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 or rentals of machinery,
				equipment, and replacement parts used in the production of flowering,
				ornamental, and vegetable plants are 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, which contribute directly and primarily
				to the flowering, ornamental, or vegetable plant production process. Usually, a
				machine is a large object with moving parts which 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 which performs a specialized function which, of
				itself, has no moving parts, or if the equipment does possess moving parts, its
				source of power is external to it.
c. Reserved.
d.
Property used in the flowering,
				ornamental, or vegetable plant production process 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. See
Cloverleaf Cold Storage Co. v. Dep't of
				Revenue and Fin.
, 2002 WL 31769009 (Iowa Dept. Insp. App. July 26,
				2002). Therefore, tangible personal property which 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 which is not
				machinery or equipment. See subrule 226.19(4) for examples of supplies which
				could be mistaken for equipment and are not exempt from tax on other
				grounds.
e.
Hand
				tools.
The term "hand tools" means tools which can be held in the hand
				or hands and which 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.
f.
"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.
				See paragraph
"h"
of this subrule for 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.
g.
"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.
h.
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.
i.
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 which 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.
j.
Replacement parts.
The term "replacement parts" means the same
				as defined in subrule 226.1(2), paragraph
"i."