not separately state charges
associated with its use of the bulldozer in its contracts with customers. GHI
does maintain detailed time records that document the number of hours the
bulldozer is used in the performance of each of the three activities. In its
first year of use, the bulldozer was used to support the feller buncher for 200
hours, support the yarder for 400 hours, and clear debris and generally assist
in harvest site restoration for 400 hours.
Result: While the use of the bulldozer to support
the yarder for manufacturing activities is generally a qualifying use for
purposes of the M&E exemption in
RCW
82.08.02565 and
82.12.02565, the bulldozer is not
eligible for the exemption because the majority of its use is for a
nonqualifying purpose (supporting the feller buncher for extracting activities
and clearing debris for harvest site restoration). In this case, the proper
measure for determining majority use is time. A majority of the bulldozer's
use, measured in time, was for nonmanufacturing activities (60 percent, or 600
of 1,000 hours used).
(b)
Property manufactured for commercial use. A person who
manufactures timber or wood products for commercial or industrial use is
subject to B&O tax under the manufacturing of timber or wood products
classification and use tax. Both taxes are imposed based on the value of the
tangible personal 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 a person is also the harvester of the
timber, the activity is subject to B&O tax under the extracting timber
classification. The MATC will also apply, so long as both the extracting and
manufacturing activities occur in Washington.
Example 13. Lumber manufactured for commercial
use.
Facts: ABC Company (ABC) harvests timber,
manufactures the timber into lumber, and then uses the lumber to construct an
office building. The harvest site and manufacturing site are both located in
unincorporated Clark County. The office building site is in Camas.
Result: ABC's use of the lumber to construct its
office building is a commercial or industrial use. ABC is subject to use tax on
the value of the lumber incorporated into the office building. Because ABC's
first taxable use of the lumber occurred in Camas (the building construction
site location), the combined state and local use tax is due based on the
location code and rate assigned to the Camas address. ABC is also subject to
B&O tax under the extracting timber and manufacturing of timber or wood
products classifications and may claim the MATC.
(8)
Seeds and seedlings. Persons
who cultivate trees by agricultural methods (or tree cultivators) often
purchase or collect tree seeds that are raised into tree seedlings. The
activity of raising a seed into a seedling may be performed by the tree
cultivator, or by third-party growers. In the case of third-party growers,
typically the seed is provided by the tree cultivator and tree seedlings are
received back after a specified growing period.
(a)
Responsibility to remit retail
sales or use tax. The purchase of seed or seedlings by a tree cultivator
is subject to retail sales tax. If a seller fails to collect retail sales tax,
the buyer must remit deferred retail sales tax (or use tax) unless otherwise
exempt by law. The use of seed collected by a tree cultivator is also subject
to use tax.
(i) In the case of seed provided
by a tree cultivator to a third-party grower in Washington, the tree cultivator
incurs any use tax liability on the value of the seed.
(ii) In the case of seedlings brought into
and used in Washington by a tree cultivator, the seedlings are subject to use
tax, unless Washington retail sales or use tax was previously paid on the
seedlings.
(b)
Limited sales and use tax exemptions for conifer seeds.
(i)
Exemption requirements.
Retail sales and use tax do not apply to the sale of conifer seed that is
immediately placed into freezer storage operated by the seller and is:
(A) Used for growing timber outside
Washington or
(B) sold to an Indian
tribe or tribal member and is to be used for growing timber in the tribe's or
tribal member's Indian country. For the purposes of this rule, "Indian country"
is defined as set forth in 18 U.S.C. Sec.
1151. See
RCW
82.24.010.
The buyer must provide the seller with an exemption
certificate in a form and manner prescribed by the department at the time of
purchase. The seller must retain a copy of the buyer's exemption certificate.
RCW
82.32.070 requires taxpayers to keep and
preserve suitable records as may be necessary to determine the amount of any
tax collected by the department for a period of five years.
(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 retail 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 retail
sales tax on the purchase of conifer seed and subsequently determines that the
sale did not qualify for the retail sales tax exemption must remit to the
department the amount of retail sales tax that would have been paid at the time
of purchase. It is important to note that the retail 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 combined excise tax return. The
deduction is allowed only if the buyer keeps and preserves records identifying
the seller, purchase date, purchase amount, and retail sales tax paid.
RCW
82.32.070 requires suitable records must be
kept and preserved for a period of five years. See WAC
458-20-102 for more information
on the tax paid at source deduction.
(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 tribal member and the
seedlings will be used for growing timber in the tribe's or tribal member's
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.
(9)
Activities or income incidental to
timber harvest operations. This subsection addresses the tax
consequences of various business activities that are incidental to timber
harvest operations.
(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 B&O tax under the extracting classification. Sales of
these products are subject to B&O tax under the wholesaling or retailing
classification, as the case may be. Persons who extract natural products in
Washington and subsequently sell those products to customers that receive the
products in Washington are eligible for the MATC. Sales of natural products to
consumers that are sourced to Washington are subject to retail sales tax 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 B&O tax under the service and other activities classification.
Gross income from access fees for activities such as hunting, taking firewood,
bough cutting, mushroom picking, or grazing is also subject to B&O tax
under the service and other activities classification. Charges that allow a
person to take an identified quantity of tangible personal property from
privately owned real property are considered sales of that property, and the
gross income received from these charges is subject to B&O tax under the
retailing or wholesaling classification, as the case may be. These charges are
also subject to retail sales tax when made to a consumer and the sale is
sourced to Washington, unless a specific exemption applies.
(c)
Planting, thinning, and
spraying. Sales of the following services are subject to B&O tax
under the service and other activities classification: 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 generally subject to
either the wholesaling B&O tax, or the retailing B&O tax and retail
sales tax, as the case may be. These sales are often made in the nature of
charges that allow the buyer to select and take an identified quantity of the
property (e.g., six cords of firewood or two Christmas trees). Sales of
commercially traded firewood or naturally grown trees (including Christmas
trees) are also subject to timber excise tax; see WAC
458-40-610 and
458-40-660. For activities
related to plantation (cultivated) Christmas trees, see subsection (10) of this
rule and WAC
458-20-210.
(e)
Unloading logs from logging
trucks. The taxability of gross income received by persons operating
equipment to unload logs from logging trucks onto rail cars at transfer points
depends on the nature of the customer's activities.
(i) In cases where the customer will direct
the operator of the equipment as to where and how to move the logs, the
activity is considered a "rental of equipment with an operator," the charges
for which are subject to retailing B&O tax and retail sales tax. See
RCW
82.04.050(9) and WAC
458-20-211.
(ii) In cases where the equipment operator is
responsible for loading and unloading logs at their own discretion and to
contract specification, the activity is considered an "other support service,"
and the charges for which are subject to B&O tax under the service and
other activities classification.
(iii) In cases where the equipment operator
is responsible for loading and unloading logs at their own discretion and to
contract specification, and where the activities are performed at an export
facility as part of a waterborne export activity, the activity is considered
"stevedoring," the charges for which are subject to B&O tax under the
stevedoring classification. 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 from log patrols is subject to PUT under the other public service
business classification. Commonly, log transporters use "boomsticks" (i.e.,
floating logs chained together in a rough hexagonal shape, which are designed
to prevent log bundles or loose logs from escaping the log boom during towing)
to assist in the transportation of logs over water.
(i) In cases where boomsticks are used in the
transportation of logs, any separate or itemized charges for the use of
boomsticks are included in the taxable measure subject to the other public
service business PUT classification.
(ii) In cases where logs will be towed to a
location specified by the customer for storage, separately stated or itemized
charges for the use of boomsticks, while the logs are stored, are rentals of
tangible personal property and are subject to B&O tax under the retailing
classification and retail sales tax.
(g)
Export sorting yard
operations. Export sorting yard operations generally consist of a number
of distinct business activities including, but not limited to, weighing,
tagging, banding, appraising, and sorting of logs. Other incidental activities
include debarking, removing imperfections (such as crooks, knots, splits, and
seams), and trimming of log ends to remove defects. Gross income received by
persons performing the types of export sorting yard activities described in
this subsection is subject to B&O tax under the service and other
activities classification.
(10)
Harvesting Christmas trees.
As described below, persons growing, producing, or harvesting Christmas trees
are either farmers or extractors, depending on the facts and circumstances in
each case.
(a)
Plantation Christmas tree
operations (farming 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. See
RCW
82.04.213 and WAC
458-20-210 for more information
on farmers. Plantation Christmas trees are Christmas trees that are exempt from
the timber excise tax under
RCW
84.33.170, which 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. See
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. See
RCW
82.04.330. Gross income from retail sales of
plantation Christmas trees by farmers is subject to B&O tax under the
retailing classification and retail sales tax.
(ii) Farmers growing or producing plantation
Christmas trees are not subject to retail sales or use tax on their purchase of
seed, seedlings, fertilizer, and spray materials. See
RCW
82.04.050 and WAC
458-20-210.
(iii) Persons performing cultivation or
harvesting services for farmers are generally taxable on gross income from
these services under the service and other activities B&O tax
classification. See WAC
458-20-209 for information on
farming for hire and horticultural services performed for farmers.
(b)
Other Christmas tree
operations (extracting 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 and should refer to the provisions in this rule for timber
harvesters.
(11)
Timber harvest operations in conjunction with other land clearing or
construction activities. Persons sometimes engage in timber harvest
operations in conjunction with land clearing or construction activities, such
as clearing or improving land for residential or commercial building
development, golf courses, parks, or other improvements to real property. Each
activity has its own tax consequences and may be subject to tax under a variety
of taxes.
(a) Income derived from a timber
harvest operation is subject to the provisions in this rule for timber
harvesters.
(b) Income derived from
clearing or improving of land for construction of residential, commercial, or
other improvements is subject to wholesaling B&O tax, retailing B&O tax
and retail sales tax, or public road construction B&O 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.
Example 14. Combined contracts (land clearing and timber
harvesting).
Facts: LCG Land Clearing and Grading Company (LCG)
is hired by FFF Corporation (FFF), a commercial property development company,
to clear and grade an unimproved parcel of land owned by FFF. Once cleared and
graded, FFF intends to construct a commercial warehouse on the property, which
it will lease to third-party tenants. The property contains a significant
amount of standing timber, which LCG is responsible for extracting and selling
the extracted timber on FFF's behalf under the terms of the contract. The
contract between FFF and LCG includes a $25,000 charge for the timber
extraction services and a $75,000 charge for the land clearing and grading
services. LCG hires a subcontractor, HHH Logging Company (HHH) to extract the
timber from the property. LCG pays HHH $20,000 for its services. FFF ultimately
sells the extracted timber to JJ Mill Company (JJ) for $30,000 at
wholesale.
Result: LCG is an extractor for hire with respect
to the $25,000 in proceeds from FFF for the harvest of the standing timber. The
gross income is subject to B&O tax under the extracting for hire timber
classification. LCG is also subject to B&O tax under the retailing
classification and must collect retail sales tax from FFF on the $75,000 in
proceeds for the clearing and grading of the real property.
HHH is an extractor for hire with respect to the $20,000 in
proceeds from LCG for the harvest of the standing timber. The gross income is
subject to B&O tax under the extracting for hire timber
classification.
FFF is an extractor with respect to the sale of the harvested
timber to JJ. FFF must report $30,000 in gross income under the extracting
timber and wholesaling of timber or wood products B&O tax classifications.
FFF may also be eligible for the MATC, if the sale to JJ occurred in
Washington.
(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 B&O
tax under the extracting or extracting for hire classification. This income is
not subject to 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 retail sales or use
tax.
(a)
Logging road materials provided
without charge.
(i) Landowners or
timber harvesters may provide materials (e.g., crushed rock) to persons
constructing or maintaining logging roads without charge. In such cases, tax is
due only once on the value of the materials.
(ii) The person constructing or maintaining
the roads is responsible for remitting use tax on the value of the materials,
unless the 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 or timber harvester certifying that the landowner or timber harvester
has remitted (for past periods) 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 the agreement is effective. The statement must identify the landowner or
timber harvester's tax registration number and must be signed by an owner,
member, or authorized agent of the timber harvester.
(b)
Extracted or
manufactured logging road materials. Persons constructing or maintaining
logging roads are subject to B&O tax and use tax 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. See WAC
458-20-112 for additional
information regarding how to determine the "value of products."
(i) If a person directly, or by contracting
with others, extracts and crushes, washes, screens, or blends materials to be
incorporated into the logging road, B&O tax under the extracting
classification is due on the raw value of the extracted products. B&O tax
under the manufacturing classification and use tax are also due, measured by
the value of the 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 a processing point to a road site. The 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 a logging road site, but
not further processed, extracting B&O tax and use tax are due based 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 a 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 the extracting or use of these materials.
(13)
Deduction for hauling
logs to export yards.
RCW
82.16.050 provides a PUT 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 placed 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 both of the following
criteria are met:
(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 placed 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 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 storagities
at, the same located on tidewater or navigaaries 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. For Examples 16
through 18, presume that the logs are shipped directly to another country from
the export facility.
Example 16. Qualifying PUT deduction for transportation
to an export facility.
Facts: MMM Hauling Company (MMM) is hired to haul
logs from a harvest site to an export facility over public roads. The logs will
immediately be loaded upon a ship for export at the export facility. As part of
its services, MMM will remove bark from 50 percent of the logs; no other
processing activities will occur. MMM receives $10,000 in exchange for its
services.
Result: MMM must report $10,000 in gross income
under the log hauling over public highways PUT classification. MMM may also
claim a $10,000 deduction from the measure of its PUT, as the logs will be
shipped directly to another country from the export facility, provided the
appropriate exemption certificate is obtained.
NOTE: 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.
Additionally, this means that MMM is not engaged in a
processing for hire activity.
Example 17. Activities that do not qualify for PUT
deduction for transportation to an export facility.
Facts: Assume the facts from Example 16, except
that MMM hauls the logs to an export sorting area, approximately one mile from
the export facility. At this location further sorting takes place and 80
percent of the logs are hauled approximately one mile over public roads for
export to another country. The other 20 percent of the logs are sold and
delivered to local sawmills.
Result: MMM must report $10,000 in gross income
under the log hauling over public highways PUT classification. MMM may not
claim a deduction from the measure of its PUT, as the logs will not be shipped
directly to another country from the export facility. It is immaterial that MMM
may be paid an "export" rate for its services.
Charges for the haul of the logs from the export sorting area
to the export facility may be deductible if the transportation route 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.
Example 18. Qualifying PUT deduction for transportation
to an export facility.
Facts: Assume the facts from Example 16, except
that once the logs are delivered by MMM to an export facility, the logs will
still need to be transported approximately half of a mile to reach the ship for
loading (all within the export facility).
Result: MMM must report $10,000 in gross income
under the log hauling over public highways PUT classification. MMM may also
claim a $10,000 deduction from the measure of its PUT, as the logs will be
shipped directly to another country from the export facility, 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 $100,000 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)
Definition of small
harvester. "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 2,000,000 board feet in a calendar
year. When a government entity (i.e., the United States or any instrumentality
thereof, the state, including its departments and institutions and political
subdivisions, or any municipal corporation therein) 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 government
entity 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.
(b)
Registration - Tax return. A
person whose only business activity is as a small harvester of timber is
required to register with the department for B&O tax purposes, unless
otherwise specified in WAC
458-20-101
(2)(a) or under chapter 82.32 RCW. A small
harvester must also register with the forest tax program in the department's
audit division for payment of the timber excise tax. See chapters 84.33 RCW and
458-40 WAC for more information regarding the timber excise tax.
(c)
Examples. In each of the
following examples, the harvester must register with the department's forest
tax program for the payment of timber excise tax, and must report under the
appropriate tax classifications as described above in this rule.
Example 19. Unregistered small harvester.
Facts: A small harvester, not currently registered
with the department for B&O tax purposes, harvests timber in June 2023 and
again in August 2023, receiving $10,000 for the June 2023 sale and $200,000 for
the August 2023 sale of the harvested logs. Each sale is made to a lumber mill
who presents the small harvester with a reseller permit.
Result: The small harvester must register with the
department in August when the receipts from the timber harvesting business
exceed the gross revenue threshold in WAC
458-20-101, assuming the other
registration conditions in that rule have not otherwise been met prior to
August.
An excise tax return must be filed according to the tax
reporting frequency assigned by the department (e.g., monthly, quarterly, or
annually). The small harvester must report $210,000 in gross revenue under
extracting timber, manufacturing of timber or wood products, and wholesaling of
timber or wood products B&O tax classifications. The small harvester
taxpayer is eligible to report a $100,000 "small harvester" B&O tax
deduction from the measure of all three B&O tax classifications. In
addition, the taxpayer is eligible to take the MATC for both the extracting
timber and manufacturing of timber or wood products. As a result, the
wholesaling of timber or wood products B&O tax is due.
Example 20. Registered small harvester.
Facts: RRR Construction Company (RRR) is primarily
in the business of commercial building construction and is currently registered
with the department. In July 2023, RRR generates $250,000 in gross wholesaling
income from its construction activities. RRR is also a small harvester as
defined in
RCW
84.33.035. RRR's timber harvesting operation
includes extracting standing timber from its own land and processing the
extracted timber into logs before wholesaling the logs to third-party mills. In
July 2023, RRR receives $60,000 from the sale of logs from its timber
harvesting operation to a local mill for resale. Year to date, RRR has not had
any other sales of harvested timber or wood products.
Results: RRR is required to report $250,000 in
gross revenue under the wholesaling B&O tax classification for its
construction activities.
RRR (as a smaller harvester and a manufacturer) is required to
report $60,000 in proceeds from the sale of logs under three B&O tax
classifications: Extracting timber, manufacturing of timber or wood products,
and wholesaling of timber or wood products. RRR is eligible for a $60,000
"small harvester" B&O tax deduction from all three B&O tax
classifications. RRR is eligible for additional "small harvester" B&O tax
deductions up to $40,000 ($100,000-$60,000) for the remainder of the reporting
calendar year.
Example 21. Unregistered small harvester (deduction
carryover).
Facts: Don Janson, a small harvester not otherwise
registered with the department for B&O tax purposes contracts with NNN
Logging Company (NNN) to extract standing timber from real property owned by
Mr. Janson and process the extracted timber into logs. Mr. Janson retains
ownership of the timber until it is sold. Under the agreement, Mr. Janson
receives 60 percent and the logging company receives 40 percent of the log sale
proceeds.
In September 2021, the harvested timber is sold at wholesale
for $250,000, $150,000 (60 percent of $250,000) of which is received by Mr.
Janson.
Result: Mr. Janson (as a smaller harvester and a
manufacturer) is required to register with the department for B&O tax
purposes and must report the entire $250,000 in sales proceeds under the
following B&O tax classifications: Extracting timber, manufacturing of
timber or wood products, and wholesaling of timber or wood products. Mr. Janson
is not allowed to deduct the $100,000 (40 percent of $250,000) Mr. Janson paid
to NNN. However, Mr. Janson is eligible to take a $100,000 "small harvester"
B&O tax deduction from the measure of the B&O tax classifications
reported, reducing the B&O taxable income to $150,000. Assuming the sale
occurred in Washington, Mr. Janson is also eligible to claim the MATC for both
the extracting timber and manufacturing of timber or wood products. Mr. Janson
is subject to B&O tax under the wholesaling of timber or wood products
classification.
NNN (as a logging contractor for Mr. Janson) must report the
$100,000 gross income received from its extracting standing timber and
processing for hire activities under the following B&O tax classifications:
Extracting for hire timber and processing for hire timber products. NNN may
also be subject to other taxes, depending on the activities NNN
conducted.
