Vermont: Managing Sales Tax Exemptions in the Agriculture Industry
- Aug 4, 2014 | Gail Cole
The Vermont Department of Taxes has updated its fact sheet on the taxability of agricultural machinery, equipment and supplies. It is designed to help businesses determine the agricultural machinery and equipment that qualifies for an exemption from Vermont sales and use tax.
Purchasers are advised that the exemption allowed by Vermont is a “use-based exemption,” meaning that the exemption “is determined by how the machinery and equipment is actually used in an agricultural business.” In other words, an item may be taxable if not used exactly as stipulated by the law.
Sellers are advised that “the burden of proving whether or not an exemption applies to the machinery and equipment being sold is on the person required to collect tax—the seller.” Sellers are liable for unpaid sales tax if an exemption certificate is not obtained in good faith.
Questions for agricultural machinery and equipment
Sellers may accept an exemption certificate from sellers who answer “yes” to all the following questions:
- Will it be used in producing crops, obtaining dairy products, raising livestock, or in obtaining maple syrup for sale?
- Is it machinery or equipment? (Agricultural supplies are not machinery or equipment.)
- Will it be used to produce tangible personal property for sale? (Tangible personal property which is consumed for personal use or is given away is not considered to be “for sale.”)
- Will it be used directly and exclusively in the production of tangible personal property for sale? (Directly and exclusively generally means it is used to produce tangible personal property for sale at least 96 percent of the time it is operated.)
- Will it be used on a farm, orchard, nursery, or in a greenhouse or other similar structure used primarily for the raising of agricultural or horticultural commodities for sale? (Operations for food processing, logging and lumbering, cheese making, stockyards and slaughterhouses, and pet or sport-animal breeding are not farms.)
Answer “no” to any one of the questions above and the exemption for agricultural machinery and equipment does not apply.
The fact sheet also lists questions to ask to determine the taxability of agricultural supplies. Everything depends on use: items may be exempt if they are used for particular purposes; use them for another purpose and they are taxable. Please see the fact sheet for additional information.
Proper use of exemption certificates is essential for proper management of sales and use tax. Sales tax automation software works makes it a cinch.