In general, the sale of farm equipment and machinery is taxable. However, certain sales and purchases of farm equipment and machinery are partially exempt from sales and use tax. As a grower, you may be able to take advantage of this partial exemption.
The partial exemption applies only to the state general fund portion of the sales tax, currently 5.00 %.
To calculate the tax rate for qualifying transactions, subtract 5.00 percent from the sales tax rate that would normally apply at the location where the purchase is made. For example, if the current tax rate in your area is 9 percent, the tax rate for a qualifying transaction would be 4.00 percent.
Note: The rate for the state general and fiscal recovery funds portion of the sales tax is subject to change. The rates used in this example are for demonstrative purposes only. You must use the rate in effect at the time of the sale. Current tax rates
Three requirements must be met for the partial exemption to apply. The item must be:
- Sold to a qualified person.
- Used exclusively or primarily (depending on the type of item) in producing and harvesting agricultural products. Primarily means 50 percent or more of the time.
- Defined as farm equipment and machinery which includes, but is not limited to, any tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations.
If any of these three requirements is not met, the partial exemption will not apply.
Examples of equipment and machinery that may qualify:
- Planting equipment
- Trimming tools
- Drying racks and trays
- Grow tents and lights
- Environmental controls
- Hydroponic equipment
- Solar equipment (see below for more information)
- Irrigation equipment
For more detailed information about equipment and machinery used in farming, see Regulation 1533.1,Farm Equipment and Machinery and publication 66, Agricultural Industry.
Buildings for Raising Plants
Certain buildings may qualify for the partial exemption for farm equipment. The building must be a single-purpose building to house plants, such as a greenhouse.
To qualify for the partial exemption, a horticulture building must be both of the following:
- Specifically designed for commercially raising plants or mushrooms.
- Used exclusively for that purpose.
You should issue a partial farming exemption certificate to your vendor when you purchase qualifying items.
Solar Power Facilities
If you qualify for the partial exemption for farm equipment, your purchase of a solar power facility may also qualify.
Solar Power Facility Directly Attached to Farm Equipment and Machinery
When a solar power facility is directly attached to, and primarily provides power to qualifying farm equipment and machinery, the solar power facility generally qualifies as farm equipment and machinery. As such, the purchase of this type of solar power facility generally qualifies for the partial exemption as long as the other requirements for the partial exemption are met.
Solar Power Facility Not Directly Attached to Farm Equipment and Machinery
A solar power facility may also qualify as farm equipment and machinery when the solar power facility is not directly attached to qualifying farm equipment and machinery but is instead tied to the regional power grid and subject to a net metering agreement between the taxpayer and the electric cooperative. In such cases, you need to demonstrate that the solar facility is specifically purchased to provide power primarily to qualifying farm equipment and machinery.
Partial Exemption for Diesel Fuel Used in Farming Activities
Most sales and/or purchases of diesel fuel are taxable. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities.
The partial exemption applies to the sale or purchase of diesel fuel only if the diesel meets the following two requirements:
- Be a type of diesel that qualifies for the exemption, and
- Be used in qualifying farming activities or related contract hauling.
For more detailed information about diesel fuel used in farming, see Regulation 1533.2, Diesel Fuel Used in Farming Activities or Food Processing.
Partial Exemption Certificates
When you make a purchase that qualifies for a partial exemption, you must provide an exemption certificate to your supplier.
In order for the certificate to be valid, you must:
- Timely furnish the certificate to the seller.
- Provide all relevant information:
- Your name and address.
- The type of property being purchased.
- You or your company's name, title, telephone number, address, and the seller's permit number.
- Sign and date the document.
An exemption certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.
Listed below are the types of exemption certificates you may need: