Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 214 - Agricultural Rules › Rule 701-214.17 - Farm Machinery, Equipment, and Replacement Parts Used in Livestock or Dairy Production

Current through Register Vol. 47, No. 3, July 24, 2024
(1) The
				sales price from the sale of farm machinery, equipment, and replacement parts
				used in livestock or dairy production is exempt from sales and use
				tax.
(2) Definitions and special
				provisions. For purposes of this rule, the following definitions and special
				provisions apply.
a.
Machinery.
The term "machinery" means major mechanical
				machines, or major components thereof, that contribute directly and primarily
				to the livestock or dairy production process. Usually, a machine is a large
				object with moving parts that performs work through the expenditure of energy,
				either mechanical (e.g., gasoline or other fuel) or electrical.
b.
Equipment.
The term
				"equipment" means tangible personal property (other than a machine) that is
				directly and primarily used in livestock or dairy production. Equipment may be
				characterized as property that performs a specialized function and that has no
				moving parts, or if the equipment does possess moving parts, its source of
				power is external to it. The following nonexclusive examples differentiate
				between machinery and equipment:
EXAMPLE 1: An auger places feed into a cattle feeder. The
				  auger is a piece of machinery; the cattle feeder is a piece of
				  equipment.
EXAMPLE 2: An electric pump is used to pump milk into a bulk
				  milk tank. The electric pump is a piece of machinery; the bulk milk tank is
				  equipment.
c.
Property used in livestock or dairy production that is neither
				equipment nor machinery.
(1) Real
				property. The ground or the earth is not machinery or equipment. A building is
				not machinery or equipment. Therefore, tangible personal property that is sold
				for incorporation into the ground or a building in such a manner that the
				property will become a part of the ground or the building is taxable except for
				machinery and equipment. Generally, property incorporated into the ground or a
				building has become a part of the ground or the building if its removal would
				substantially damage the property, ground, or building or would substantially
				diminish the value of the property, ground, or building. Fence posts embedded
				in concrete, electrical wiring, light fixtures, fuse boxes, and switches are
				examples of property sold for incorporation into the ground or a building,
				respectively. For the purpose of the following example, assume that property is
				being sold to a contractor rather than a person engaged in livestock or dairy
				production. If the property is sold to a contractor, the retailer would be
				required to consider the property building material and charge the contractor
				sales tax upon the purchase price of the building material. If the property is
				building material, sale of the property is not exempt from Iowa sales tax. Rule
				701-219.3 (423) contains a
				characterization of building material and a list of specific examples of
				building material.
(2) Supplies.
				Supplies are neither machinery nor equipment. Tangible personal property is a
				farm supply if it is used up or destroyed by virtue of its use in livestock or
				dairy production or, because of its nature, can only be used once in livestock
				or dairy production. A light bulb is an example of a farm supply that is not
				machinery or equipment. Examples of farm supplies that could be mistaken for
				equipment and are not exempt from tax on other grounds can be found in subrule
				214.19(4).
d.
Hand tools.
The term "hand tools" means tools that can be held
				in the hand or hands and that are powered by human effort. Hand tools
				specifically designed for use in livestock or dairy production are exempt from
				tax as equipment. Mechanical devices that are held in the hand and driven by
				electricity from some source other than human muscle power are, if they meet
				all other qualifications, exempt from tax as farm machinery.
e.
"Directly used" in livestock or
				dairy production.
To determine if machinery or equipment is "directly
				used" in livestock or dairy production, one must first ensure that the
				machinery or equipment is used during livestock or dairy production and not
				before that process has begun or after it has ended. Paragraph
				214.17(2)
"g"
contains an explanation of when livestock or
				dairy production begins and ends.
(1)
				Definition. If the machinery or equipment is used in livestock or dairy
				production, "directly used" means the use is an integral and essential part of
				production as distinguished from use that is incidental or merely convenient to
				production or use that is remote from production. Machinery or equipment may be
				necessary to livestock or dairy production, but its use is so remote from
				production that it is not directly used in that production.
(2) Determination. In determining whether
				machinery or equipment is directly used, consideration should be given to the
				following factors:
1. The physical proximity
				of the machinery or equipment to other machinery or equipment clearly exempt as
				directly used in livestock or dairy production. The closer the machinery or
				equipment is to exempt machinery or equipment, the more likely it is that the
				machinery or equipment is directly used in livestock or dairy
				production.
2. The chronological
				proximity of the use of machinery or equipment in question to the use of
				machinery clearly exempt as directly used in livestock or dairy production. The
				closer the proximity of the machinery's or equipment's use within the
				production process to the use of exempt machinery or equipment, the more likely
				the use is direct rather than remote.
3. The active causal relationship between the
				use of the machinery or equipment in question and livestock or dairy
				production. The fewer intervening causes between the use of the machinery or
				equipment and the production of the product, the more likely it is that the
				machinery or equipment is directly used in production.
f.
"Primarily used" in
				livestock or dairy production.
Machinery or equipment is "primarily
				used" in livestock or dairy production based on the total time it is used in
				livestock or dairy production in comparison to the time it is used for other
				purposes. Any unit of machinery or equipment directly used in livestock or
				dairy production more than 50 percent of its total use time is eligible for
				exemption.
g.
Beginning and
				end of livestock or dairy production.
Livestock or dairy production
				begins with the purchase or breeding of livestock or dairy animals. Livestock
				or dairy production ceases when an animal or the product of an animal's body
				(e.g., wool) has been transported to the point where it will be sold by the
				farmer or processed.
h.
Machinery and equipment design.
Farm machinery and equipment
				used in livestock or dairy production are eligible for exemption if
				specifically designed for use in livestock or dairy production. Farm machinery
				and equipment that are not specifically designed for use in livestock or dairy
				production, but are directly and primarily used in livestock or dairy
				production, are eligible for exemption with the exception of common or ordinary
				hand tools.
EXAMPLE: Farmer Jones raises livestock and must use fans to
				  cool the animals. Farmer Jones buys electric fans designed for use in a
				  residence, but uses them directly and primarily to cool the livestock. The
				  fans' use would be considered exempt.
i.
Replacement parts.
The
				term "replacement parts" means the same as defined in paragraph
				214.1(2)
"i."