006.05.06 Ark. Code R. 005-GR-51

Current through Register Vol. 49, No. 10, October, 2024

Rule 006.05.06-005-GR-51 - EXEMPTIONS FROM TAX - FARM MACHINERY AND EQUIPMENT, TIMBER HARVESTING EQUIPMENT

A. The gross receipts or gross proceeds derived from the sale of new and used farm equipment and machinery is exempt from gross receipts tax.

B. DEFINITIONS.

1. "Farm equipment and machinery" means agricultural implements used exclusively and directly for the agricultural production of food or fiber as a commercial business or the agricultural production of grass sod or nursery products as a commercial business. Farm equipment and machinery does not include implements used in the production and severance of timber, motor vehicles that are subject to registration, airplanes, or hand tools.

a. The following agricultural implements are exempt provided they meet the requirements of GR-51(C)(1) and GR-51(C)(2):

Combines, cotton pickers, cotton module builders, cotton trailers, cultivators, discs, farm tractors, (other than garden tractors) harrows, irrigation equipment, milking equipment including milking machines, mechanical pickers, planters, plows, rotary hoes, sprayers, spreaders and threshing machines.

b. All terrain vehicles which are not subject to licensing or registration for use on the highways.

c. Machinery and equipment used in poultry grow-outhouses including heaters, cages, feeding systems, storage bins for short term storage of feed, medicators, watering systems, augers, fans and generators.

d. Egg racks, poultry loaders and module coop systems used by egg and poultry producers in farming operations.

2. "Irrigation equipment" means

(i) pipes, hoses, tubing and accessories to the pipes, hoses and tubing which deliver irrigation water from the water source to the crops regardless of whether the equipment becomes affixed to real property; and,

(ii) pumps, gates, and other equipment other than pipes, hoses and tubing, which is movable and does not become affixed to real property. Irrigation equipment, other than pipes, hoses, and tubing, which is designed or intended to be permanently attached or incorporated into real property is not exempt.

C. The list of exempt items in GR-51(B)(1)(a) is not intended to be exclusive. Other agricultural implements may qualify for this exemption provided they meet the requirements of GR-51(C)(1) and GR-51(C)(2).

1. An implement may not be treated as tax exempt unless it is used "exclusively" in the agricultural production of food or fiber as a business or the agricultural production of grass sod or nursery products as a business.

a. An implement will be presumed to be used exclusively in the agricultural production of food, fiber, grass sod, or nursery products as a business if the implement is used on land owned or leased for the purpose of agricultural production of food, fiber, grass sod, or nursery products.

b. A person who uses agricultural implements in the production of food, fiber, grass sod, or nursery products primarily for his own consumption is not entitled to this exemption.

2. An implement may not be treated as tax exempt unless it is used "directly" in the agricultural production of food or fiber as a business or the agricultural production of grass sod or nursery products as a business. The term "directly" limits the exemption to the following:

a. Only those implements used in the actual agricultural production of food, fiber, grass sod, or nursery products to be sold in processed form or otherwise at retail; or

b. Machinery and equipment used in the agricultural production of farm products to be fed to livestock or poultry which is to be sold ultimately in processed form at retail.

3. Implements which are not exempt include, but are not limited to, the following:

a. Containers or storage facilities;

b. Implements used in the production or severance of timber (except as exempted by GR-51(F) of this rule), or any motor vehicle of a type subject to registration for use on the highway, or airplanes, or hand tools;

c. Attachments to and accessories not essential to the operation of the implement itself (except when sold as part of an assembled unit);

d. Items which are incorporated into real property; and

e. Repair labor and repair parts.

f. Examples of non-exempt items include (i) a machine owned by a commercial farmer but also used at a location other than the farming property (such as a duck club or deer camp); (ii) a machine owned by a commercial farmer but also used for any purpose at any time for activities other than commercial farming, even while located at the commercial farm (such as pleasure riding, household activities, residential yard work, gardening, hunting, and fishing); and (iii) a machine purchased by a commercial farmer who also uses the machine to produce food or fiber primarily for his own consumption.

D. PROOF OF ENTITLEMENT. Sellers of farm equipment and machinery, which the purchaser claims as an exempt transaction, should refer to GR-79 concerning exemptions. As an alternative to an exemption certificate, a seller may accept a certification from the purchaser that the item (i) will be used exclusively in the agricultural production of food or fiber as a retail business; and either (ii) used directly in the actual agricultural production of food or fiber to be sold in processed form or at retail; or (iii) used directly in the agricultural production of farm products to be fed to livestock or poultry, which is to be sold ultimately in processed form at retail. The suggested certification form appears at the end of this rule.

E. ENGAGED IN THE BUSINESS OF FARMING. A purchaser of farm machinery and equipment shall be considered to be engaged in the business of farming for purposes of the exemption if the purchaser meets the requirements in GR-51(E)(1) or GR-51(E)(2).

1. The purchaser is engaged in the agricultural production of food, fiber, grass sod, or nursery products as a business for profit as defined in Internal Revenue Code § 183 as adopted by Ark. Code Ann. § 26-51-424; or

2.

a. The purchaser provides services to farmers directly related to the production of food, fiber, grass sod, or nursery products;

b. The items of farm machinery and equipment are used exclusively and directly to provide those services; and

c. The items of farm machinery and equipment would have otherwise qualified for the farm machinery exemption if purchased and used exclusively and directly by the farmer for the same activity.

Example: A fertilizer spreader or seed spreader, or chemical applicator purchased by a farmer would qualify for the farm machinery exemption if used exclusively by a farmer in applying fertilizer, planting seed, or applying agricultural chemicals as part of the agricultural production of food, fiber, grass, sod, or nursery products as a business. The farm machinery exemption will also be available to a fertilizer dealer, seed company, or other similar business upon the purchase of these same items provided the items are used exclusively and directly by the business in applying fertilizer, planting seed, or applying agricultural chemicals for farmers.

F. TIMBER HARVESTING. If new or used machinery or equipment and related attachments are sold to or used by a person engaged primarily in the harvesting of timber, then the purchaser is entitled to a rebate of gross receipts tax paid on the first $50,000.00 of the purchase price.

1. In order for the machinery or equipment and related attachments to be subject to the rebate, it must be (i) purchased by a person who commits more than fifty percent (50%) of his or her activities to the harvesting of timber; and (ii) used exclusively in the off-road activity of harvesting of timber.

2. Only complete systems or units that operate exclusively and directly in the offroad harvesting of timber are subject to the rebate of tax. The equipment and related attachments meet this requirement if they are used in harvesting timber from the time the tree is severed from the ground through the point at which the tree or its parts in any form have been loaded in the field in or on a truck or other vehicle for transport to the place of use. Examples of such equipment include skidders, feller bunchers, delimbers of all kinds, and bulldozers equipped with grapples used as skidders.

3. This rebate does not apply to repair or replacement parts for the machinery and equipment used in timber harvesting.

G. CLAIMS FOR REBATE FOR TIMBER HARVESTING MACHINERY AND EQUIPMENT.

1. Self Rebate. A purchaser that holds an active Arkansas sales and use tax permit and files excise tax reports with the Department may offset the amount of credit or rebate claimed against any municipal or county sales or use tax due to be remitted with the return.

a. The purchaser must list each local code and the amount of tax paid to the seller on the return.

b. If the total amount of the credit or rebate is being requested is larger than the local tax due for that month, then the purchaser will deduct the remaining credit or rebate from the state tax due on the return and remit the difference.

c. The purchaser must maintain documentation, such as photocopies of the invoices or receipts provided by the seller, for which the credit or rebate is being requested.

2. File a Claim. A purchaser that qualifies for a rebate, but is not required to file a sales or use tax return as provided in GR-51(G)(1), may file a claim for a credit or rebate by completing the Claim for Refund Form 2004-6.

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*These certifications shall be kept on file by the seller for six years from the date of sale for audit purposes.

006.05.06 Ark. Code R. 005-GR-51

Ark. Code Ann. §§ 26-52-403; 26-52-431