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) Sales
				or rentals of farm machinery, equipment, and replacement parts used in
				livestock or dairy production are 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, 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
				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 which
				performs a specialized function and which 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 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 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 which is not machinery or equipment. See
				subrule 226.19(4) for examples of farm supplies which could be mistaken for
				equipment and are not exempt from tax on other grounds.
d.
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 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. See paragraph
"g"
of this subrule for 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 is eligible for exemption if specifically
				designed for use in livestock or dairy production. Farm machinery and equipment
				which 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 subrule 226.1(2),
				paragraph
"i."