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Sales/Use Tax Issues for Farming Operations Purchases and Sales: Taxable and Exempt Exemption Certificates Services Refunds List of Items Exempt for Agricultural Production List of Items Exempt for Dairy and Livestock Production

List of Items Exempt for Flowering, Ornamental, or Vegetable Plant Production List of Items Taxable Even if Used in Agricultural Production Income Tax Withholding on Agricultural Labor Iowa Fuel Tax Agribusiness Sales/Use Tax Issues

 

Introduction

This publication is intended as a general guide. For additional details reference Chapter 226: Agricultural Rules.

"Production of Agricultural Products" Begins With:

• cultivation of land previously cleared for planting crops; or
• the purchase or breeding of livestock or domesticated fowl.

"Production of Agricultural Products" Ceases When:

• a product has been transported to the point where it will be sold by the farmer or processed

"Agricultural production" includes the following:

• the raising of crops or livestock for market
• production of flowering, ornamental, or vegetable plants in commercial greenhouses and other similar businesses
• aquaculture
• nurseries
• ranches
• orchards
• dairies
• feedlot operations, whether or not crops are grown on the property or if the livestock are owned by feedlot operators
• operations that grow or raise seed for sale to farmers

Examples of activities that are not "agricultural production":

• logging
• production of Christmas trees
• beekeeping
• raising mink and other nondomesticated furbearing animals
• raising nondomesticated fowl
• land placed in the federal government’s Conservation Reserve Program (CRP)
• clearing or preparation of previously uncultivated land
• creation of farm ponds
• construction of machine sheds, confinement facilities, storage bins, or other farm buildings

Sales/Use Tax Issues for Farming Operations

Sales by Farming Operations

Usually exempt for resale, processing, or human consumption:

• grain
• livestock
• any other farm or garden produce

Examples of items that are taxable when sold to the ultimate user:

• pet food
• grain for race horses

Purchases by Farming Operations

Purchases by farmers may be exempt from Iowa sales and / or use tax. Just because something is purchased by a farmer, it is NOT automatically tax exempt. Anyone claiming exemption must be able to show they are entitled to it.

See Purchases and Sales: Taxable and Exempt below.

Use Tax

Taxable purchases from suppliers who do not collect Iowa sales tax are subject to Iowa use tax if the purchase is for use in Iowa. Anyone making these kinds of purchases regularly must register for a consumer's use tax permit. A consumer's use tax permit is not needed for occasional purchases of this type, but the use tax must still be paid to Iowa.

See Iowa Consumer's Use Tax.

Purchases and Sales: Taxable and Exempt

Auctions

Exempt if:

• sale of farm machinery or equipment
• casual sale*

*A casual sale is one that does not occur on a regular basis (nonrecurring). The seller does not usually sell goods or taxable services for profit. If the seller does, the sale must be outside the regular course of business to be a casual sale. Two separate selling events outside the regular course of business within a 12-month period are considered nonrecurring.

Taxable if:

The casual sale exemption does not apply if there are three separate selling events within a 12-month period. Tax applies beginning with the third separate selling event.

Bedding

Exempt if used for agricultural livestock or fowl:

• woodchips
• sawdust
• hay
• straw
• paper
• any other materials used for bedding

Chemicals and Fertilizers

Exempt if for direct use in agricultural production to kill pests, insects, or weeds, or promote the growth of plants:

• fertilizer
• limestone
• chemicals, including adjuvants and surfactants

Computers

Taxable when purchased by a farmer

Draft Horses

Exempt:

• breeds commonly thought of as draft animals
  • Belgian, Clydesdale, Percheron, and Shire
• other horses used for pulling loads

Drainage Tile

Exempt:

Sale or installation as part of agricultural production

Taxable:

In all other cases, drainage tile is taxable as a building material.

Machinery used in laying drainage tile is generally taxable.

Food for Animals

Exempt for livestock and domesticated fowl:

• feed
• antibiotics added to feed or water
• vitamins and minerals

Taxable:

• food for pets and racing animals

Global Positioning Systems (GPS)

Exempt if attached to farm implements

Taxable:

• maps made from the GPS information

Greenhouses

Exempt for the production of flowering, ornamental, or vegetable plants intended for sale:

• fuel used for heating or cooling of production areas
• electricity used in production
• machinery and equipment used directly and primarily in production
• auxiliary attachments
• replacement or repair parts
• water used for production

Taxable:

• heating or cooling office space
• repair labor

Hand Tools

Exempt when specifically designed for use in agricultural, dairy, and livestock production:

• Exempt for Agricultural Production
• Exempt for Dairy and Livestock Production

Taxable:

Hand tools that can serve a variety of purposes, such as construction tools of all kinds

See Taxable even if used in agricultural production

Livestock and Domesticated Fowl

Exempt - Livestock

“Livestock” is domesticated animals to be raised on a farm for food or clothing. The following are examples of livestock that are exempt from tax:

• sheep
• cattle
• swine/hogs
• goats
• ostriches
• rheas
• emus
• farm deer*
• bison
• fish and other animals which are products of aquaculture

* “Farm deer” includes fallow deer, red deer, elk, sika, whitetail, and mule deer but not free-ranging whitetail or mule deer. Farm deer does not include unmarked free-ranging elk.

Exempt - Domesticated Fowl

“Domesticated fowl” is fowl raised as a source of food, either meat or eggs. Examples of domesticated fowl are:

• chickens
• turkeys
• ducks
• geese
• pigeons

Taxable animals

The following are examples of animals that, even if raised on a farm as a source of food or clothing, are taxable:

• mink
• bees

Machinery and Equipment Purchase or Rental

Exempt when used directly and primarily in agricultural or livestock production:

• self-propelled implements
• implements customarily drawn or attached to a self-propelled implement
• auxiliary attachments which improve the performance, safety, operation, or efficiency of the farm machinery or equipment

Exempt when used in agricultural production and attached to or towed by a self-propelled implement of husbandry:

• snow blower
• blade
• rotary cutter

Certain farm machinery and equipment which is not self-propelled or attached to self-propelled equipment are also exempt from tax.

See Exempt for Agricultural Production.

See Exempt for Dairy and Livestock Production.

See Exempt for Flowering, Ornamental, or Vegetable Plant Production.

Medicine sold by a veterinarian or any other person

Exempt:

• when treating livestock and domesticated fowl

Taxable:

• when treating pets and other non-livestock / non-domesticated fowl

See Iowa Sales Tax and Veterinary Services.

Packing Materials

Exempt if used in agricultural, livestock, and dairy production:

containers labels cartons pallets packing cases wrapping

baling wire twine bags bottles shipping cases other similar items

 

Pets and Racing Animals

Taxable:

• horses, except draft horses
• mules
• dogs
• cats
• other pets
• racing animals
• other animals not generally associated with agricultural production

Exempt if:

• purchased to be immediately offered for resale

Real Property

In general, machinery or equipment is real property if:

• it becomes a substantially permanent part of the farm property or
• its removal after installation is difficult or
• if removal substantially lessens the value of the machinery or the location where it was placed

Usually taxable:

• machinery and equipment that will become real property after installation

There are exceptions to this general rule for certain items. For example, agricultural drainage tile is exempt from tax.

Exempt for livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable plants:

• auger systems
• curtains and curtain systems
• drip systems,
• fans and fan systems
• shutters
• inlets
• shutter or inlet systems
• refrigerators

Replacement Parts

Exempt when used in the operation of eligible farm machinery or equipment:

• oil filters
• spark plugs
• gas filters
• tires

Taxable supplies include:

• oil
• grease

Utilities

Exempt if used for agricultural production:

• electricity
• natural gas
• liquefied petroleum gas (LPG)
• other forms of energy / fuel
• energy / fuel used in heating or cooling (not general lighting) of livestock buildings on the farm
• fuel used in an implement of husbandry, such as a tractor or combine
• energy / fuel used to dry grain

Taxable:

Energy used for other purposes, such as recreation, hobbies, lighting, or for farm shops

State sales tax does not apply to residential energy use; however, local option tax, if any, does apply.

Exemption certificate for energy used in agricultural production

To claim exemption, complete Iowa form 31-113 (pdf) and give it to your supplier. The energy supplier will require an updated form at least every three years. Documentation of the energy used for agricultural production must be provided to the utility company.

When filling out the exemption certificate for your utility company, you will need to show what percent of your total energy consumption is for agricultural production. Separate meters for production and non-production use are ideal for determining the exempt and nonexempt energy percentages. However, a separate meter for non-production use is not practical for some farmers. If you do not have production and non-production uses metered separately, you need to determine the percentage of total energy used in agricultural production. Form 31-113 can assist you in determining this.

Your previous year's monthly utility bills can be used as a guide to help you determine your total annual use. Ordinarily, the 12-month period immediately preceding the date you apply for exemption is used. However, your circumstances can dictate that you use a shorter or longer period than 12 months or that you use a 12-month period other than the immediately preceding one. If for some reason your usage last year was not typical, select a 12-month period that is more representative; be sure to have adequate documentation. Your utility company may be able to assist you.

See these links for additional information:   Worksheet and Example for Determining Electricity used in Processing / Agriculture      Worksheet and Example for Determining Natural Gas used in Processing / Agriculture

Vehicles

Registered vehicles, such as the following, are subject to the 5% one-time registration fee, even if used in agricultural production:

• pickups
• stock trucks
• grain trucks
• camping trailers
• livestock trailers

Farm tractors, combines, and others

Exempt if:

• used directly and primarily in agricultural production
• self-propelled, and
• not subject to registration

Implements customarily drawn by self-propelled implements

Exempt if:

• directly and primarily used in agricultural production and
• not subject to registration

All terrain vehicles (ATVs)

Exempt if:

• directly and primarily used in agricultural production
• not subject to registration

Care should be taken when claiming exemption from sales / use tax on the purchase of an ATV. The seller and buyer are encouraged to contact the Department for guidance on these transactions.

Taxable if:

• primarily for recreation

ATVs do not qualify for exemption as a "casual sale."

Veterinary Services

Veterinary services are not taxable.

See Iowa Sales Tax and Veterinary Services.

Water

Exempt if:

• used directly as drinking water for livestock or domesticated fowl production
• used by greenhouses for agricultural production

Taxable for:

• household use
• sanitation
• swimming pools
• other personal use

When water is used in livestock production and for other purposes but is not separately metered, the first 5,000 gallons of water per month is taxable. The balance is exempt as agricultural production.

Wind Energy Conversion

Exempt:

• materials used to manufacture, install, or construct property used to convert wind energy to electrical energy

Exemption Certificates

A seller must obtain a completed exemption certificate (pdf) from the purchaser to verify the purchase qualifies for the exemption.

See Exemption Certificates: How and When to Use Them (pdf).

Services

Services performed on a farm are generally taxable to the same degree that they are taxable to any other type of business.

Taxable:

• exterminating bugs, roaches, and all other pests in the farm home
• exterminating bugs, rodents, and all other pests in grain bins, full or empty
• repairing a tractor or other farm equipment
• routine maintenance services, such as oil changes
• pressure washing a livestock building
• welding

Exempt:

• spraying pests to prevent or control infestation of cropland
• parts used during repair may be exempt; see Replacement Parts

See Iowa Sales and Use Tax: Taxable Services.

Refunds

If sales or use tax is paid in error, the person who paid the tax should file an IA 843 Claim for Refund (pdf) with the Department to request a sales / use tax refund. Refunds may be requested up to three years from when the tax payment was due or one year from when the tax was paid, whichever time is the later.

Exempt for Agricultural Production

adjuvants alternators and generators1 augers1 balers bale transportation equipment baling wire and binding twine batteries for exempt machinery blowers, grain dryer brush hogs1 combines, cornheads, platforms conveyors, temporary or portable1 corn pickers crawlers, tractor cultipackers cultivators discs draft horses drags drainage pipe and tile dusters1 ensilage cutters ensilage forks and trucks, a pickup does not qualify farm wagons and accessories fertilizer, agricultural fertilizer spreaders filters forage harvesters, boxes fuel for grain drying or other agricultural production gaskets grain augers, portable1 grain drills grain dryer, heater and blower only grain planters harrows hay conditioners hay hooks hay loaders herbicides implement customarily drawn or attached to a self-propelled implement insecticides irrigation equipment kill cones

limestone, agricultural manure spreaders mowers, hay oil filters oil pumps packing materials pesticides pickers plants (seeds) planters plows piston rings pruning and picking equipment1 replacement parts rock pickers rollers1 rotary blade mowers; not lawn mowers rotary hoes seeders seed cleaners1 seed planters seeds self-propelled implements shellers1 silo blowers, unloaders1 sowers spark plugs for exempt machinery sprayers1 spreaders sprinklers subsoilers surfactants tillers tires for exempt machinery tractors, farm tractor chains tractor weights vegetable harvesters weeders1 1exempt if drawn or attached to a self-propelled farm implement or, if portable, used directly and primarily in agricultural production

 

Exempt for Dairy and Livestock Production

adjuvants alternators and generators1 artificial insemination equipment auger systems automatic feeding systems, portable batteries for exempt machinery barn ventilators bedding materials2 breeding stock, agricultural bulk feeding tanks, portable bulk milk coolers and tanks, portable calf weaners and feeders, portable cattle feeders, portable chain and rope hoists, portable1 chick guards chicken pickers, plucking equipment clipping machines, portable3 conveyors, temporary or portable1 cow stalls, portable cow ties, portable cow watering and feeding bowls, portable crawlers, tractor currying and oiling machines, portable curtains and curtain systems dehorners domestic fowl draft horses drip systems electric fence equipment, portable fans and fan systems farm wagons and accessories farrowing houses, crates, stalls, portable feed feed bins, portable feed carts, portable feed elevators, portable feed grinders, portable feed scoops3 feed tanks, portable feeders, portable feeder chutes, portable fence and fencing supplies, temporary or portable foggers fuel to heat or cool livestock buildings gaskets gates, portable gestation stalls, portable grooming equipment, portable3 head gates, portable heaters, portable hog feeders, portable hog ringers3 hoof trimmers, portable3

hypodermic syringes and needles, non-disposable implements customarily drawn or attached to a self-propelled implement incubators, portable inlets and inlet systems inoculation materials insecticides kill cones livestock feeding, watering and handling equipment, portable loading chutes, portable manure brooms, portable3 manure handling equipment, includes front-end and rear-end loaders, portable3 manure scoops, portable1 medications milk coolers, portable milking equipment, includes cans, etc.3 milking machines milk strainers and strainer disks, if not disposable milk tanks, portable pesticides poultry feeders, portable poultry founts, portable poultry litters, portable poultry nests, portable refrigerators replacement parts sawdust2 self-propelled implements shutters and shutter systems space heaters, portable specialized flooring, portable sprayers1 squeeze chutes, stalls, portable stanchions, portable surfactants tires for exempt machinery thermometers3 tractors, farm tractor chains tractor weights vacuum coolers ventilators water filters, heaters, pumps, softeners, portable waterers/watering tanks, portable weaners wood chips2 1 exempt if drawn or attached to a self-propelled farm implement or, if portable, used directly in dairy or livestock production 2 exempt when used as livestock and poultry bedding 3 designed for farm use

 

Exempt for Flowering, Ornamental, or Vegetable Plant Production

air-conditioning pads airflow control tubes atmospheric CO2 control and monitoring equipment* backup generators bins holding sterilized soil control panels for heating and cooling systems* coolers used to chill plants* cooling walls* or membranes equipment used to control water levels for subirrigation fans used for cooling and ventilating* floor mesh for controlling weeds germination chambers greenhouse boilers* greenhouse netting or mesh when used for light and heat control

greehouse monorail systems* greenhouse thermometers handcarts used to move plants lighting which provides artificial sunlight overhead heating, lighting, and watering systems* overhead tracks for holding potted plants* plant tables* plant watering systems* portable buildings used to grow plants* seeding and transplanting machines soil pot and soil flat filling machines steam generators for soil sterilization* warning devices which monitor excess heat or cold watering booms *Exempt if not real property.

 

Taxable Even if Used in Agricultural Production

additives air compressors air conditioners, unless a replacement part for exempt machinery air tanks antifreeze axes barn cleaner, permanent baskets belt dressing bins, permanent brooms buckets building materials* and supplies burlap cleaners cattle feeders, permanent cement chain saws cleaning brushes cleansing agents and materials computers, including laptops, for personal use computer software, canned concrete construction tools conveyors, permanent cow ties, permanent ear tags fence, posts, wire, permanent field toilets fire prevention equipment freon fuel additives fuel tanks and pumps garden hoses and rakes glass grain bins and tanks, permanent* grease grease guns hammers hog rings hydraulic fluids hypodermic syringes, disposable lamps lanterns light bulbs

lubricants and fluids lumber* marking chalk mops motor oils nails office supplies oxygen packing room supplies paint and paint sprayers pliers post hole diggers, hand operated poultry brooders, permanent poultry feeders, permanent poultry nests, permanent pruning tools pumps for household or lawn use radios, unless a replacement part for exempt machinery refrigerators for home use repair tools road maintenance equipment road scraper roofing sanders scrapers screwdrivers shingles shovels silos snow fence unless portable and used directly in dairy and livestock production space heaters, permanent specialized flooring, permanent sprinklers, permanent stalls, permanent staples stanchions, permanent storage tanks tarps tilling machinery and equipment tractors, garden welders wheel barrows wrenches *The buyer of building materials is responsible for paying sales tax or use tax on those materials. This includes materials to construct grain bins. The buyer is the person who pays the vendor.

 

Income Tax Withholding on Agricultural Labor

Iowa income tax withholding is applied to the same wages and compensation as federal income tax withholding.

Registering as a Withholding Agent

Employers required to withhold must register with the State of Iowa and the Internal Revenue Service as a withholding agent. There is no fee for registering.

First register with the Internal Revenue Service to obtain a Federal Employer Identification Number (FEIN). You may call 1-800-829-4933 instead of applying online.

Then register online with Iowa or use the Iowa Business Tax Registration form (pdf).

Filing and Paying Withholding Tax

Iowa withholding returns are submitted electronically through the eFile & Pay system. Once you are registered as a withholding agent, the Department will send you a Business eFile Number (BEN). This number is necessary to access the paperless system.

Every withholding agent is required to file a return for each period during the calendar year, even if tax was not withheld.

Penalty and Interest on Delinquent Returns

Returns and deposits must be filed no later than the due date to be timely. After the due date the amount of tax due is subject to penalty and interest.

See Penalty and Interest.

Iowa W-4

Employees must complete the federal and the Iowa W-4.

The federal W-4 (pdf) is available on the IRS Web site at www.irs.gov

The Iowa W-4 is available online (pdf).

Within 15 days, each new hire and rehire is required to complete and sign an Iowa W-4. It must show the number of allowances the employee is claiming. If for any reason the employee does not complete an IA W-4, the employer must withhold at zero allowances.

Some employees are exempt from withholding. See the W-4 instructions.

Employers must keep copies of W-4 forms in their files for at least four years.

Verified Summary of Payments Report

All Iowa withholding agents are required to submit a completed Verified Summary of Payments Report (VSP) by the last day of February for withholding payments made in the prior calendar year. The VSP is submitted online through eFile & Pay or by touch-tone telephone.

W-2

Employers

Employers are not required to send copies of W-2s or 1099s to the state of Iowa with the VSP. Employers are still required to keep copies of the W-2s and 1099s for at least four years from the end of the year for which the forms apply.

W-2s must be given to employees on or before the last day of January following the tax year or within 30 days of the time the last wage payment is received if requested by the employee.

Blank W-2s may be obtained by contacting the IRS at 1-800-829-3676, ordering online from the IRS at www.irs.gov/, or from a commercial printer.

Employees:

If you need a copy of your W-2, first ask your employer. Since employers are not required to send copies of W-2s to the Iowa Department of Revenue, we are not able to furnish them to you. If you are unable to obtain a copy from your employer, here are some other possible options:

• Social Security Administration (SSA) - will provide copies of Forms W-2 for retirement purposes at no charge and for other than retirement purposes for a fee. Call 1–800–772–1213, or visit the SSA web site at www.ssa.gov  for instructions on how to obtain wage information from the SSA.
• Internal Revenue Service (IRS) – will provide an exact copy of a previously filed and processed tax return with attachments (including Form W-2). You should complete Form 4506, Request for Copy of Tax Return, and mail it to the address listed in the instructions. A fee will be charged for each tax year requested.

See Iowa Withholding Tax Information Booklet.

Iowa Fuel Tax

Tax paid on fuel used in agricultural production is eligible for credit or refund.

Motor Fuel Credits and Refunds

Credit or refund of fuel tax:

• file your Iowa income tax return with form IA 4136; see income tax forms
• no permit needed

or

• obtain a refund permit; 80-005 Refund Permit Application (pdf)
• use call-in system
• see 85-030 Information on Motor Fuel Tax Refund Claims (pdf)

Dyed Diesel Fuel

Dyed diesel fuel may be purchased free of Iowa fuel tax. Therefore, farmers should purchase dyed diesel fuel for agricultural use whenever possible. Since fuel tax will not be charged at the time of purchase, no refund or credit will be necessary. Dyed diesel cannot be used in registered vehicles.

Fuel used to power implements engaged in agricultural production is exempt from sales/use tax.

Agribusiness Sales/Use Tax Issues

This section is written for cooperatives, elevators, agricultural-chemical dealers, and fertilizer dealers.

Exempt

• Machinery and equipment used directly and primarily in the production of agricultural products
• Machinery and equipment used directly and primarily in a manufacturing process
• Replacement parts for exempt machinery and equipment
• Computers used in processing or storage of data by a commercial enterprise (farmers cannot purchase computers tax free, but an agribusiness may be eligible for exemption)

Taxable

• All vehicles subject to registration
• All equipment attached to a vehicle subject to registration
• Labor to repair exempt machinery and equipment
• Parts not separately itemized from labor
• Grain testing
• Grain storage
• Pest eradication

Taxable vs. Exempt Examples

Example 1 - Nurse Tank (for example, an anhydrous ammonia tank)

Taxable if attached to a vehicle subject to registration

Exempt if drawn by a self-propelled implement of husbandry used in agricultural production

Example 2 - Grain Vacuum Conveyor

Taxable if used at an elevator

Exempt if used directly and primarily on a farm in agricultural production

Example 3 - Tractor

Exempt if used to till fields and harvest crops

Taxable if purchased by an elevator to primarily haul grain from an unloading dock to a silo

Example 4 - Skidloader

Exempt if primarily used in agricultural production

A co-op uses a skidloader 60% of the time to clean the feedlot of its livestock operation. The remaining 40% is used to handle fertilizer and do utility work on the co-op premises. The skidloader is exempt because it is primarily (more than 50%) used in agricultural production.

Taxable

A co-op uses a skidloader 100% of the time to load bags of seed, fertilizer, and feed on customer’s trucks.  

 

updated 01/28/11

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