IDOR Ruling At Odds With IRS On Whether CRP Land Is Used in Ag Production

August 24, 2009 | Roger McEowen


The Iowa Department of Revenue (IDOR) has ruled that sales tax is due on the purchase of an all-terrain vehicle (ATV) for use in seeding rented land that is enrolled in the Conservation Reserve Program (CRP).  Iowa law (Iowa Code Sec. 423.2) provides a sales tax exemption for the purchase of "farm machinery and equipment...[that is used] directly and primarily in production of agricultural products...".  For purposes of the provision, IDOR has defined "agricultural production" as referring to the "raising of crops or livestock for market on an acreage." (701 IAC 17.9(3)).  The rule goes on to provide a non-exhaustive list of what does and does not constitute "agricultural production."  In that list, CRP ground is not addressed.  But, in its ruling, IDOR determined that CRP ground does not involve agricultural production.  In addition, IDOR stated that renting agricultural land does not constitute agricultural production by the landlord.  But, on that point IDOR didn't make any comment concerning the type of lease.  

Comment:  It would seem that if the land were rented under a crop-share or livestock-share lease, the landlord would be engaged in agricultural production. 

Under the facts of the ruling, the taxpayer purchased an ATV for use in seeding and spraying weeds on CRP land, as well as on pasture ground that the taxpayer rented and on 200 acres of timber.  While IDOR noted that the CRP contract requires that the CRP ground be seeded to a cover crop and maintained, they still ruled that the CRP land wasn't used in agricultural production.  Thus, IDOR ruled that the taxpayer's purchase of the ATV was subject to sales tax.  

IDOR's ruling runs completely counter to the IRS position that the mere signing of a CRP contract constitutes the taxpayer's involvement in a farming business such that self-employment tax is due.  It's not that the IDOR ruling is wrong.  It's not.  The ruling does point out how silly the IRS position is that a taxpayer who is not otherwise a farmer is somehow miraculously transformed into being engaged in the trade or business of farming by signing a CRP contract.  IDOR Policy Letter No. 09300030 (Apr. 6, 2009).