Sales Tax Exemption For Ag Repair Parts

Sales Tax Exemption For Ag Repair Parts

Sept. 5, 2014

In this week's UNL Cornhusker Economics article, Tina Barrett discusses the new law, qualifying assets and how to apply the exemption. She writes ...

The Nebraska State Legislature passed LB 96 this year making the sales of all repair and replacement parts used to repair agricultural machinery and equipment exempt from sales tax. This legislation will go into effect on October 1, 2014.

Any repairs made prior to October 1, 2014 will still be subject to sales tax. Prior to that date, repairs that must be capitalized (put on your depreciation schedule) are still eligible for a refund. In other words, if you made a repair to a piece of farm equipment that substantially increased the value and life of the asset causing it to be classified as a capital purchase, you can file for a refund of the sales tax paid. This is the only way to get repairs free from sales tax prior to October 1, 2014.

Qualifying Assets

For repairs to be exempt from sales tax, the repair must be done on agricultural machinery and equipment used in commercial agriculture. To be defined as commercial agriculture, you "must be in the business of producing food products or other useful and valuable crops or raising animal life." This does include commercial production in greenhouses, nurseries, tree farms, sod farms and feedlots, but does not include commercial elevators or animals held in stockyards or sale barns. The asset itself must also be a qualifying asset. Those that qualify must be "tangible personal property that is used DIRECTLY in cultivating or harvesting a crop, raising or caring for animal life, or collecting or processing an agricultural product on the farm or ranch". This means assets such as four-wheelers, utility vehicles, lawn mowers and other farm assets that are not directly tied to production will not meet the exemption for sales tax.

Read More of Barrett's Cornhusker Economics article, including a list of what qualifies for the exemption and what doesn't.