Taxpayer, an Indiana land owner, rented his land to a farmer. Pursuant to a farming agreement, Taxpayer prepares the field for the tenant-farmer, who plants and harvests crops, such as corn and soybeans.
In 2010, Taxpayer purchased a John Deere Tractor ("Tractor") and a snow blower at a local store. Pursuant to a desk audit, the Indiana Department of Revenue ("Department") discovered that Taxpayer did not pay sales tax at the time of the purchases nor did Taxpayer self-assess and remit use tax to the Department. As a result, the Department assessed Taxpayer additional tax, interest, and penalty.
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At the hearing, Taxpayer stated that he purchased the Tractor solely to be used on the farm. Taxpayer first stated that, under the farming agreement between him and his tenant-farmer, he is required to chop down stalks after the harvest of corn crops in the fall. Taxpayer also asserted that he is required to remove rocks and tire compaction on the farm in the following spring, so his tenant-farmer can plant the crops. Additionally, Taxpayer explained that one portion of his farm is set aside by the Agricultural Stabilization and Conservation Service ("ASCS"), and he is responsible for mowing the field to prevent trees from growing. Thus, Taxpayer maintained that he is entitled to the agricultural exemption on the purchase of the Tractor.
The Department must respectfully disagree. First, Taxpayer failed to demonstrate that he is occupationally engaged in agricultural production. Second, 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; the equipment at issue must be involved in the direct production of the agricultural commodity and must have a direct effect upon that commodity. Taxpayer's documentation demonstrates that he used the Tractor (1) to chop the corn stalks after the harvest of that year, (2) remove rocks or tire compaction before planting the crop for the following year, and (3) to mow the field to prevent trees from growing. Thus, the Tractor was used after and/or before the direct production of the agricultural commodity, i.e., not during the direct agricultural production process. Thus, the Tractor did not have a direct effect upon the commodity.
Since Taxpayer did not pay sales tax at the time of the purchase, the use tax is properly imposed.
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Taxpayer also protests the imposition of the negligence penalty.
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Taxpayer has provided sufficient documentation establishing that his failure to pay tax or timely remit tax was due to reasonable cause and not due to negligence.
