Sales and Use Tax: Application to Kentucky Farmers

1 AEC Extension No: 105 September 1993 By: Fred Benson and Paul Joerger University of Kentucky Department of Agricultural Economics 400 Charles E. Barnhart Bldg. Lexington, KY 40546-0276 Phone: 859-257-5762 Fax: 859-323-1913 Sales and Use Tax: Application to Kentucky Farmers Sales and Use Tax: Application to Kentucky FarmersAg. Economics Extension Publication #105 September 1993 Fred Benson and Paul JoergerKentucky's 6% Sales tax, although a low amount,can add up to be very costly if neglected and notpaid. It also can be expensive if paid on items whichare tax exempt.

2 As a general rule Kentucky salesand use tax law assumes that all gross receipts of aretailer. including Farmers , are subject to the taxunless an exemption exists. An exemption exists forfood and food products, and products that are usedfor the production of food items. Therefore, afarmer can sell grains, oilseeds, forages, or theseproducts can be used for the production of livestockwhich in turn will produce meat, eggs or milkproducts. Since meat, eggs or milk products aresold, the requirement of collecting Sales tax isrelinquished. Transactions relating to tobaccoproduction are subject to Sales and use tax becausetobacco is not considered food.

3 Horses are notconsidered livestock and are not used for humanfood consumption. Therefore, if a farmer sells grain,straw, machinery, etc. to a horse farm where theproduct is used in the production and raising ofhorses, the seller must charge, collect, and remitsales tax on the sale to the Kentucky Department ofRevenue. If hay or any other farm commodity is sold to abroker, feed store or local cooperative, for resalepurposes then the seller must request that the buyercomplete a resale certificate unless the buyer hasbeen in the business of reselling farm commoditiesfor years.

4 If the purchaser does not use thepurchased item for its stated use as being resold, itthen becomes his/her responsibility to remit the , Farmers are required to remit the salesor use tax every three months. If they are required toremit Sales tax every quarter, they will receive aForm 51A102 from the Kentucky Revenue Cabinetthat is due on the 20th of the month, the monthfollowing the quarter. Therefore, if Sales tax is duequarterly, they will have to file the Form 51A102before, April 20th, July 20th, October 20th andJanuary 20th. Depending upon the situation, farmersmay be required to file the Sales tax form is important that Farmers maintain a file ofresale certificates and other certificates ofexemption.

5 Keep copies of resale certificates,agricultural exemption certificates, farm machineryexemption certificates, and certificates of exemptionfor on farm grain and soybean facilities for aminimum of 4 years if a Sales and use tax permitnumber has been issued. If a farmer does not have asales and use tax permit number then exemptioncertificates must be on file back to 1960 or when thebusiness started, which ever is later. The certificatesof exemption must be kept with other farm recordsin case of an audit. Where exemptions do not existthe seller is always held responsible for thecollection and remittance of Sales or use payments are subject to a 2 percent permonth penalty and interest.

6 Presently, the interestcharge on delinquent payments is 7 who are delinquent in paying their salestaxes will find the penalties and interest mount upvery TO Farmers - Sales of tangible personal property to farmersfor their use in their trade and business of farmingare exempt from Sales tax if the following occurs: farmer will use the tangible property inthe trade and business of farming and farmer is regularly engaged in theoccupation of tilling and cultivating the soilfor the production of crops or in the businessof raising or feeding livestock or poultry forthe production of meat, eggs or machinery purchased by Farmers who usethe machinery in the occupation of tilling andcultivating the soil for the production of crops or inthe business of raising or feeding livestock orpoultry for the production of meat, eggs or milk.

7 Isexempt from Sales and use tax. The production ofcrops includes timber, flowers, fruits, shrubs, machinery includes all machinery exclusivelyused in the activities listed. Repair and replacementparts used on exempt machinery used exclusivelyfor the production of food. The farmer must providethe retailer a farm Machinery Exemption Certificate,Revenue Form 51A148, in order to be exempt fromthe Sales and use tax on both parts and the capitalpurchase. An exemption certificate should always besubmitted unless the vendor has a blanket certificateon attachments to farm machinery or farmimplements are tax exempt both with the originalpurchase and when replaced.

8 These includehydraulic systems, weights, hitches, dual wheels, andother items necessary to the operation of themachine or implement. Also considered tax exemptare repair and replacement parts for tractors andimplements which include batteries, tires, belts,mufflers, spark plugs, miscellaneous motor repairs,plow points, cutting parts, bolts and springs. Thereare other items that are tax exempt only if they areincorporated into the construction renovation orrepair of on farm grain or soybean facilities or onfarm chicken raising or livestock raising include items which are incorporated into realproperty such as stalls, stanchions, drainage tile,fencing materials, and building materials incorporated into theconstruction, renovation or repair of On- farm Grainor Soybean Facilities and On- farm Chicken RaisingFacilities are exempt from Sales tax.

9 Property to beincorporated into or used for on- farm grain orsoybean facilities can be purchased tax-exempt withthe farmer requesting a Certificate of Exemption forOn- farm Grain or Soybean Facilities, Revenue Form51A148-S1 from the retailer. This includes onlythose On- farm Grain or Soybean Facilities usedexclusively for grain or soybean storage, drying,processing or handling. In addition, property to beincorporated into or used for on- farm production orlivestock which will ordinarily be considered foodfor human consumption can be purchased taxexempt with the farmer issuing the retailer aCertificate of Exemption for On- farm Chicken orLivestock Raising Facilities, Revenue Form 51A153.

10 This includes only those on- farm facilities used forpoultry or livestock farm Input Items (subject to tax)There are several categories of items which areexcluded from the category of farm machinery, andtherefore, are subject to Sales and use tax. These arecontainers and storage facilities such as milk cans,wash tanks, watering tanks, egg baskets,nonmechanical silos, nonmechanical feeders, and oiland gas storage tanks. Hand tools and whollyhand-operated equipment such as wheelbarrows,hoes, rakes, pitchforks, shovels, brooms, wrenches,pliers and grease guns are subject to farm equipment and supplies such astobacco sticks and canvas, milk strainers, lawn andgarden equipment , oils, greases and coke are nonexempt.