A new 1.5 percent sales tax rate for Mississippi farms that took effect July 1 has left unanswered questions as to how it is going to be applied to some purchases of farm equipment and parts, leaving both farmers and dealers in quandary.
While the change is spelled out for many items and services, that is not the case for some irrigation systems, 4-wheelers, farm tires, and other items, says Don Stallings, Baird & Stallings certified public accountant, who spoke at the recent joint meeting of the Southern Cotton Ginners Association and Delta Council Ginning and Cotton Quality Improvement Committee at Stoneville, Miss.
He says the situation is fairly straightforward in most cases. In some instances, farmers will pay more, in many others, less. Some remain undetermined.
“In a discussion with Greg Duke, chief of the Mississippi Sales Tax Division, Duke explained that the law has not changed, just the rate. For example, farm tractors that were subject to a 1 percent sales tax rate are now subject to the 1.5 percent rate. Implements that were subject to a 3 percent sales tax rate are now subject to the new 1.5 percent rate.”
Every farmer is required to furnish each vendor with a notarized affidavit that the item qualifies as a tractor or implement; otherwise, the vendor is required to charge a 7 percent rate. Copies of the affidavit form may be downloaded from the Mississippi Tax Commission Web site and, Stallings says, one notarized form may be Xeroxed and used for multiple purchases.
“Any repairs and maintenance items, as well as labor that goes on either a tractor or implement that qualifies, will now be subject to the new 1.5 percent rate.”
Some other examples: A combine, cotton picker, or module builder previously taxed at a 3 percent rate is now 1.5 percent; center pivot systems, previously taxed at 7 percent, are now 1.5 percent; self-propelled spray rigs, previously 3 percent, are now 1.5 percent; repairs/maintenance/labor on tractors or implements, previously 7 percent, is now 1.5 percent; and other self-propelled equipment other than tractors and combines, previously 3 percent, is now 1.5 percent, as long as it meets the definition of farm equipment as published in the agricultural sales tax regulation.
An e-mail from Duke, Stallings says, seems to indicate that center pivot irrigation systems “qualify as an implement and subject to the new 1.5 percent rate; however, it is undetermined how underground and down-the-row systems would be taxed. This uncertainty also applies to power units running down-the-row systems. His opinion is that irrigation wells attach to real property and … would be taxed at 7 percent.
“We’ve been trying for two months to get a ruling about these questions on underground pipe and down-the-row systems, and we don’t have an answer yet.”
The more input farmers and organizations such as the Delta Council can provide to the Tax Commission “to impress upon them the logic of farm uses for implements and equipment, the better informed they will be in making a decision,” Stallings says.
There are many other items for which “they are either unclear on, or in their opinion do not qualify,” Stallings says, noting that Duke “said 4-wheelers tend to be multi-use items, being used on the farm as well as for hunting, and in his opinion, would not qualify. He also pointed out that even if they were used for spraying, the equipment was not powered by PTO and would not qualify.
“I pointed out that there are many ATVs that now have been adapted for farm use and are used exclusively for farm use. Many ATVs are now equipped to pull tanks, run spray rigs, run GPS equipment to mark levees, etc.
“These are items for which I feel Delta Council could request a special ruling and, if ruled against, work with legislators to have them specifically covered under the law.”
Anyone can request a formal ruling on a particular question, Stallings notes, and he encouraged farmers to either submit requests directly to the agency or to the Delta Council.
Enforcement “is going to be a nightmare,” he says. While he says the chances for a Tax Commission audit of a farmer’s purchases “are slim, if you’re picked for an audit there’s always a chance for a negative decision.”
The situation could be simplified, Stallings says, “if every purchase made by a farm qualified for the 1.5 percent rate. This would bring items such as grain storage facilities, wells, underground pipe, over-the-road trailers, etc., under the 1.5 percent umbrella. Getting this done could best be accomplished by the Delta Council working with the State Tax Commission and the legislature.”
Chip Morgan, Delta Council executive vice president, said the organization is taking an active role in working with the Tax Commission to resolve the issues relating to the new tax rate.