Farmers Guide to Iowa Taxes

 

Introduction

This publication is intended as a general guide. For additional details reference Chapter 226: Agricultural Rules.

"Production of Agricultural Products" Begins With:

"Production of Agricultural Products" Ceases When:

"Agricultural production" includes the following:

Examples of activities that are not "agricultural production":

Sales/Use Tax Issues for Farming Operations

Sales by Farming Operations

Usually exempt for resale, processing, or human consumption:

Examples of items that are taxable when sold to the ultimate user:

Purchases by Farming Operations

Purchases by farmers may be exempt from Iowa sales and / or use tax. Just because something is purchased by a farmer, it is NOT automatically tax exempt. Anyone claiming exemption must be able to show they are entitled to it.

See Purchases and Sales: Taxable and Exempt below.

Use Tax

Taxable purchases from suppliers who do not collect Iowa sales tax are subject to Iowa use tax if the purchase is for use in Iowa. Anyone making these kinds of purchases regularly must register for a consumer's use tax permit. A consumer's use tax permit is not needed for occasional purchases of this type, but the use tax must still be paid to Iowa.

See Iowa Consumer's Use Tax.

Purchases and Sales: Taxable and Exempt

Auctions

Exempt if:

*A casual sale is one that does not occur on a regular basis (nonrecurring). The seller does not usually sell goods or taxable services for profit. If the seller does, the sale must be outside the regular course of business to be a casual sale. Two separate selling events outside the regular course of business within a 12-month period are considered nonrecurring.

Taxable if:

The casual sale exemption does not apply if there are three separate selling events within a 12-month period. Tax applies beginning with the third separate selling event.

Bedding

Exempt if used for agricultural livestock or fowl:

Chemicals and Fertilizers

Exempt if for direct use in agricultural production to kill pests, insects, or weeds, or promote the growth of plants:

Computers

Taxable when purchased by a farmer


Draft Horses

Exempt:

Drainage Tile

Exempt:

Sale or installation as part of agricultural production

Taxable:

In all other cases, drainage tile is taxable as a building material.

Machinery used in laying drainage tile is generally taxable.

Food for Animals

Exempt for livestock and domesticated fowl:

Taxable:

Global Positioning Systems (GPS)

Exempt if attached to farm implements


Taxable:

Greenhouses

Exempt for the production of flowering, ornamental, or vegetable plants intended for sale:

Taxable:

Hand Tools

Exempt when specifically designed for use in agricultural, dairy, and livestock production:

Taxable:

Hand tools that can serve a variety of purposes, such as construction tools of all kinds

See Taxable even if used in agricultural production

Livestock and Domesticated Fowl

Exempt - Livestock

“Livestock” is domesticated animals to be raised on a farm for food or clothing. The following are examples of livestock that are exempt from tax:

* “Farm deer” includes fallow deer, red deer, elk, sika, whitetail, and mule deer but not free-ranging whitetail or mule deer. Farm deer does not include unmarked free-ranging elk.

Exempt - Domesticated Fowl

“Domesticated fowl” is fowl raised as a source of food, either meat or eggs. Examples of domesticated fowl are:

Taxable animals

The following are examples of animals that, even if raised on a farm as a source of food or clothing, are taxable:

Machinery and Equipment Purchase or Rental

Exempt when used directly and primarily in agricultural or livestock production:

Exempt when used in agricultural production and attached to or towed by a self-propelled implement of husbandry:

Certain farm machinery and equipment which is not self-propelled or attached to self-propelled equipment are also exempt from tax.

See Exempt for Agricultural Production.

See Exempt for Dairy and Livestock Production.

See Exempt for Flowering, Ornamental, or Vegetable Plant Production.

Medicine sold by a veterinarian or any other person

Exempt:

Taxable:

See Iowa Sales Tax and Veterinary Services.

Packing Materials

Exempt if used in agricultural, livestock, and dairy production:

  • containers
  • labels
  • cartons
  • pallets
  • packing cases
  • wrapping
  • baling wire
  • twine
  • bags
  • bottles
  • shipping cases
  • other similar items

 

Pets and Racing Animals

Taxable:

Exempt if:

Real Property

In general, machinery or equipment is real property if:

Usually taxable:

There are exceptions to this general rule for certain items. For example, agricultural drainage tile is exempt from tax.

Exempt for livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable plants:

Replacement Parts

Exempt when used in the operation of eligible farm machinery or equipment:

Taxable supplies include:

Utilities

Exempt if used for agricultural production:

Taxable:

Energy used for other purposes, such as recreation, hobbies, lighting, or for farm shops

State sales tax does not apply to residential energy use; however, local option tax, if any, does apply.

Exemption certificate for energy used in agricultural production

To claim exemption, complete Iowa form 31-113 (pdf) and give it to your supplier. The energy supplier will require an updated form at least every three years. Documentation of the energy used for agricultural production must be provided to the utility company.

When filling out the exemption certificate for your utility company, you will need to show what percent of your total energy consumption is for agricultural production. Separate meters for production and non-production use are ideal for determining the exempt and nonexempt energy percentages. However, a separate meter for non-production use is not practical for some farmers. If you do not have production and non-production uses metered separately, you need to determine the percentage of total energy used in agricultural production.

Your previous year's monthly utility bills can be used as a guide to help you determine your total annual use. Ordinarily, the 12-month period immediately preceding the date you apply for exemption is used. However, your circumstances can dictate that you use a shorter or longer period than 12 months or that you use a 12-month period other than the immediately preceding one. If for some reason your usage last year was not typical, select a 12-month period that is more representative; be sure to have adequate documentation. Your utility company may be able to assist you.

See these links for additional information:   Worksheet and Example for Determining Electricity used in Processing / Agriculture      Worksheet and Example for Determining Natural Gas used in Processing / Agriculture

Vehicles

Registered vehicles, such as the following, are subject to the 5% one-time registration fee, even if used in agricultural production:

Farm tractors, combines, and others

Exempt if:

Implements customarily drawn by self-propelled implements

Exempt if:

All terrain vehicles (ATVs)

Exempt if:

Care should be taken when claiming exemption from sales / use tax on the purchase of an ATV. The seller and buyer are encouraged to contact the Department for guidance on these transactions.

Taxable if:

ATVs do not qualify for exemption as a "casual sale."

Veterinary Services

Veterinary services are not taxable.

See Iowa Sales Tax and Veterinary Services.

Water

Exempt if:

Taxable for:

When water is used in livestock production and for other purposes but is not separately metered, the first 5,000 gallons of water per month is taxable. The balance is exempt as agricultural production.

Wind Energy Conversion

Exempt:

Exemption Certificates

A seller must obtain a completed exemption certificate (pdf) from the purchaser to verify the purchase qualifies for the exemption.

See Exemption Certificates: How and When to Use Them (pdf).

Services

Services performed on a farm are generally taxable to the same degree that they are taxable to any other type of business.

Taxable:

Exempt:

See Iowa Sales and Use Tax: Taxable Services.

Refunds

If sales or use tax is paid in error, the person who paid the tax should file an IA 843 Claim for Refund (pdf) with the Department to request a sales / use tax refund. Refunds may be requested up to three years from when the tax payment was due or one year from when the tax was paid, whichever time is the later.

Exempt for Agricultural Production

adjuvants
alternators and generators1
augers1
balers
bale transportation equipment
baling wire and binding twine
batteries for exempt machinery
blowers, grain dryer
brush hogs1
combines, cornheads, platforms
conveyors, temporary or portable1
corn pickers
crawlers, tractor
cultipackers
cultivators
discs
draft horses
drags
drainage pipe and tile
dusters1
ensilage cutters
ensilage forks and trucks, a pickup does not qualify
farm wagons and accessories
fertilizer, agricultural
fertilizer spreaders
filters
forage harvesters, boxes
fuel for grain drying or other agricultural production
gaskets
grain augers, portable1
grain drills
grain dryer, heater and blower only
grain planters
harrows
hay conditioners
hay hooks
hay loaders
herbicides
implement customarily drawn or attached to a self-propelled implement
insecticides
irrigation equipment
kill cones

limestone, agricultural
manure spreaders
mowers, hay
oil filters
oil pumps
packing materials
pesticides
pickers
plants (seeds)
planters
plows
piston rings
pruning and picking equipment1
replacement parts
rock pickers
rollers1
rotary blade mowers; not lawn mowers
rotary hoes
seeders
seed cleaners1
seed planters
seeds
self-propelled implements
shellers1
silo blowers, unloaders1
sowers
spark plugs for exempt machinery
sprayers1
spreaders
sprinklers
subsoilers
surfactants
tillers
tires for exempt machinery
tractors, farm
tractor chains
tractor weights
vegetable harvesters
weeders1

1exempt if drawn or attached to a self-propelled farm implement or, if portable, used directly and primarily in agricultural production

 

Exempt for Dairy and Livestock Production

adjuvants
alternators and generators1
artificial insemination equipment
auger systems
automatic feeding systems, portable
batteries for exempt machinery
barn ventilators
bedding materials2
breeding stock, agricultural
bulk feeding tanks, portable
bulk milk coolers and tanks, portable
calf weaners and feeders, portable
cattle feeders, portable
chain and rope hoists, portable1
chick guards
chicken pickers, plucking equipment
clipping machines, portable3
conveyors, temporary or portable1
cow stalls, portable
cow ties, portable
cow watering and feeding bowls, portable
crawlers, tractor
currying and oiling machines, portable
curtains and curtain systems
dehorners
domestic fowl
draft horses
drip systems
electric fence equipment, portable
fans and fan systems
farm wagons and accessories
farrowing houses, crates, stalls, portable
feed
feed bins, portable
feed carts, portable
feed elevators, portable
feed grinders, portable
feed scoops3
feed tanks, portable
feeders, portable
feeder chutes, portable
fence and fencing supplies, temporary or portable
foggers
fuel to heat or cool livestock buildings
gaskets
gates, portable
gestation stalls, portable
grooming equipment, portable3
head gates, portable
heaters, portable
hog feeders, portable
hog ringers3
hoof trimmers, portable3

hypodermic syringes and needles, non-disposable
implements customarily drawn or attached to a self-propelled implement
incubators, portable
inlets and inlet systems
inoculation materials
insecticides
kill cones
livestock feeding, watering and handling equipment, portable
loading chutes, portable
manure brooms, portable3
manure handling equipment, includes front-end and rear-end loaders, portable3
manure scoops, portable1
medications
milk coolers, portable
milking equipment, includes cans, etc.3
milking machines
milk strainers and strainer disks, if not disposable
milk tanks, portable
pesticides
poultry feeders, portable
poultry founts, portable
poultry litters, portable
poultry nests, portable
refrigerators
replacement parts
sawdust2
self-propelled implements
shutters and shutter systems
space heaters, portable
specialized flooring, portable
sprayers1
squeeze chutes, stalls, portable
stanchions, portable
surfactants
tires for exempt machinery
thermometers3
tractors, farm
tractor chains
tractor weights
vacuum coolers
ventilators
water filters, heaters, pumps, softeners, portable
waterers/watering tanks, portable
weaners
wood chips2

1 exempt if drawn or attached to a self-propelled farm implement or, if portable, used directly in dairy or livestock production

2 exempt when used as livestock and poultry bedding

3 designed for farm use

 

Exempt for Flowering, Ornamental, or Vegetable Plant Production

air-conditioning pads
airflow control tubes
atmospheric CO2 control and monitoring equipment*
backup generators
bins holding sterilized soil
control panels for heating and cooling systems*
coolers used to chill plants*
cooling walls* or membranes
equipment used to control water levels for subirrigation
fans used for cooling and ventilating*
floor mesh for controlling weeds
germination chambers
greenhouse boilers*
greenhouse netting or mesh when used for light and heat control

greehouse monorail systems*
greenhouse thermometers
handcarts used to move plants
lighting which provides artificial sunlight
overhead heating, lighting, and watering systems*
overhead tracks for holding potted plants*
plant tables*
plant watering systems*
portable buildings used to grow plants*
seeding and transplanting machines
soil pot and soil flat filling machines
steam generators for soil sterilization*
warning devices which monitor excess heat or cold
watering booms

*Exempt if not real property.

 

Taxable Even if Used in Agricultural Production

additives
air compressors
air conditioners, unless a replacement part for exempt machinery
air tanks
antifreeze
axes
barn cleaner, permanent
baskets
belt dressing
bins, permanent
brooms
buckets
building materials* and supplies
burlap cleaners
cattle feeders, permanent
cement
chain saws
cleaning brushes
cleansing agents and materials
computers, including laptops, for personal use
computer software, canned
concrete
construction tools
conveyors, permanent
cow ties, permanent
ear tags
fence, posts, wire, permanent
field toilets
fire prevention equipment
freon
fuel additives
fuel tanks and pumps
garden hoses and rakes
glass
grain bins and tanks, permanent*
grease
grease guns
hammers
hog rings
hydraulic fluids
hypodermic syringes, disposable
lamps
lanterns
light bulbs

 

lubricants and fluids
lumber*
marking chalk
mops
motor oils
nails
office supplies
oxygen
packing room supplies
paint and paint sprayers
pliers
post hole diggers, hand operated
poultry brooders, permanent
poultry feeders, permanent
poultry nests, permanent
pruning tools
pumps for household or lawn use
radios, unless a replacement part for exempt machinery
refrigerators for home use
repair tools
road maintenance equipment
road scraper
roofing
sanders
scrapers
screwdrivers
shingles
shovels
silos
snow fence unless portable and used directly in dairy and livestock production
space heaters, permanent
specialized flooring, permanent
sprinklers, permanent
stalls, permanent
staples
stanchions, permanent
storage tanks
tarps
tilling machinery and equipment
tractors, garden
welders
wheel barrows
wrenches

*The buyer of building materials is responsible for paying sales tax or use tax on those materials. This includes materials to construct grain bins. The buyer is the person who pays the vendor.

 

Income Tax Withholding on Agricultural Labor

Iowa income tax withholding is applied to the same wages and compensation as federal income tax withholding.

Registering as a Withholding Agent

Employers required to withhold must register with the State of Iowa and the Internal Revenue Service as a withholding agent. There is no fee for registering.

First register with the Internal Revenue Service to obtain a Federal Employer Identification Number (FEIN). You may call 1-800-829-4933 instead of applying online.

Then register online with Iowa or use the Iowa Business Tax Registration form (pdf).

Filing and Paying Withholding Tax

Iowa withholding returns are submitted electronically through the eFile & Pay system. Once you are registered as a withholding agent, the Department will send you a Business eFile Number (BEN). This number is necessary to access the paperless system.

Every withholding agent is required to file a return for each period during the calendar year, even if tax was not withheld.

Penalty and Interest on Delinquent Returns

Returns and deposits must be filed no later than the due date to be timely. After the due date the amount of tax due is subject to penalty and interest.

See Penalty and Interest.

Iowa W-4

Employees must complete the federal and the Iowa W-4.

The federal W-4 (pdf) is available on the IRS Web site at www.irs.gov

The Iowa W-4 is available online (pdf).

Within 15 days, each new hire and rehire is required to complete and sign an Iowa W-4. It must show the number of allowances the employee is claiming. If for any reason the employee does not complete an IA W-4, the employer must withhold at zero allowances.

Some employees are exempt from withholding. See the W-4 instructions.

Employers must keep copies of W-4 forms in their files for at least four years.

Verified Summary of Payments Report

All Iowa withholding agents are required to submit a completed Verified Summary of Payments Report (VSP) by the last day of February for withholding payments made in the prior calendar year. The VSP is submitted online through eFile & Pay or by touch-tone telephone.

W-2

Employers

Employers are not required to send copies of W-2s or 1099s to the state of Iowa with the VSP. Employers are still required to keep copies of the W-2s and 1099s for at least four years from the end of the year for which the forms apply.

W-2s must be given to employees on or before the last day of January following the tax year or within 30 days of the time the last wage payment is received if requested by the employee.

Blank W-2s may be obtained by contacting the IRS at 1-800-829-3676, ordering online from the IRS at www.irs.gov/, or from a commercial printer.

Employees:

If you need a copy of your W-2, first ask your employer. Since employers are not required to send copies of W-2s to the Iowa Department of Revenue, we are not able to furnish them to you. If you are unable to obtain a copy from your employer, here are some other possible options:

See Iowa Withholding Tax Information Booklet.

Iowa Fuel Tax

Tax paid on fuel used in agricultural production is eligible for credit or refund.

Motor Fuel Credits and Refunds

Credit or refund of fuel tax:

or

Dyed Diesel Fuel

Dyed diesel fuel may be purchased free of Iowa fuel tax. Therefore, farmers should purchase dyed diesel fuel for agricultural use whenever possible. Since fuel tax will not be charged at the time of purchase, no refund or credit will be necessary. Dyed diesel cannot be used in registered vehicles.

Fuel used to power implements engaged in agricultural production is exempt from sales/use tax.

Agribusiness Sales/Use Tax Issues

This section is written for cooperatives, elevators, agricultural-chemical dealers, and fertilizer dealers.

Exempt

Taxable

Taxable vs. Exempt Examples

Example 1 - Nurse Tank (for example, an anhydrous ammonia tank)

Taxable if attached to a vehicle subject to registration

Exempt if drawn by a self-propelled implement of husbandry used in agricultural production

Example 2 - Grain Vacuum Conveyor

Taxable if used at an elevator

Exempt if used directly and primarily on a farm in agricultural production

Example 3 - Tractor

Exempt if used to till fields and harvest crops

Taxable if purchased by an elevator to primarily haul grain from an unloading dock to a silo

Example 4 - Skidloader

Exempt if primarily used in agricultural production

A co-op uses a skidloader 60% of the time to clean the feedlot of its livestock operation. The remaining 40% is used to handle fertilizer and do utility work on the co-op premises. The skidloader is exempt because it is primarily (more than 50%) used in agricultural production.

Taxable

A co-op uses a skidloader 100% of the time to load bags of seed, fertilizer, and feed on customer’s trucks.  

 

updated 07/24/13