Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 214 - Agricultural Rules › Rule 701-214.18 - Machinery, Equipment, and Replacement Parts Used in the Production of Flowering, Ornamental, and Vegetable Plants

Current through Register Vol. 47, No. 3, July 24, 2024
(1) The sales price from the sale of
				machinery, equipment, and replacement parts used in the production of
				flowering, ornamental, and vegetable plants is exempt from sales and use tax.
				The production of flowering, ornamental, or vegetable plants by a grower in a
				commercial greenhouse or at another location is considered to be a part of
				agricultural production and exempt from sales tax. The term "flowering,
				ornamental, or vegetable plants" does not include silvicultural products or
				fungi.
(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 flowering, ornamental, or vegetable plant 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 the
				flowering, ornamental, or vegetable plant production process. Equipment may be
				characterized as property that performs a specialized function that, of itself,
				has no moving parts, or if the equipment does possess moving parts, its source
				of power is external to it.
c.
Property used in the flowering, ornamental, or vegetable plant
				production process 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 this example, assume that the property is being sold to a contractor rather
				than a person engaged in the flowering, ornamental, or vegetable plant
				production process. 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 this 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 supply if it is used up or
				destroyed by virtue of its use in the flowering, ornamental, or vegetable plant
				production process or, because of its nature, can only be used once in the
				flowering, ornamental, or vegetable plant production process. A light bulb is
				an example of a supply that is not machinery or equipment. Subrule 214.19(4)
				provides examples of supplies that could be mistaken for equipment and are not
				exempt from tax on other grounds.
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 the
				flowering, ornamental, or vegetable plant production process 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.
e.
"Directly used" in the flowering,
				ornamental, or vegetable plant production process.
To determine if
				machinery or equipment is "directly used" in the flowering, ornamental, or
				vegetable plant production process, one must first ensure that the machinery or
				equipment is used during the flowering, ornamental, or vegetable plant
				production process and not before that process has begun or after it has ended.
				Paragraph 214.18(2)
"g"
contains an explanation as to when the
				flowering, ornamental, or vegetable plant production process begins and ends.
(1) Definition. If the machinery or equipment
				is used in the flowering, ornamental, or vegetable plant production process,
				"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 the flowering, ornamental, or vegetable plant production process, 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 the flowering, ornamental, or
				vegetable plant production process. 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 the flowering, ornamental, or vegetable plant
				production process.
2. The
				chronological proximity of the use of machinery or equipment in question to the
				use of machinery clearly exempt as directly used in the flowering, ornamental,
				or vegetable plant production process. The closer the proximity of the
				machinery's or equipment's use within the production process is 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 the
				flowering, ornamental, or vegetable plant production process. 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 flowering,
				ornamental, or vegetable plant production.
Machinery or equipment is
				"primarily used" in flowering, ornamental, or vegetable plant production based
				upon the total time it is used in flowering, ornamental, or vegetable plant
				production in comparison to the time it is used for other purposes. Any unit of
				machinery or equipment directly used in flowering, ornamental, or vegetable
				plant production more than 50 percent of its total use time is eligible for
				exemption.
g.
Beginning and
				end of flowering, ornamental, or vegetable plant production.
Flowering, ornamental, or vegetable plant production begins with the purchase
				of seeds or starter plants. Flowering, ornamental, or vegetable plant
				production ceases when a plant has grown to the size or weight at which it will
				be prepared for shipment to the destination where it will be
				marketed.
h.
Machinery and
				equipment design.
Machinery and equipment used in flowering,
				ornamental, or vegetable plant production are eligible for exemption if they
				were specifically designed for use in flowering, ornamental, or vegetable plant
				production. Machinery and equipment that are not specifically designed for use
				in flowering, ornamental, or vegetable plant production, but are directly and
				primarily used in flowering, ornamental, or vegetable plant production, are
				eligible for exemption with the exception of common or ordinary hand tools.
EXAMPLE: Bob Jones raises tulips and must use a thermometer
				  to monitor the temperature in his greenhouse. Bob Jones buys a thermometer
				  designed for use in a residence but uses it directly and primarily to monitor
				  the temperature in his greenhouse. The thermometer's use would be considered
				  exempt.
i.
Replacement parts.
The term "replacement parts" means the same
				as defined in paragraph 214.1(2)
"i."