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What forage producers should know.

Tom J Bechman 1, Editor, Indiana Prairie Farmer

July 3, 2008

3 Min Read

Here's a quick quiz. Just raise your hands out there. How many of you know that if you use an auger to move wet grain from the truck or bin into the dryer, Indiana state law says you're exempt from paying sales tax when you buy the auger?

OK, hands down. Try this one. How many know that if you buy the same auger but intend to use it to move dry corn after it's left the dryer, you are required to pay sales tax for it? The reason you are is because the complicated law says that if you're not actually changing the form of something in the production of food, then it is not exempt form sales tax. All this is according to George Patrick, the Purdue University Extension ag economics specialist who follows tax laws carefully.

Some of you may have encountered that distinction before. But this next one may catch most of you by surprise. First, if you raise hay and sell it to your neighbor who feeds it to his dairy cows, are you required to charge him sales tax? That would require that you register as a retail merchant, and file paperwork as you remit the sales tax due to the Indiana Department of Revenue.

The answer is 'no,' you wouldn't have to charge sales tax. That's probably the answer you expected. But what if you sell the hay instead to a neighbor who has a hobby farm, featuring horses? Or if you sell it to a racetrack for horses? Or if you sell it to a riding stable, who charges customers so much per week or month for boarding their horses there, without breaking out the cost of the hay separately?

In all three of these situations, the answer is 'yes,' you as the seller would be required to collect sales tax, after registering as a merchant. Then you would need to remit the money you collected to the state. The burden of proof that no sales tax was due rests with the purchaser, state officials note, but add that doesn't relieve the seller from responsibility in attempting to collect the tax. State law also assumes that sales tax is due upon any sale, then lists exemptions, rather than noting from the beginning that there are situations where sales tax is not required.

What, you say? You don't know anybody that does that? While you may be correct, Patrick says its' the law that in the three situations described above, you would need to charge and remit sales tax to the state as the seller. And if you're selling straw to a landscaper, you would also need to charge him sales tax, unless he resells the straw to someone else, instead of using it in his business.

Personnel from the Indiana Department of Revenue attended the Purdue Forage Day recently to confirm that these interpretations are correct. The issue arose after a hay farmer who sells hay for race horses was audited last year. He innocently did not know he was required to charge sales tax on such sales of hay, and he suspects virtually no other producers realize it either.

Why not let the sleeping dog lie and avoid the subject? Number one, it's the law, Forage Day organizers noted. And while no one would say it publicly, there was the implication that if hay producers and others learn about it and find it ridiculous, perhaps they will urge farm groups and legislators to get behind changing the law in this area. Change would likely need to originate at the grassroots level in this case.

About the Author(s)

Tom J Bechman 1

Editor, Indiana Prairie Farmer

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