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Ag Sales Tax Exemptions Big Can of Worms

Ag Sales Tax Exemptions Big Can of Worms
Sometimes you must kick the can.

The system of determining whether items farmers buy should carry sales tax or not is, in one farmer's words, a big mess. That farmer is none other than Don Willwock, Edwarsdport, president of Indiana Farm Bureau, Inc.

The problem, he says, is that since the system is based upon what you are going to use the purchased item for, almost every call is a questionable one. Imagine refereeing a basketball game where every rule was in shades of pink and gray, instead of black and white, or even red. Every play is subject to challenge or booth review. The game could take hours!

The issue has come to the forefront now because during routine audits, the Indiana Department of Revenue determined that a large firm in west-central Indiana should have been charging sales tax on tiling machines and tile. Since they didn't think they had to, they weren't charging it. In some classes, customers who bought tile plows as far back as 2007 were asked to pay sales tax, plus penalty and interest.

But shades of gray aren't limited to the tiling question. Suppose you buy a manure loader. If you're buying it to primarily move gravel, the rules say you owe the tax, McFarland says. If you're buying it to move manure in the direct production of livestock, you don't.

When it becomes a personal issue is when your machinery dealer gets audited. Audits are typically routine and not based upon any suspicion of problems. But once an audit uncovers a case where the tax personnel believe tax should have been charged, they will pursuit it.

In the case of the manure loader, it may take discussion with tax people and/or a letter stating how you use the item to avoid paying the tax, plus the penalty and interest that would go with it. The interest is figured back to time of purchase. The penalty applies even if you bought the item in good faith, thinking it wasn't taxable, and the retailer who sold it to you in good faith, didn't think sales tax was owed on it either.

The problem with solving this can of worms, says Bob Cherry, R-Greenfield, and a legislative specialist with Indiana Farm Bureau, inc., is that once you open the can, it could be like Pandora's box. While you might gain on some things, there may be items that aren't taxed now where a strict interpretation of the rules as written could cause them to be taxed.

When it comes to tile and the tile plow situation, however, Cherry and several other legislators feel it's worth kicking the can. Tile is directly used to increase yield, meaning produce more food. It's one they intend to fix. The legislature can do that by changing language in the law. Two bills that would do so are moving through the legislature now,

If you believe rewording the law so these items are tax-exempt would be a good thing, then it's time to contact your legislator and let them know why you feel as you do.

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