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[Author: Mark Othmer, Nebraska Field Director, 2013 | Keywords: Nebraska Legislation, Sales Tax, Trailers]

From time to time, the Nebraska Department of Revenue (DOR) reviews rules and regulations that have been promulgated to define and administer sales tax laws enacted by the Unicameral. Such is the case with the recent determination by the DOR with regulation 1-094. This regulation defines commercial agriculture machinery and equipment as “tangible personal property that is used directly in the cultivating or harvesting of a crop, the raising or caring for animal life, or the collecting or processing of an agricultural product on the farm or ranch.”

In the past, we felt this regulation was fairly simple and covered almost any machine used in the agricultural process of row crop farming and raising livestock. Recent tax audits by the Department of Revenue, however, have proved this to be a misconception. After several conversations with officials at the Department of Revenue, it appears they are now placing a new emphasis on the word “directly” in the regulation. For instance, in order for the ag sales tax exemption for farm equipment to apply, it now must be used “directly” in the cultivation or harvesting of a crop, the raising or caring for animal life, or the collecting or processing of an agricultural product on the farm or ranch.

As some dealers have already discovered, this new emphasis on the word “directly” means that header trailers and seed tenders can no longer receive the ag sales tax exemption. The DOR has also stated that licensable trailers will no longer qualify for the exemption, only non-licensable trailers may qualify. This only adds to the confusion, making it very hard to determine what makes a trailer non-licensable. At the time of this writing, I am still trying to figure out how to determine what qualifies a trailer as non-licensable. Unfortunately, my research has not revealed any new clues to this mystery. Our recent legislative alert e-mailed to members suggests that “you should immediately amend your dealership policies to collect and remit sales tax on header trailers, seed tenders, post-hole diggers and dirt scrapers.” If you do not make this change, you are risking fines from the Department of Revenue if failure to collect this tax is discovered during an audit. I encourage you to review the Agricultural Machinery and Equipment Sales Tax Exemption information guide published by the Nebraska Department of Revenue (found at http://www.revenue.ne.gov/info/6-368.pdf). This may help guide you in your decisions on collecting sales tax on equipment sales. If you encounter resistance with a customer when requiring him to pays sale tax, furnish him with form 7AG-1, the Nebraska Sales and Use Tax Refund Claim (found at http://www.revenue.ne.gov/tax/current/fill-in/f_7ag-1.pdf). He may then file this form with the DOR and make his case for why the ag sales tax exemption should be allowed, moving the discussion between the farmer and the Department of Revenue, insulating you, the dealer, from the determination of whether the piece being sold does or does not qualify for the exemption.

As stated in our legislative alert, we need to hear from dealers who have undergone a sales tax audit in the past five years. It is our desire to determine when the Nebraska Department of Revenue began enforcing these new rules. So far, I have not found anyone who had an audit before July 2012 where header trailers and seed tenders were not allowed the ag sales tax exemption. If your dealership had an audit, please contact me as soon as possible.