Grey areas in new ag sales tax exemption
December 13, 2014
Effective Oct. 1, 2014, in Nebraska, sales of all repair and replacement parts used to repair agricultural machinery and equipment used in commercial agriculture are exempt from sales and use taxes.
It sounds simple, but there are some fine lines and grey areas, said Margaret Akin of the Department of Revenue. First you must understand the definition of commercial agriculture. If you are producing a food product or raising or caring for animals that can either be sold or used by the farmer/rancher to produce other products for sale, you are in commercial agriculture. However, if the product cannot ultimately be eaten or worn, it does not qualify as an agricultural product. Commercial agriculture does include feedlots, greenhouses, nurseries, sod farms and tree farms but it does not include animals in stockyards or sale barns, or storage of products off the farm or in commercial elevators. Licensed vehicles don't qualify for the exemption, even if that old beat-up truck never leaves the ranch, and neither does the stock trailer.
The grey area and fine lines, says Akin, stem from the requirement for using the item directly in commercial agriculture. For example, repairs to a grain bin are not exempt, but repairs to the stirrator in the grain bin are. Repairs to your ditch cleaning equipment are not exempt, but repairs to the shovel you use to direct the water down the rows are. Fencing supplies are not because the fence is permanently attached to real property, but repairs to portable corrals are. Four-wheelers are not considered exempt if you use them only to check and maintain fences or windmills. However, if you use your four-wheeler to move cattle, the repairs and tires are exempt. "There is no percentage of proof," said Akin, "If you use it once to move cattle, that's good enough."
Purchases of repair and replacement parts are exempt from state sales and use tax when (1) the item is used directly in commercial agriculture, (2) the item meets the definition of ag equipment, and (3) the purchaser properly completes a Form 13, Section B.
Form 13 is a fairly simple form that can be found online under Forms on the Nebraska Department of Revenue website, http://www.revenue.nebraska.gov. It must be filed with each retailer you purchase agricultural supplies and parts from. Fill in your name and mailing address and be sure to check that it is a Blanket certificate and that it is an exempt purchase. Ignore Section A. In Section B, fill in the description of items purchased–a general statement of repair and replacement parts is sufficient–and the intended use of items purchased as being machinery or equipment repair. Ignore Section C. Print off as many copies as you think you might need. Keep a few extra on hand in case you have to go to a different parts company to purchase parts. It's a good idea to sign and date the form as needed. Once you file Form 13 with a retailer, it is good until you revoke it in writing.
A retailer must have a signed Form 13 before they can give you the exemption. "We have people coming in here asking us to give their sales tax back on purchases they made a month ago," said Matt Fisher, manager of Sturdevant's parts store in Chadron. "And we aren't sure what is exempt and what isn't. It's been really confusing for us and our customers." According to Akin, once a retailer has Form 13 for a customer, the burden of proof is not on the shoulders of the retailer; they have to take the customer's word that the purchase will be used in production agriculture. But if an item can only be used on a licensed motor vehicle–an oil filter, for example–they must charge sales tax on it, regardless of a customer's claim that it will be used in production agriculture.
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What if a farmer or rancher made purchases after the law went into effect Oct. 1, but didn't file a Form 13 with the retailer? Can that tax be refunded? The answer is yes, but you can't go back to the retailer to get it. You must file Form 7AG-1 with the Nebraska Department of Revenue. From 7Ag-1 is another fairly simple form that can also be downloaded from the department's website. All refund claims must include sufficient documentation to substantiate the amount claimed and must include a copy of the invoice or receipt reflecting date, vendor name and address, items purchased or leased, net purchase or lease price (purchase price less trade-in allowance), any trade-in allowance, date paid, and amount of Nebraska and local sales and use tax for which the refund is claimed. The Department of Revenue may ask for additional supporting documentation. Your claim cannot be processed if proper documentation is not included. Form 7AG-1 also includes a list of items that qualify for the exemption and a list of those that don't. You have up to three years to claim a tax refund.
The Department of Revenue may be conducting more audits as a result of this new law. "When they send out an auditor, their job is to bring back money," said Akin. "They will be thorough and you better be able to prove that your purchases were used directly in production agriculture." If you have questions regarding the ag sales tax exemption, you can call her at 308-633-2234 or email your questions to her at firstname.lastname@example.org