Sales or rental of farm machinery and equipment used in livestock or dairy production and replacement parts which occur on or after July 1, 1988, are exempt from sales and use tax. On and after July 1, 1995, machinery, equipment, and replacement parts used in the production of flowering, ornamental, or vegetable plants are exempt from tax. See rule 701-18.57 (422,423).
(1)Definitions and characterizations. For the purposes of this rule, the following definitions and characterizations of words apply. a. "Machinery" means major mechanical machines or major components thereof which contribute directly and primarily to the livestock or dairy production process. Usually, a machine is a large object with moving parts which performs work by the expenditure of energy, either mechanical (e.g., gasoline or kerosene) or electrical.b. "Equipment" is tangible personal property (other than a machine) directly and primarily used in livestock or dairy production. It may be characterized as property which performs a specialized function which, of itself, has no moving parts or if it does possess moving parts, its source of power is external to it. The following examples attempt to differentiate between machinery and equipment: EXAMPLE A. An electric pump is used to pump milk into a bulk milk tank. The electric pump is machinery; the bulk milk tank is equipment.
EXAMPLE B. An auger places feed into a cattle feeder. If not "real property" (see 18.48(1)"c") the auger is a piece of machinery; the cattle feeder is a piece of equipment.
c. Property used in livestock or dairy production which is neither "equipment" nor "machinery." (1) Real property. The ground or the earth is not machinery or equipment. A building is not machinery or equipment, Mid-American Growers, Inc. v. Dept. of Revenue, 493 N.E.2d 1097 (Ill. App. Ct. 1986). Therefore, tangible personal property which is sold for incorporation into the ground or a building in such a manner that it will become a part of the ground or the building is taxable. Generally, property incorporated into the ground or a building has become a part of the ground or the building if removal of the property from the ground or building will substantially damage the property, ground, or building or substantially diminish the value of the property, ground, or building. Fence posts embedded in concrete and electrical wiring, light fixtures, fuse boxes, and switches are examples of property sold for incorporation into the ground or a building, respectively. The property referred to in 18.48(1)"c"(1) can be identified by applying the following test: Assume that the property is being sold to a contractor rather than a person engaged in livestock or dairy production. If sold to a contractor, would the retailer be required to consider the property "building material" and charge the contractor sales tax upon the purchase of this building material. If this is the case, sale of the property is not exempt from Iowa tax law. Iowa department of revenue rule 701-19.3(422,423) contains a characterization of "building material" and a list of specific examples of building material.(2) "Supplies" are neither machinery nor equipment. Tangible personal property is part of farm supplies if it is used up or destroyed by virtue of its use in livestock or dairy production or, because of its nature, can only be used once in livestock or dairy production. A light bulb is an example of a farm supply which is not machinery or equipment. The sale of some farm supplies is exempt from tax. See 701-subrule 17.9(3). See List B in subrule 18.48(7) for examples of farm supplies which could be mistaken for equipment and are not exempt from tax on other grounds.d. "Hand tools" are tools which can be held in the hand or hands and which are powered by human effort. Hand tools specifically designed for use in livestock or dairy production are exempt from tax as "equipment." Mechanical devices that are held in the hand and driven by electricity or some source other than human muscle power are, if otherwise qualified, exempt from tax as "farm machinery." See subrule 18.48(7), List C, for examples of "hand tools" exempt and not exempt from tax.e. Directly used in livestock or dairy production. To determine if machinery or equipment is "directly" used in livestock or dairy production, one must first ensure that the machinery or equipment is used during livestock or dairy production and not before that process has begun or after it has ended. Subrule 18.48(1), paragraph "g," describes when livestock or dairy production begins and ends. If the machinery or equipment is used in livestock or dairy production, to be "directly" so used, that use must constitute an integral and essential part of production as distinguished from a use in production which is incidental, merely convenient to or remote from production. The fact that machinery or equipment is essential or necessary to livestock or dairy production does not mean that it is also "directly" used in production. Machinery or equipment may be necessary to livestock or dairy production but so remote from it that it is not directly used in that production. (1) In determining whether machinery or equipment is used directly, consideration should be given to the following factors:1. The physical proximity of the machinery or equipment to other machinery or equipment whose direct use is unarguable. The closer the machinery or equipment whose direct use is questioned is to the machinery or equipment whose direct use is not questioned, the more likely it is that the former is directly used in livestock or dairy production.2. The proximity in time of the use of machinery or equipment whose direct use is questionable to the use of machinery whose direct use is not questioned. The closer in time the use, the more likely that the questioned machinery or equipment's use is direct rather than remote.3. The active causal relationship between the use of the machinery or equipment in question and livestock or dairy production. The fewer intervening causes between the use of the machinery or equipment and the production of the product, the more likely it is that the machinery or equipment is directly used in production.(2) The following are examples of machinery and equipment directly used in livestock or dairy production: 1. Machinery and equipment used to transport or limit the movement of livestock and dairy animals (e.g., electric fence equipment, head gates, and loading chutes).2. Machinery and equipment used in the conception, birth, feeding, and watering of livestock or dairy animals (e.g., artificial insemination equipment, portable farrowing pens, feed carts, and automatic watering equipment).3. Machinery and equipment used to maintain healthful or sanitary conditions in the immediate area where livestock are kept (e.g., manure gutter cleaners, automatic cattle oilers, fans, and heaters if not real property).4. Machinery or equipment used to test or inspect livestock or dairy animals during production.(3) The following are nonexclusive examples of machinery or equipment which would not be directly used in livestock or dairy production.1. Machinery or equipment used to assemble, maintain, or repair other machinery or equipment directly used in livestock or dairy production (e.g., welders, paint sprayers, and lubricators).2. Machinery used in farm management, administration, advertising, or selling (e.g., a recordkeeping computer, calculating machine, office safe, telephone, books, and farm magazines).3. Machinery or equipment used in the exhibit of livestock or dairy animals (e.g., blankets, halters, prods, leads, and harnesses).4. Machinery or equipment used in safety or fire prevention, even though the machinery or equipment is required by law.5. Machinery or equipment for employee or personal use. Machinery or equipment used for the personal comfort, convenience, or use by a farmer, the farmer's family or employees, or persons associated with the farmer are not exempt from tax. Examples of such machinery and equipment include the following: beds, mattresses, blankets, tableware, stoves, refrigerators, and other equipment used in conjunction with the operation of a farm home or of a migrant labor camp, or other facilities for farm employees.6. Machinery and equipment used for heating, cooling, ventilation, and illumination of farm buildings generally rather than specifically in the immediate area where livestock are kept.7. Vehicles subject to registration.f. "Primarily" used in livestock or dairy production. Machinery or equipment is "primarily used in livestock or dairy production" if of the total time that unit of machinery or equipment is used, more than 50 percent of the time is in livestock or dairy production. If a unit of machinery or equipment is used more than 50 percent of the time for production and the balance of time for other business purposes, the exemption applies. If a unit of equipment is used 50 percent or more of the time for business purposes other than livestock or dairy production, the exemption does not apply. Any unit of machinery or equipment used more than 50 percent of the time directly in livestock or dairy production is subject to the exemption.g. Beginning and end of livestock or dairy production. Livestock or dairy production begins with the purchase or breeding of livestock or dairy animals. Livestock and dairy production ceases when an animal or the product of an animal's body (e.g., wool or milk) has been transported to the point where it will be sold by the farmer or processed.h. Farm machinery and equipment means machinery and equipment specifically designed for use in livestock and dairy production or equipment and machinery not specifically designed for this use but which are directly and primarily used in livestock or dairy production except for common or ordinary hand tools. See 18.48(1)"d" for a definition of "hand tools." EXAMPLE. Farmer Jones raises livestock and fans must be used to cool the animals. Farmer Jones buys fans designed for use in a residence which he uses directly and solely to cool the livestock. The exemption applies.
i. "Self-propelled implement" has the same meaning as in 701-subrule 17.9(5), paragraph "c" where the term is defined to mean an implement which is capable of movement from one place to another under its own power. The term self-propelled implement includes but is not limited to the following items: skidloaders and tractors; and the following machinery if capable of movement under its own power: combines, corn pickers, fertilizer spreaders, hay conditioners/windrowers, sprayers, and bean buggies.j. Implements customarily drawn or attached to self-propelled implements. The following is a nonexclusive, representative list of implements which are customarily drawn or attached to self-propelled implements: augers, balers, blowers, combines, conveyers, cultivators, disks, drags, dryers (portable), farm wagons, feeder wagons, fertilizer spreaders, front- and rear-end loaders, harrows, hay loaders, mowers and rakes, husking machines, manure spreaders, planters, plows, posthole diggers, rotary blade mowers, rotary hoes, sprayers and tanks, and tillage equipment.k. The term "grain dryer" includes the heater and the blower necessary to force the warmed air into a grain storage bin. It does not include equipment used in grain storage or movement such as augers and spreaders or any other equipment that is not a grain dryer. Equipment other than a grain dryer which is used in grain drying may be exempt or subject to refund if the equipment is a self-propelled implement or customarily drawn or attached to a self-propelled implement.l. The term "replacement parts essential to any repair or reconstruction necessary to farm machinery or equipment's exempt use in the production of agricultural products" does not include attachments and accessories not essential to the operation of the machinery or equipment itself (except when sold as part of the assembled unit) such as cigarette lighters, radios, canopies, air conditioning units, cabs, deluxe seats, and tools or utility boxes.(4)Packing material used in agricultural, livestock, or dairy production. For sales occurring on or after July 1, 1996, the gross receipts from the sale of property which is a container, label, carton, pallet, packing case, wrapping, baling wire, twine, bag, bottle, shipping case, or other similar article or receptacle sold for use in agricultural, livestock, or dairy production are not subject to sales tax. This exemption also applies to producers of ornamental, flowering, or vegetable plants in commercial greenhouses or other places which sell such items in the ordinary course of business since that activity is considered to be agricultural.(6)Auxiliary attachments exemption. On and after July 1, 1995, sales of auxiliary attachments which improve the performance, safety, operation, or efficiency of machinery or equipment are exempt from tax. Sales of replacement parts for these auxiliary attachments are also exempt on and after that date.(7)Lists. Lists (representative but not all-inclusive) of tangible personal property for which sales or use tax paid is or is not refundable. LIST A. Property Used in Livestock and Dairy
Production Which is Usually Real Property. See
18.48(1)"c"(1). Its sale is usually taxable.
barn ventilators* | livestock feeders* |
conveyers* | silos |
farrowing crates* | specialized flooring* |
fence posts | sprinklers |
fencing wire | stanchions |
furnaces* | watering tanks* |
gestation stalls* | ventilators* |
*These items also appear in List D. Tax paid on their sale can be refundable or their sale exempt if the items are not real property.
LIST B. Taxable Farm Supplies
Which Are Not Machinery or Equipment
burlap* | lubricants |
disposable hypodermic syringes | marking chalk |
ear tags hog rings | packages for one-time use |
*Burlap is exempt when used in the form of a bag, container, wrap or other receptacle or packaging material.
LIST C. Hand Tools-Taxable and Nontaxable
axes | lanterns |
brooms | milk cans* |
buckets | mops |
cleaning brushes | paintbrushes |
dehorners (nonelectric)* | pliers |
garden hoses | scrapers |
grease guns | screwdrivers |
hammers | shovels |
hay hooks* | wheelbarrows |
hog ringers* lamps | wrenches |
*Hand tools specially designed for use in livestock or dairy production are equipment. Tax paid on the sale or use of these hand tools is refundable.
LIST D. Farm Machinery and Equipment Directly and Primarily Used in Livestock or Dairy Production. Tax Paid is Usually Refundable or the Sale Exempt.
artificial insemination equipment | gates* |
augers* | grain augers |
automatic feeding systems* | head gates |
bulk feeding tanks* | heating pads and lamps |
bulk milk coolers | hog feeders* |
bulk milk tanks | hypodermic syringes and needles, nondisposable |
cattle weaners and feeders | livestock feeding, watering and handling |
cattle currying and oiling machines | equipment* |
cattle feeders* | loading chutes* |
conveyers* | LP gas tanks |
dehorners, electric | manure handling equipment* |
electric fence equipment | milk coolers |
fans* | milk strainers |
farrowing crates, houses and stalls* | milking machines |
feed bins* | refrigerators used to cool raw milk |
feed carts | silo unloaders |
feed elevators* | specialized flooring* |
feed grinders | space heaters |
feed tanks* | sprayers |
feeders | squeeze chutes* |
foggers | vacuum coolers |
furnaces* | ventilators* |
*If not real property. See 18.48(1)"c"(1).
(8)Seller's and purchaser's liability for sales tax. The seller shall be relieved of sales tax liability if the seller takes from the purchaser an exemption certificate stating that the purchase is of machinery or equipment meeting the requirements of subrule 18.48(4). An exemption certificate can take the form of a stamp imprinted onto one of the documents of sale. If items purchased tax-free pursuant to an exemption certificate are used or disposed of by the purchaser in a nonexempt manner, the purchaser is solely liable for the taxes and shall remit the tax directly to the department. This rule is intended to implement Iowa Code section 422.45 as amended by 1996 Iowa Acts, chapter 1145.
Iowa Admin. Code r. 701-285.48
Editorial change: IAC Supplement 11/2/22