Iowa — Sales Tax Owed on Mower Used on Rental Farmland

A western Iowa landowner owes sales tax on the purchase of a brush hog mower used on farmland he rents out. So says an administrative law judge in a case decided last fall.

The landowner, a Mr. Paulson, owns 191 acres of land near Council Bluffs, of which 120 acres is used as farmland. Mr. Paulson rents out the land to a farmer.

In 2006, Mr. Paulson bought a brush hog mower from Eppley Airfield in Omaha for $28,000. He did not pay Iowa sales tax on the purchase. Mr. Paulson uses the mower to mow the non-tillable areas of the land, such as the terraces and areas along the outside of the farmland. He does not use the mower for personal purposes.

The Iowa Department of Revenue audited Mr. Paulson and determined he owed $1,960 in sales tax. Mr. Paulson protested. The case went before the Iowa Department of Inspections and Appeals, where an administrative law judge sided with the state.

Mr. Paulson cited an exemption from sales tax in state law for the purchase of “farm machinery and equipment, including auxiliary attachments which improve the performance, safety, operation, or efficiency of the machinery and equipment and replacement parts.” Mr. Paulson argued that mowing the non-tillable portions of the land improved the yield of the cropland.

But the judge disagreed. The exemption from sales tax only applies if the machinery is “directly and primarily used in production of agricultural products.” The judge ruled that the mower’s impact on crop production is indirect, “unlike other machinery such as tillers, planters and combines.”

Click here to find the text of the ruling.

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