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Tax Commission Report Suggests Legislature Look at Sales Tax Exemptions Again

Tax Commission Report Suggests Legislature Look at Sales Tax Exemptions Again
Some are hopeful legislatures might change sales tax exemption policy to clarify it.

Once the legislature fires up next month, expect lots of discussion about taxes, especially for businesses, including agriculture. A Commission requested during the 2014 legislative session met four times last fall, and issued a final report recently.

The commission studied a broad range of taxation issues. Members of the Commission included both legislators and lay people. Katrina Hall, Director of government services for Indiana Farm Bureau, Inc., testified before the committee. Hall was pleases that four of the 19 recommendations could positively impact agriculture if implemented by the legislature.

Lead charge: Indiana Farm Bureau and Katrina Hall, legislative director, hope the legislature will make key changes on tax policy affecting agriculture in the next session.

"But we need to keep telling legislators why changes are needed," she says. "These are just recommendations. Right now bills haven't even been filed that would be necessary for debate on turning these recommendations into law.

Three of the recommendations deal with property tax reform, including a recommendation to freeze current property tax levels for ag land at the amount due in 2015.

One of the proposals concerns sales tax exemptions. Sales tax exemptions for agriculture have long been a bone of contention for farmers, because some things that are exempt vs. what's not exempt doesn't seem to add up. The system seems willy-nilly and inconsistent.

Hall says that's because the state has used what's called a double-direct test before an item can be exempt for use in a business, in this case agriculture.

Related: Two Important Bills for Agriculture Pass the Legislature

As the law reads now, items that are exempt in manufacturing and agriculture "are acquired for direct use in direct production of a product." The commission recommended changing it to a single test, used in most states. The test of exemption would simply be that a product is exempt from state sales tax if it is used in direct production of a product.'

Simplifying to the single test for exemption might alter some things that are not exempted which should be, based on common sense.

Before you get too excited, remember that these are only recommendations which must be first rolled into a bill, then debated and passed in both houses, and then signed by the governor.

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