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Taxpayer states in its protest letter the following: [Taxpayer] owns farmland and is dependent on the production of food. The questioned items of equipment were used for waterways, terracing, subsurface and surface drainage of the fields. These activities are vital process of planting, maintain drainage while the crop is growing (so it doesn't drown out or drown down and is accessible for fertilizer and/or chemical application), and allowing access for harvesting.
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The fact that an item is purchased for use on the farm does
not necessarily make it exempt from sale [sic.] tax. It must be directly used
by the farmer in the direct production of agricultural products. The property
in question must have an immediate effect on the article being produced.
Property has an immediate effect on the article being produced if it is an
essential and integral part of an integrated process which produces
agricultural products. The fact that a piece of equipment is convenient, necessary,
or essential to farming is insufficient in itself to determine if it is used
directly in direct production as required to be exempt.
Taxpayer's equipment thus does not come within the scope of
agricultural production. As 45 IAC
2.2.-5-3(c) notes: (6) Purchases of
watering tubs and troughs and tile for drainage are taxable. Further, the Department notes that the list
of taxable items found at 45 IAC
2.2-5-4 includes, but is not limited to: "drains," "[f]ield
tile or culverts," and "[g]raders, ditchers, front end loaders, or
similar equipment (except equipment designed to haul animal waste)."
Taxpayer's use of the equipment for "waterways, terracing, subsurface and
surface drainage of the fields" does not meet the double direct test found
in IC § 6-2.5-5-2(a), and is thus subject to assessment for use tax.
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Taxpayer was also assessed a ten percent negligence penalty.
Taxpayer was also assessed interest. Regarding interest, the Department notes
that under IC § 6-8.1-10-1(e), that interest cannot be waived.
Penalty waiver, however, is permitted if the taxpayer shows
that the failure to pay the full amount of the tax was due to reasonable cause
and not due to willful neglect. IC § 6-8.1-10-2.1.
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In its protest letter, Taxpayer does not develop its
argument regarding the penalty. And at hearing, Taxpayer asserted that it was
not clear to Taxpayer that tax was owed and that it was trying to do things
correctly. Under IC § 6-8.1-5-1(c) Taxpayer bears the burden of proof regarding
its argument. Taxpayer has failed to meet its burden of proof.
