…
At hearing, Taxpayer explained that he owns both the
excavating business and a farm, and that the tractor and scraper were used on
the farm for installing drainage ditches. Also, the tractor was used to till
fields for crops on the farm. Since Taxpayer is the excavating business and
since the farm is a distinct and separate entity, the use of the tractor and
scraper to install drainage ditches on the farm constituted taxable uses.
However, the tilling of fields for crops on the farm constituted use by the
farm as opposed to use by the excavating company. Therefore, Taxpayer as a
retail merchant should have collected sales tax from the farm on the rental of
the tractor by the farm, as provided by IC § 6-2.5-2-1(b).
…
After the administrative hearing, Taxpayer provided
documentation and analysis in support of its claim that the tractor was used in
both exempt and taxable circumstances in the tax year at issue. The tractor was
used to till land for crops on the farm and to create drainage ditches. The
tractor was used a total of approximately 250 hours in 2010. 225 hours of use
were for tilling ground, which qualifies as an exempt activity. 25 hours of use
were for creating drainage on the farm. This results in an exempt use ninety
(90) percent of the time and a taxable use ten (10) percent of the time.
Therefore, the Department will recalculate the amount of use tax due by
applying the use tax rate to ten percent of the purchase price of the tractor.
Regarding the scraper, it is not used in an exempt manner at
all. It literally scrapes surface material for removal or relocation from its
original site. This does not qualify for the agricultural exemption since it is
not directly used in the direct production of a crop or livestock, as required
by IC § 6-2.5-5-1 and IC § 6-2.5-5-2.
In conclusion, Taxpayer was not required to charge sales tax
on the rental of the tractor to the farm, since that use qualified for the
agricultural exemptions found at IC § 6-2.5-5-1 and IC § 6-2.5-5-2. Taxpayer's
ten percent (by hours of usage) use of the tractor for installation of drainage
ditches was a taxable use, and use tax is properly due on ten percent of the
purchase price of the tractor. Use tax is properly due on the total purchase
price of the scraper, since it was not used in an exempt manner at all.
