On October 13, 2017, the Pennsylvania Department of Revenue issued Sales and Use Tax Information Notice 2017-01, which is intended to help taxpayers engaged in timbering operations as a business operation and vendors selling property or services to such taxpayers.  Last year the General Assembly, under Act 84 of 2016, amended Article II of the Tax Reform Code of 1971 to exclude from sales and use tax the purchase or use of tangible personal property or taxable services predominately used directly in timbering operations, effective July 1, 2017.  The DOR’s Information Notice is intended to clarify the property or services that are considered to be directly used in timbering operations and therefore excluded from sales and use tax.

The term “timbering” is statutory defined under  72. P.S. § 7201(K)(8)(b), (o)(4)(b)(ii) as including the business enterprise of producing or harvesting trees from forests, woodlots or tree farms for the purpose of the commercial production of wood, paper, or energy products derived from wood by a company primarily engaged in the business of harvesting trees.  The term does not include the harvesting of trees for the purpose of clearing land for access roads, but includes all operations prior to the transport of the harvested product necessary for:

• Removal of timber or forest products from the site;
• In-field processing of trees into logs or chips;
• complying with environmental protection and safety requirements applicable to the harvest of forest products;
• loading of forest products onto highway vehicles for transport to storage or processing facilities; and
• postharvest site reclamation including those activities necessary to improve timber growth or ensure natural or direct reforestation of the site.

The DOR provided a non-exhaustive list of the property and services that do or do not qualify for the timbering exclusion.  Those that do qualify are as follows:

• Machinery and equipment used to harvest logs and trees, or to transport the harvested product to the log landing site, including but not limited to : axes; shovels; chainsaws or manual saws; forwarders; harvester-processors; feller-bunchers; mulchers/masticators; brush cutters; shovel loggers; skidders; brush piling shovels’ brush-rake piling cats; log loader attachments and yarders (truck/trailer-mount, small swing, mobile, tower, etc.); cable yarding carriage; swing machines; loaders; heavy-lift and aerial truck helicopters.
• Lighting equipment and supplies used to light timbering operations.
• Machinery and equipment used to process harvested trees and logs at the roadside log landing site, including but not limited to:  tracked log loaders, sorters, shovels and processers; tree delimbers and log cutters; on-site wheel log loaders; delimber/debarker/chipper machines; grinders to convert waste wood into useable wood biomass.
• Machinery and equipment used to transport production personnel or equipment during the timbering operation, other than motor vehicles required to be registered under the Vehicle Code, including but not limited to utility helicopters or utility trailers.
• Machinery, equipment, and materials used in postharvest site reclamation, including but not limited to: fertilizer hopper tanks or trailers used to haul or transport fertilizer; hydro-seeder trailers; dozers or graders; fill; fertilizer; seedlings; grass seed; shrubs; stone; concrete; soil nutrients.
• Machinery, equipment , and supplies designed and used to control, abate, or prevent air, water, or noise pollution generated in the timbering operation, regardless of whether the pollutants are recycled or used in any manner.
• Property used to test and inspect the timber products during actual timbering operations or before the product is loaded onto highway vehicles for transport away from the timbering site.
• Wrapping equipment and supplies, including internal packing materials and returnable containers, used in packaging which passes to the ultimate consumer.
• Property which is used directly in research activities, provided that the object of the research is the production of a new or improved product or method of producing a product.
• Machinery and equipment used for environmental or safety requirements, other than motor vehicles required to be registered under the Vehicle Code, including but not limited to:  protective devices worn by production personnel in their work such as harnesses, gloves, goggles, etc.; firefighting water tanks; fire dozers; slip-on fire pumpers and forwarders; fire trailers; fire-retardant bombers and lead airplanes.
• Replacement or repair parts (e.g., motors, belts, screws, bolts, cutting edges, air filters or gears)  which are installed and become an integral part of machinery or equipment directly used in timbering operations.
• Operating supplies (e.g. fuel, gasoline, oil, lubricants, paint and compressed air) which are actively and continuously used in the operation of directly used machinery and equipment.
• Maintenance or repair services to machinery or equipment directly used in timbering operations.

Purchases that do not qualify for the timbering exclusion:

• The following services: lobbying services; adjustment, collection, or credit reporting services; secretarial or editing services; disinfecting or pest control services, or building maintenance or cleaning services; employment agency services; help supply services; lawn care services; self storage services.
• Motor vehicles required to be registered under the Vehicle Code, regardless of their purpose.  This includes, but is not limited to:  water tenders; fire trucks and water tankers; fertilizer hopper trucks; trucks or motor vehicles used to transport production personnel; line spool trucks; low boy trucks; pilot cars.
• Replacement or repair parts (e.g., motors, belts, screws, bolts, cutting edges, air filters or gears)  or operating supplies (e.g., fuel, gasoline, oil, lubricants, paint and compressed air)  for vehicles required to be registered under Vehicle Code.
• Materials,  supplies, or equipment used to construct, reconstruct, alter, remodel, service, repair, maintain, or improve real estate or real estate structures, even though they may house or otherwise contain equipment or machinery used directly in timbering operations.  This includes, but is not limited to:  dozers; excavators; dump trucks; graders; compactors used to compact subgrade and rock surfacing; backhoes and ditch hoes: rock crushers and conveyors; loaders; rock drills; bridge cranes.
• Machinery, equipment, tools or supplies used to support, clean, service, fuel, repair, or perform maintenance upon directly used machinery or equipment, including but limited to: chain, hoists, tire spreaders, welding equipment, drills, sanders, wrenches, paint brushes and sprayers, oilers, absorbent compounds, dusting compounds, air blowers, wipers, trailers, or tankers.
• Property used in timbering recordkeeping and other administrative or managerial work, including but not limited to:  office furniture; supplies and equipment; textbooks and other educational materials; books and records; supplies used to record the quality or quantity of work in production, goods in storage, the flow of work, or the results of inspection; property used to instruct workers in routing work or in other production activities.
• Property used in advertising harvested products for sale, in marketing or transporting the products to a market or to customers, in selling the products, or for the exhibition of harvested products.
• Property used for personal comfort, convenience or use of employees.
• Property including machinery, equipment, fuel, or power used for building ventilation buildings, general illumination, air conditioning and other space cooling, space heating and similar purposes.  However, such property may qualify if it is established that the use of the property bears an active causal relationship to the timbering operation.
• Property used to transport personnel or to collect, convey or transport the property, and storage facilities or devices used to store the property, prior to the actual timbering operation.
• Property used for waste handling and disposal of pollutants other than in the course of timbering operations, unless the property is used for postharvest site reclamation including those activities necessary to improve timber growth or ensure natural or direct reforestation of the site.
• Property which is used after the harvested product is loaded onto highway vehicles for transport away from the harvesting site, including but not limited to log loaders and other machinery or equipment used at timber mills or production facilities, and wood transport machines used to deliver harvested product from the timbering site to other locations such as long and short log trucks or trailers, chip van trucks, log railcars, cargo ships or barges.
• Property which is used for the purpose of clearing land for access roads, including but not limited to:  dozers; excavators; dump trucks; graders; compactors used to compact subgrade and rock surfacing; backhoes and ditch hoes; rock crushers and conveyors; loaders; rock drills; bridge cranes.

The Department also notes that a purchaser of property directly used in timbering operations should complete a Pennsylvania Exemption Certificate (REV-1220) in order to forego paying sales and use tax on the purchase.

Please contact the author of this article or another member of the McNees SALT Group if you have questions regarding what machinery, equipment, supplies or services fall within the “timbering” exclusion under Pennsylvania’s sales and use tax.