Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 285 - Taxable and Exempt Sales Determined by Method of Transaction or Usage › Rule 701-285.48 - Sale or Rental of Farm Machinery, Equipment, Replacement Parts, and Repairs Used in Livestock, Dairy, or Plant Production

Current through Register Vol. 47, No. 3, July 24, 2024
Sales or rental of farm machinery and equipment used in
				  livestock or dairy production and replacement parts which occur on or after
				  July 1, 1988, are exempt from sales and use tax. On and after July 1, 1995,
				  machinery, equipment, and replacement parts used in the production of
				  flowering, ornamental, or vegetable plants are exempt from tax. See rule
				  701-18.57 (422,423).
(1)
Definitions and
				characterizations.
For the purposes of this rule, the following
				definitions and characterizations of words apply.
a. "Machinery" means major mechanical
				machines or major components thereof which contribute directly and primarily to
				the livestock or dairy production process. Usually, a machine is a large object
				with moving parts which performs work by the expenditure of energy, either
				mechanical (e.g., gasoline or kerosene) or electrical.
b. "Equipment" is tangible personal property
				(other than a machine) directly and primarily used in livestock or dairy
				production. It may be characterized as property which performs a specialized
				function which, of itself, has no moving parts or if it does possess moving
				parts, its source of power is external to it. The following examples attempt to
				differentiate between machinery and equipment:
EXAMPLE A. An electric pump is used to pump milk into a bulk
				  milk tank. The electric pump is machinery; the bulk milk tank is
				  equipment.
EXAMPLE B. An auger places feed into a cattle feeder. If not
				  "real property" (see 18.48(1)
"c"
) the auger is a piece of
				  machinery; the cattle feeder is a piece of equipment.
c. Property used in livestock or dairy
				production which 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,
Mid-American Growers, Inc. v. Dept. of Revenue,
493 N.E.2d 1097 (Ill.
				App. Ct. 1986). Therefore, tangible personal property which is sold for
				incorporation into the ground or a building in such a manner that it will
				become a part of the ground or the building is taxable. Generally, property
				incorporated into the ground or a building has become a part of the ground or
				the building if removal of the property from the ground or building will
				substantially damage the property, ground, or building or substantially
				diminish the value of the property, ground, or building. Fence posts embedded
				in concrete and electrical wiring, light fixtures, fuse boxes, and switches are
				examples of property sold for incorporation into the ground or a building,
				respectively. The property referred to in 18.48(1)
"c"
(1) can
				be identified by applying the following test: Assume that the property is being
				sold to a contractor rather than a person engaged in livestock or dairy
				production. If sold to a contractor, would the retailer be required to consider
				the property "building material" and charge the contractor sales tax upon the
				purchase of this building material. If this is the case, sale of the property
				is not exempt from Iowa tax law. Iowa department of revenue rule
				701-19.3(422,423) contains a characterization of "building material" and a list
				of specific examples of building material.
(2) "Supplies" are neither machinery nor
				equipment. Tangible personal property is part of farm supplies 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 which is not machinery or equipment. The
				sale of some farm supplies is exempt from tax. See 701-subrule 17.9(3). See
				List B in subrule 18.48(7) for examples of farm supplies which could be
				mistaken for equipment and are not exempt from tax on other grounds.
d. "Hand tools" are tools which
				can be held in the hand or hands and which 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 or some source other than human muscle power are, if
				otherwise qualified, exempt from tax as "farm machinery." See subrule 18.48(7),
				List C, for examples of "hand tools" exempt and not exempt from tax.
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. Subrule 18.48(1), paragraph
"g,"
describes when livestock or dairy production begins and
				ends. If the machinery or equipment is used in livestock or dairy production,
				to be "directly" so used, that use must constitute an integral and essential
				part of production as distinguished from a use in production which is
				incidental, merely convenient to or remote from production. The fact that
				machinery or equipment is essential or necessary to livestock or dairy
				production does not mean that it is also "directly" used in production.
				Machinery or equipment may be necessary to livestock or dairy production but so
				remote from it that it is not directly used in that production.
(1) In determining whether machinery or
				equipment is used directly, consideration should be given to the following
				factors:
1. The physical proximity of the
				machinery or equipment to other machinery or equipment whose direct use is
				unarguable. The closer the machinery or equipment whose direct use is
				questioned is to the machinery or equipment whose direct use is not questioned,
				the more likely it is that the former is directly used in livestock or dairy
				production.
2. The proximity in
				time of the use of machinery or equipment whose direct use is questionable to
				the use of machinery whose direct use is not questioned. The closer in time the
				use, the more likely that the questioned machinery or equipment's 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.
(2) The
				following are examples of machinery and equipment directly used in livestock or
				dairy production:
1. Machinery and equipment
				used to transport or limit the movement of livestock and dairy animals (e.g.,
				electric fence equipment, head gates, and loading chutes).
2. Machinery and equipment used in the
				conception, birth, feeding, and watering of livestock or dairy animals (e.g.,
				artificial insemination equipment, portable farrowing pens, feed carts, and
				automatic watering equipment).
3.
				Machinery and equipment used to maintain healthful or sanitary conditions in
				the immediate area where livestock are kept (e.g., manure gutter cleaners,
				automatic cattle oilers, fans, and heaters if not real property).
4. Machinery or equipment used to test or
				inspect livestock or dairy animals during production.
(3) The following are nonexclusive examples
				of machinery or equipment which would not be directly used in livestock or
				dairy production.
1. Machinery or equipment
				used to assemble, maintain, or repair other machinery or equipment directly
				used in livestock or dairy production (e.g., welders, paint sprayers, and
				lubricators).
2. Machinery used in
				farm management, administration, advertising, or selling (e.g., a recordkeeping
				computer, calculating machine, office safe, telephone, books, and farm
				magazines).
3. Machinery or
				equipment used in the exhibit of livestock or dairy animals (e.g., blankets,
				halters, prods, leads, and harnesses).
4. Machinery or equipment used in safety or
				fire prevention, even though the machinery or equipment is required by
				law.
5. Machinery or equipment for
				employee or personal use. Machinery or equipment used for the personal comfort,
				convenience, or use by a farmer, the farmer's family or employees, or persons
				associated with the farmer are not exempt from tax. Examples of such machinery
				and equipment include the following: beds, mattresses, blankets, tableware,
				stoves, refrigerators, and other equipment used in conjunction with the
				operation of a farm home or of a migrant labor camp, or other facilities for
				farm employees.
6. Machinery and
				equipment used for heating, cooling, ventilation, and illumination of farm
				buildings generally rather than specifically in the immediate area where
				livestock are kept.
7. Vehicles
				subject to registration.
f. "Primarily" used in livestock or dairy
				production. Machinery or equipment is "primarily used in livestock or dairy
				production" if of the total time that unit of machinery or equipment is used,
				more than 50 percent of the time is in livestock or dairy production. If a unit
				of machinery or equipment is used more than 50 percent of the time for
				production and the balance of time for other business purposes, the exemption
				applies. If a unit of equipment is used 50 percent or more of the time for
				business purposes other than livestock or dairy production, the exemption does
				not apply. Any unit of machinery or equipment used more than 50 percent of the
				time directly in livestock or dairy production is subject to the
				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 and dairy
				production ceases when an animal or the product of an animal's body (e.g., wool
				or milk) has been transported to the point where it will be sold by the farmer
				or processed.
h. Farm machinery and
				equipment means machinery and equipment specifically designed for use in
				livestock and dairy production or equipment and machinery not specifically
				designed for this use but which are directly and primarily used in livestock or
				dairy production except for common or ordinary hand tools. See
				18.48(1)
"d"
for a definition of "hand tools."
EXAMPLE. Farmer Jones raises livestock and fans must be used
				  to cool the animals. Farmer Jones buys fans designed for use in a residence
				  which he uses directly and solely to cool the livestock. The exemption
				  applies.
i. "Self-propelled
				implement" has the same meaning as in 701-subrule 17.9(5), paragraph
"c"
where the term is defined to mean an implement which is
				capable of movement from one place to another under its own power. The term
				self-propelled implement includes but is not limited to the following items:
				skidloaders and tractors; and the following machinery if capable of movement
				under its own power: combines, corn pickers, fertilizer spreaders, hay
				conditioners/windrowers, sprayers, and bean buggies.
j. Implements customarily drawn or attached
				to self-propelled implements. The following is a nonexclusive, representative
				list of implements which are customarily drawn or attached to self-propelled
				implements: augers, balers, blowers, combines, conveyers, cultivators, disks,
				drags, dryers (portable), farm wagons, feeder wagons, fertilizer spreaders,
				front- and rear-end loaders, harrows, hay loaders, mowers and rakes, husking
				machines, manure spreaders, planters, plows, posthole diggers, rotary blade
				mowers, rotary hoes, sprayers and tanks, and tillage equipment.
k. The term "grain dryer" includes the heater
				and the blower necessary to force the warmed air into a grain storage bin. It
				does not include equipment used in grain storage or movement such as augers and
				spreaders or any other equipment that is not a grain dryer. Equipment other
				than a grain dryer which is used in grain drying may be exempt or subject to
				refund if the equipment is a self-propelled implement or customarily drawn or
				attached to a self-propelled implement.
l. The term "replacement parts essential to
				any repair or reconstruction necessary to farm machinery or equipment's exempt
				use in the production of agricultural products" does not include attachments
				and accessories not essential to the operation of the machinery or equipment
				itself (except when sold as part of the assembled unit) such as cigarette
				lighters, radios, canopies, air conditioning units, cabs, deluxe seats, and
				tools or utility boxes.