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[ 2008; R-2013 | Keywords: Sales Tax, CRP

Land which is placed in the CRP program cannot be used for agricultural production. Because CRP land cannot be used for agricultural production, equipment used primarily on CRP ground are not directly and primarily used in the production of agricultural products.

Here is a portion of a January 10, 2008 letter from the IA Revenue Dept. regarding this topic:

“After reviewing the information in your protest, the Review Unit does not agree the ATV you purchased is exempt from Iowa sales tax as farm machinery and equipment. The Department finds support for its position in revenue department rule 701—18.44(1) located in the Iowa Administrative Code. To be eligible for exemption from, or refund of, tax under the applicable provisions of this rule, the machinery or equipment must be “directly and primarily used in the production of agricultural products.”

Your protest indicates you use the ATV for spraying and removing trees, as well as other activities as required by your agricultural payment contract under the CRP program. Land which is placed in the CRP program cannot be used for agricultural production. In fact, the whole concept of the CRP program is to ensure non-production on the enrolled land. Because CRP land cannot be used for agricultural production, your ATV is not directly and primarily used in the production of agricultural products. The fact you occasionally loan your vehicle to a tenant who is involved in the production of livestock does not make your purchase of the ATV directly and primarily for use in the production of agricultural products.

Finally, the fact the Department of Agriculture requires maintenance on CRP enrolled land does not make the purchase exempt. Because the ATV purchase is not exempt from sales tax under revenue rule 18.44(1), the Department was correct in denying your claim for a refund of the sales tax paid.