This publication is written for cooperatives, elevators, agricultural-chemical dealers, and fertilizer dealers, with the intent of clarifying misunderstandings related to sales and use tax which have been found through the audit procedures of the Iowa Department of Revenue.
Farm machinery and equipment are not exempt unless used directly and primarily in the production of agricultural products.
"Production of agricultural products" begins with:
- Cultivation of land previously cleared for planting crops; or
- The purchase or breeding of livestock or domesticated fowl.
"Production of agricultural products" ceases when a product has been transported to the point where it will be sold by the farmer or processed.
All vehicles subject to registration are taxable without exception.
All equipment attached to a vehicle subject to registration is taxable without exception.
Replacement parts for exempt machinery and equipment are usually exempt.
Labor to repair exempt machinery and equipment is always taxable. If parts are not separately itemized from labor, the entire charge is subject to tax.
Grain testing and grain storage are taxable.
Manufacturing machinery and equipment may be exempt if used directly in a manufacturing process.
Pest eradication is taxable.
Computers are taxable unless they are used in processing or storage of data by an insurance company, financial institution or commercial enterprise. Farmers cannot purchase computers tax exempt, but an agribusiness may be eligible for exemption.
Taxable vs. Exempt Examples
If a nurse tank is attached to a vehicle subject to registration, the nurse tank is taxable.
A nurse tank (for example, an anhydrous ammonia tank) drawn by a self-propelled implement of husbandry is exempt if used in agricultural production.
A grain-vacuum-conveyer used at an elevator is taxable.
The same grain-vacuum-conveyer used primarily and directly on a farm in agricultural production is exempt.
A farmer uses a tractor to till fields and harvest crops. The farmer will buy the tractor exempt.
The same tractor will be taxable if purchased by an elevator to primarily haul grain from an unloading dock to a silo.
A co-op uses a skidloader 60 percent of the time to clean the feedlot of its livestock operation. The remaining 40 percent is used to handle fertilizer and do utility work on the co-op premises. The skidloader is exempt because it is primarily (60 percent) used in agricultural production.
A co-op uses a skidloader 100 percent of the time at its fertilizer blending facility. The skidloader may be exempt if used directly in a manufacturing process; otherwise, it is taxable.
updated 11/26/07