Iowa Department of Revenue (IDOR) clarifies sales tax exemption on all-terrain vehicles (ATVs)

April 9, 2007 | Roger McEowen

 

Is an ATV that is used for use in a farming operation, such as for daily checking and feeding of cattle, spraying for weeds, and checking fences, exempt from Iowa sales tax on the purchase? ATVs can qualify for the exemption, but in many instances the IDOR took the position that they did not. But, a recent IDOR ruling may signal a change of heart.

Under Iowa law, in order to qualify for sales tax exemption upon purchase, the ATV must be used “directly and primarily” in agricultural production. In the past, IDOR has interpreted “directly and primarily” to mean that exempt use must be greater than 50 percent of total use. IDOR has also taken the position that if greater than 50 percent of the taxpayer’s gross Schedule F income is derived from agricultural program payments, the sales tax exemption for the ATV would not be available for that taxpayer. Thus, farmers with high CRP payments could be disallowed a sales tax exemption on the purchase price of an ATV even though all other eligibility criteria is satisfied.

With a recent ruling, however, the IDOR appears to have softened its position. While the IDOR notes that using an ATV for tree farming does not meet the “agricultural production” because the “crop” is not prepared and harvested within a single growing season, they did rule that using an ATV for checking and repairing fences and transporting tools, equipment or fencing materials to the field to repair a fence would qualify as an agricultural use. Likewise, the IDOR ruled that using the ATV to check livestock qualifies as use in agricultural production. As for the Schedule F issue, the ruling states that the Schedule F should not be used as a “litmus test” for determining engagement in agricultural production. The ruling specifically notes that persons who sell neither livestock nor any crop can still be deemed to be engaged in agricultural production. In other words, a taxpayer does not necessarily have to be a farmer to claim the exemption. 

Hopefully, this will help clear the air on this issue for Iowa’s rural landowners.  IDOR Ruling No. ES-11-06-01-P (Nov. 29, 2006).

In a later ruling, the IDOR ruled that the sale of an ATV used in the raising of horses is not exempt from sales tax. The taxpayer used the ATV to haul feed and bedding to the horses and haul their manure away.  In addition, the ATV was used to fertilize, spray for weeds, seed the horse pasture to grass, fencing and herding of the horses. IDOR ruled that the ATV was not “farm machinery and equipment” in this context because horses are not “livestock.”  Therefore, the ATV was subject to sales tax. Interestingly, however, the ruling points out that whitetail deer and mule deer raised on a farm are “livestock.”  Apparently that means that an ATV purchased for use on a farm in the raising of deer would be exempt from sales tax. IDOR Priv. Ltr. Rul., 2007 Iowa Tax LEXIS 11 (Feb. 22, 2007).