Taxpayer, an Indiana farmer, purchased a chopper (also
called "bush hog") to be used on his farm to chop corn stalks in the
fields. Pursuant to an audit, the Indiana Department of Revenue
("Department") discovered that Taxpayer did not pay sales tax at the
time of the purchase nor did Taxpayer self-assess and remit use tax to the
Department. As a result, the Department assessed Taxpayer additional tax and
interest.
…
In this instance, Taxpayer, in relevant part, states:
I operate a farm as part of my profession and the equipment
purchased in question for sales tax was a bush hog. I use this bush hog to mow
corn stalks and pasture. Both tasks are essential in the direct production of
my cattle operation. By mowing the stalks the cattle can eat them better and by
mowing the pasture a better quality of grass in grown for consumption.
Thus, Taxpayer believes that he is entitled to the
agricultural exemptions on the purchase of the chopper/bush hog.
Taxpayer may argue, and rightly so, that mowing corn stalks
and pasture is essential to his cattle operation. However, pursuant to the
above mentioned statutes and regulations, all purchases of tangible personal
property by persons engaged in the direct production, extraction, harvesting,
or processing of agricultural commodities are taxable, unless the use of the tangible
personal property satisfies the "double-direct" test; i.e., the
equipment at issue must be involved in the direct production of the
agricultural commodity and must have a direct effect upon that commodity. In
this instance, Taxpayer explained that he leases a portion of his farm to a
third party (tenant) who plants the corn and that Taxpayer used the chopper to
chop the corn stalks after his tenant harvested the corn. Thus, Taxpayer used
the chopper to chop the corn stalks after the harvest of the corn, which is
post-production of the agricultural commodity owned by his tenant.
Additionally, Taxpayer explained that, unlike his tenant, he raises cattle for
human consumption; thus, upon chopping the corn stalks, Taxpayer then used the
chopped stalks to make bedding for his cattle. Therefore, Taxpayer's use of the
chopper also did not have a direct effect upon his cattle.
Since Taxpayer did not pay sales tax at the time of the
purchase, the use tax is properly imposed.
