Machinery & Equipment Sales and Use Tax Exemptions Related to Production Agriculture

Sales and use tax is often complicated and ever changing.  To complicate matters, each state has its own regulations and definitions.  In an effort to simplify the complicated, we’ve outlined the basics of some Midwestern state’s requirements.  If you have any questions about your organization and state, please contact us so we can offer information specific to your situation. 

Iowa
“Production of agricultural products" begins with the cultivation of land previously cleared for planting crops or with the purchase or breeding of livestock and ceases when a product has been transported to the point where it will be sold by the producer or processed.

• Exempt
• Machinery and equipment used directly and primarily in the production of agricultural products or in a manufacturing process.
• Replacement parts for exempt machinery and equipment.
• Computers used in processing or storage of data by a commercial enterprise (farmers cannot purchase computers tax free, but an agribusiness may be eligible for exemption).
• Taxable
• All vehicles subject to registration and all equipment attached to a vehicle subject to registration.
• Labor to repair exempt machinery and equipment or parts not separately itemized from taxable labor.
• Grain testing and grain storage.

Illinois

• Sales of new or used farm machinery and equipment certified by the purchaser to be used primarily for production agriculture and replacement parts for such machinery and equipment are exempt from sales tax.
• "Farm machinery” includes tractors, combines, balers, irrigation equipment, cattle and poultry feeders, tools, registered nurse wagons, and fertilizer and chemical spreaders, but not improvements to real estate such as fences, barns, roads, grain bins, silos, and confinement buildings. However, the exemption applies to certain machines purchased by farmers from retailers and installed as realty improvements, such as augers, grain dryers, automated livestock feeder bunks, automatic stock waterers, water pumps, specialty heating or lighting equipment.
• Production agriculture includes the raising of livestock, growing of crops for feed or food products, and the growing of seed stock.  Growing of crops is limited to activities necessary in tilling the soil, planting, irrigating, cultivating, applying herbicide, insecticide, or fertilizer, and harvesting and drying of crops. 

Missouri

• Farm machinery and equipment are exempt from tax if:
• Used exclusively in agricultural purposes.
• Used on land owned or leased for the purpose of producing farm products.
• Used directly in the production of farm products to be ultimately sold at retail.
• Replacement machinery and equipment:
• An exemption from sales and use taxes is provided for replacement machinery, equipment, and parts used directly for manufacturing, mining, fabricating, or producing a product intended to be sold for final use or consumption.
• The exemption also includes materials, supplies, and parts required solely for the installation or construction of the machinery and equipment.
• Replacement machinery and equipment does not have to be identical to items being replaced, but may qualify for exemptions as improvements or modifications.

Minnesota

• If you buy or lease qualifying capital equipment for use in Minnesota, you are eligible for a refund of the Minnesota and local sales or use tax you paid.
• Capital equipment means machinery and equipment purchased or leased, and used in Minnesota by the purchaser or lessee primarily for manufacturing, fabricating, mining, or refining tangible personal property to be sold ultimately at retail if the machinery and equipment are essential to the integrated production process of manufacturing, fabricating, mining, or refining.  For example, agribusiness may qualify if the equipment is used in the manufacturing of grain products.
• Sold ultimately at retail means that the product being produced must be intended for sale at retail, but does not mean that the producer must make the retail sale.

Wisconsin

• A sales and use tax exemption is available for machines and specific processing equipment and repair parts or replacements thereof, exclusively and directly used by a manufacturer in manufacturing tangible personal property.
• Types of businesses which are usually considered to be manufacturers include:
• Fertilizer plants.
• Flour and feed mills including mobile units.
• Grain dryers.
• The Manufacturing and Agriculture Credit is available to individuals and businesses for taxable years that begin on or after January 1, 2013.
• An individual, estate, trust, partnership, LLC, or corporation can claim the credit if the claimant owns or rents and uses in Wisconsin real property and improvements assessed as agriculture property, or owns and rents and uses in Wisconsin real and personal manufacturing property.

Please contact Bergan Paulsen at 800.741.7087 or www.berganpaulsen.com with any questions.  We can assist in performing a sales and use tax analysis or to review whether your organization is eligible to obtain refund claims on prior year’s sales and use tax paid.