Taxpayer is an Indiana farmer. As the result of an investigation, the Indiana Department of Revenue ("Department") issued a proposed assessment for use tax, penalty, and interest on the purchase of a gator and a rotary cutter ("Cutter") in 2010. Taxpayer paid the portion of the assessment related to the purchase of the gator, but protests the portion of the proposed assessment of use tax on its purchase of the Cutter.
...
Taxpayer protests the imposition of use tax on the purchase of a rotary cutter. Taxpayer protests that the Cutter is exempt. The Department notes that the burden of proving a proposed assessment wrong rests with the person against whom the proposed assessment is made, as provided by IC § 6-8.1-5-1(c).
...
...
Taxpayer claims that the Cutter is exempt from use tax under 45 IAC 2.2-5-4 (d)(4), which states that transactions are exempt for "implements used in the tilling of land and harvesting of crops therefrom, including tractors and attachments." Specifically, Taxpayer argues that the Cutter is necessary to mow hay fields to allow his cattle to properly graze, to produce hay to feed the cattle he raises, and to cut corn stalk stubble in preparation for the next year's tilling.
IC § 6-2.5-5-2 states that "transactions involving agricultural machinery, tools, and equipment are exempt from the state gross retail tax if the person acquiring that property acquires it for his direct use in the direct production, extraction, harvesting, or processing of agricultural commodities. " This statute applies a "double direct" test in which a purchase for agricultural use is exempt only when the property is directly used in the direct production, extraction, harvest, or processing of agricultural commodities. Therefore, equipment used prior to the start of or after the end of the production, extraction, harvesting, or processing of agricultural commodities is not eligible for the agricultural commodities exemption. This standard is reiterated in 45 IAC 2.2-5-4 (e) that states:
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.
The preparation of fields for proper grazing does not directly affect the cattle. Rather, it is a pre-production activity similar to storing feed prior to actually feeding the cattle. The hay which Taxpayer cuts down with the Cutter is not itself an agricultural product because Taxpayer does not sell the hay and so this activity does not qualify for exemption under IC § 6-2.5-5-2. The cutting of corn stalk stubble is a post-harvest/pre-tilling activity and is not direct use in the direct production of an agricultural product.
In conclusion, the Cutter is not agricultural machinery, tools, or equipment which is directly used in the direct production, extraction, harvesting, or processing of agricultural commodities. The Cutter therefore does not qualify for the exemption found under IC § 6-2.5-5-2. Taxpayer has not met the burden imposed under IC § 6-8.1-5-1(c).
