Farm Machinery and Equipment

Section 130 TITLE 86: REVENUE CHAPTER I: DEPARTMENT OF REVENUE PART 130 RETAILERS' OCCUPATION TAX SECTION 130.305 FARM MACHINERY AND EQUIPMENT Section 130.305  Farm Machinery and Equipment a)         Notwithstanding the fact that the sales may be at retail, the Retailers' Occupation Tax Act ("Act") does not apply to sales of machinery and equipment, both new and used, and including machinery and equipment manufactured on special order, used, or leased for use primarily in production agriculture or for use in State or federal agricultural programs, including any individual replacement part for such machinery and equipment.  A purchaser must certify to the use of the equipment to obtain the exemption. For purposes of this Section, "primary use" or "primarily" means more than 50% of the time. b) Production agriculture. "Production agriculture" means the raising of or the propagation of livestock; crops for sale for human consumption; crops for livestock consumption; and production seed stock grown for the propagation of feed grains and the husbandry of animals or for the purpose of providing a food product, including the husbandry of blood stock as a main source of providing a food product.  "Production agriculture" also means animal husbandry, floriculture, aquaculture, horticulture, viticulture, and apiculture . [35 ILCS 120/2-35] 1)         Animal husbandry means the raising and propagation of livestock to produce offspring, meat, fiber, milk, eggs, or other products. 2)         Floriculture means the business of producing flowers, Christmas trees or other decorative trees, plants, shrubs, or sod, including the operation of greenhouses. 3)         Aquaculture or aqua farming means the controlled breeding, hatching, propagation or raising of aquatic life, such as fish, mollusks, crustaceans, algae, and other aquatic plants and invertebrates.  See 17 Ill. Adm. Code 870.5. 4)         Horticulture means the business of producing vegetables, vegetable plants, or nursery stock, including the operation of nurseries and orchards. 5)         Viticulture means the business of growing grapes or operating vineyards. 6)         Apiculture means the business of maintaining bees and hives for the production of beeswax, honey, or other edible bee products, crop pollination services, and the sale of bees to other beekeepers. 7)         Production agriculture, with respect to crops, is limited to activities necessary in tilling the soil, planting, irrigating, cultivating, applying herbicide, insecticide, or fertilizer, and harvesting or drying of crops.  Specialized food production operations that produce plants under controlled environments in growing media other than soil, also qualify as production agriculture. 8)         Production agriculture, with respect to animals, is limited to the raising of or the propagation of livestock and husbandry of animals.  To qualify as the propagation of livestock and husbandry of animals, the animals must be raised for resale or retail sale. 9)         Production agriculture does not include the following: A)        Activities such as the clearing of land, mowing of fence rows or ditches, and creating ponds or drainage facilities. B)        Operations involved in the storing of crops and produce or in the transporting of crops and produce to storage or to sale. C)        The processing of crops into food or other products.  However, see Section 130.330(b), Manufacturing Machinery and Equipment regarding any processing exemption. D)        The raising of wild animals, game birds, and house pets. AGENCY NOTE:  The purchase of game birds may qualify for an exemption under the Retailers' Occupation Tax Act [35 ILCS 120/2-5(32)]. E)        The transport, slaughter, and processing of animals or animal food products.  However, see Section 130.330, Manufacturing Machinery and Equipment regarding any slaughtering or processing exemption. c)         Farm machinery and equipment.  The exemption applies only to items of farm machinery and equipment, both new and used, certified by the purchaser to be used primarily for production agriculture or State or federal agricultural programs, including individual replacement parts for the machinery and equipment, including machinery and equipment purchased for lease, and including implements of husbandry defined in Section 1-130 of the Illinois Vehicle Code [625 ILCS 5] , farm machinery and agricultural chemical and fertilizer spreaders, and nurse wagons required to be registered under Section 3-809 of the Illinois Vehicle Code, but excluding other motor vehicles required to be registered under the Illinois Vehicle Code. [35 ILCS 120/2-5(2)] 1)         Registered vehicles other than motor vehicles and unmanned aerial vehicles, commonly referred to as "drones" or "UAVs", may qualify for the exemption if they are used primarily in production agriculture rather than in transportation or other nonexempt activities. A)        Examples include:  implements of husbandry used primarily to supply and apply farm chemicals; nurse tanks and their trailers used primarily to supply spreaders in the fields; aircraft used primarily to apply farm chemicals; drones or UAVs; and combine header carts/trailers used to transport combine grain-heads. B)        The above registered vehicles in subsection (c)(1)(A) and all-terrain vehicles ("ATVs") that are not required to be registered under the Illinois Vehicle Code may qualify if they are used primarily in production agriculture activities. C)        The use of the registered vehicles described in subsection (c)(1)(A) above and ATVs that are not required to be registered under the Illinois Vehicle Code for farm transportation or recreation purposes does not constitute production agriculture. D)        When the registered vehicles described in subsection (c)(1)(A) above and ATVs that are not required to be registered under the Illinois Vehicle Code are used in both production agriculture and non-qualifying activities, the primary use of each vehicle will determine if it qualifies for exemption. 2)         Qualifying uses include, but are not limited to: A)        collecting and mapping soil samples; B)        mapping fields; C)        pulling sprayers while they apply farm chemicals to fields; D)        applying farm chemicals to a targeted area; E)        transporting seeds to fields; F)         cleaning livestock waste; G)        hauling and properly disposing of dead livestock, including any digging and burying; and H)        hauling injured or ill livestock or livestock necessities, such as medication, feed, and water. 3)         Non-qualifying uses include, but are not limited to: A)        mowing; B)        scouting crops; C)        checking fences; D)        mapping tile lines; E)        herding livestock; F)         checking livestock; G)        hauling debris; H)        traveling to inaccessible areas; I)         transporting items such as seed, feed, chemicals, or straw to be stored prior to its use in production agriculture; and J)         transporting tools, persons, or equipment to repair fences or to mow fence rows or ditches. 4) Beginning January 1, 2024, farm machinery and equipment also includes electrical power generation equipment used primarily for production agriculture. [35 ILCS 120/2-5(2)] A)        Electrical power generation equipment used to generate electricity for specialty heating or lighting equipment specifically required by the production process (e.g., ultra-violet lights or special heaters for incubation) qualifies for the exemption. B)        Electrical power generation equipment used to generate electricity for general heating, lighting, or ventilation equipment does not qualify for the exemption. 5)         The law exempts only the purchase and use of farm machinery and equipment used in production agriculture or State or federal agricultural programs. No other type or kind of tangible personal property will qualify for the exemption. 6)         Machinery means major mechanical machines or major components thereof contributing to the production agriculture process or used primarily in State or federal agricultural programs. A)        Farm machinery would include tractors, combines, balers, irrigation equipment, and cattle and poultry feeders, but not improvements to real estate such as fences, barns, roads, grain bins, silos, and confinement buildings. B)        A rotary mower that would not qualify for exemption if used to mow ditches or fence rows, would qualify for exemption if primarily used to mow crops or ground cover grown on acreage in State or federal agricultural programs. C)        Certain machines qualify for the exemption if purchased by farmers directly from retailers, even though they are installed as realty improvements.  Such machines include, but are not limited to, augers, grain dryers (e.g., heaters and fans), automated livestock feeder bunks but not ordinary building materials, automatic stock waterers powered by electricity or water pressure and built into a permanent plumbing system, water pumps serving production areas, and specialty heating or lighting equipment specifically required by the production process, (i.e., ultraviolet lights and special heaters for incubation). D)        General heating, lighting, and ventilation equipment does not qualify as farm machinery or equipment. E)        A person, such as a plumbing contractor, who contracts to provide and install an exempt machine or equipment permanently into real estate must obtain an exemption certificate from the person purchasing the machine.  The contractor must furnish certification to the seller, attaching the certificate of the purchaser in order to claim the exemption. F)         A tractor or other machinery that qualifies for the exemption may include options or accessories that are not farm equipment.  Except for precision farming equipment, these items must be installed and sold both as an integral part of the qualifying machine and in a single transaction. Agricultural chemical tender tanks and dry boxes shall include units sold separately from a motor vehicle required to be licensed and units sold mounted on a motor vehicle required to be licensed, if the selling price of the tender is separately stated. [35 ILCS 120/2-5(2)] 7)         Equipment means any independent device or apparatus separate from any machinery, but essential to production agriculture. A)        Equipment does not include ordinary building materials to be permanently affixed to real estate.  However, certain items of equipment can qualify for the exemption even though they are installed as realty improvements.  Such items of equipment include, but are not limited to, farrowing crates, gestation stalls, poultry cages, portable panels for confinement facilities, and flooring used in conjunction with waste disposal machinery. Horticulture polyhouses or hoop houses used for propagating, growing, or overwintering plants shall be considered farm machinery and equipment. [35 ILCS 120/2-5(2)] B)        Wheeled, wire-mesh tables and wheeled, non-motorized, multiple-tray carts used primarily in floricultural or horticultural growing operations, such as those described in Mid-American Growers v. Department of Revenue, 143 Ill.App.3d 600 (3d Dist. 1986 ), are considered farm machinery and equipment. C) Farm machinery and equipment shall include precision farming equipment that is installed or purchased to be installed on farm machinery and equipment including, but not limited to, tractors, harvesters, sprayers, planters, seeders, or spreaders. [35 ILCS 120/2-5(2)] i) Precision farming equipment includes, but is not limited to, soil testing sensors, computers, monitors, software, global positioning and mapping systems ("GPS") , and other such equipment. [35 ILCS 120/2-5(2)] It shall also include necessary mounting hardware, wiring, and antennas. ii) Farm machinery and equipment also includes computers, sensors, software, and related equipment used primarily in the computer-assisted operation of production agriculture facilities, equipment, and activities such as, but not limited to, the collection, monitoring, and correlation of animal and crop data for the purpose of formulating animal diets and agricultural chemicals. [35 ILCS 120/2-5(2)] iii)        The use of computers to record and process land information about soil types and slope as well as pesticide, herbicide, and fertilizer application also constitutes precision farming. iv)        When a computer is used for both precision farming and nonqualifying purposes, the primary use of the computer will determine if it qualifies for the exemption. EXAMPLE 1 :  Precision farming and computer assisted operation of production agriculture facilities includes the collection of crop and soil data, the processing of that data, and the use of that data or its products in production agriculture.  Thus, machinery and equipment such as soil sensors, moisture sensors, and yield monitors would collect data on a particular field. This information would be precisely correlated to a specific location by use of satellite GPS linked to a computer.  These devices would typically be mounted on a tractor or combine. These devices could also be hand-held or mounted on drones or UAVs, or other types of vehicles even though those vehicles, such as pick-up trucks, do not qualify for the exemption.  The data collected from the farm field would then be transferred to a base station computer electronically.  The data would be processed by the base station computer and integrated into or overlayed on digital maps of the farm field.  The farmer could use the information to make decisions about what types of crops to plant and the type, formula, and application rate of fertilizer, pesticide, or other agricultural chemical to apply to the field.  The processed and integrated data would then be available for use by the farmer in planting or could be transferred to a fertilizer dealer who applies farm chemicals.  The fertilizer dealer would use the information about the farmer's field and the digital map to determine the type and formula of chemical to be applied to the farmer's field and the rate of application.  That information would be transferred to the computer in the fertilizer spreader.  With the aid of GPS linked to the computer in the fertilizer spreader, the fertilizer dealer would be able to precisely apply the necessary chemicals and vary the application rate to meet crop needs across the field.  All of the sensors, computers, software, and accessories described above would qualify for the exemption. EXAMPLE 2: A livestock farmer using microchips and sensors to identify specific animals and determine individual growth information for animals qualify as precision farming .  This information would be used by computers to determine the optimum feed or diet for the animal and could then be used to dispense the proper type and amount of feed to the animal. EXAMPLE 3: In confinement buildings, precision farming would include temperature and moisture sensors linked through computers to control heating, ventilation, and lighting for livestock as well as regulating the automatic stock feeders and waterers. EXAMPLE 4: Precision farming equipment would include the microchips, sensors, computers, and computer-controlled feeding equipment and environmental controls.  The use of computers to record and process crop and livestock management information gathered through the use of these types of sensors or monitors constitutes precision farming. However, the use of computers to record and process other farm related information such as accounts payable, correspondence, or marketing does not constitute precision farming. D)        The exemption includes hand-operated equipment such as wheelbarrows, hoes, rakes, pitchforks, and shovels so long as they are used in production agriculture as that term is defined in subsection (b) of this Section. E)        In general, equipment and supplies that have a useful life of less than one year do not qualify for the exemption. F)         Items that do not qualify as equipment, include, but are not limited to, the following: i)          Equipment used in farm management such as radios and office equipment, in repair and servicing of equipment, in security and fire protection, farm maintenance, administration, selling, marketing, or the exhibition of products. ii)         Hand tools used in maintenance activities, such as wrenches, pliers, wire stretchers, grease guns, hammers, and screwdrivers. iii)        Supplies, such as baling wire, baling twine, work gloves, boots, overshoes, and chemicals for effluent systems. G)        Corrugated plastic pipe and other water management products used in production agriculture for drainage are not considered equipment under the farm machinery and equipment exemption. 8)         When an item of farm machinery and equipment is used both in a qualifying and nonqualifying manner, the burden of demonstrating primary use is on the taxpayer claiming the exemption.  One method to demonstrate primary use is for the taxpayer to provide a log, documenting machine hours by qualifying and nonqualifying uses.  See also 86 Ill. Adm. Code 130.810. d)         New or used repair or replacement parts, necessary for the operation of the machine used in production agriculture or in State or federal agricultural programs, qualify for the exemption. With the exception of precision farming items, accessories or replacements not essential to the operation of the machinery itself, except when sold as an integral part of a qualified machine at the time of purchase, such as radios, and tool or utility boxes, do not qualify for the exemption. Repair or replacement parts include, but are not limited to, batteries, tires, fan belts, mufflers, spark plugs, plow points, standard type motors, and cutting parts.  Consumable supplies such as fuel, grease, oil, and anti-freeze are not repair or replacement parts. e)         Exemption certifications must be executed by the purchaser.  The certificate must include the seller's name and address, the purchaser's name and address, and a statement that the property purchased will be used primarily in production agriculture or in State or federal agricultural programs, including the name of the specific agricultural program .  Retailers may accept blanket certificates but have the responsibility to obtain and must maintain the certificates as a part of their books and records.  Retailers are required to exercise good faith in accepting exemption certificates.  If, however, a retailer reasonably believes that the purchaser will use farm machinery or equipment in production agriculture or in State or federal agricultural programs and accepts the certificate in good faith and the purchaser does not, in fact, use the machinery or equipment in production agriculture or in State or federal agricultural programs, the purchaser will be liable to the Department for the tax , not the retailer. f) An item of farm machinery and equipment that is initially used primarily in production agriculture and having been so used for less than one-half of its useful life, is converted to primarily nonexempt uses, will become subject to tax at the time of the conversion.  Such tax will be collected on the portion of the price of the machinery and equipment that was excluded from tax at the time the sale or purchase was made. g)         Leasing. 1) Prior to January 1, 2025, farm machinery and equipment purchased for lease to be used by the lessee primarily in production agriculture or in State or federal agricultural programs qualifies for the exemption.  The lessor purchasing such equipment must certify that the equipment will be so used.  Should a purchaser-lessor subsequently lease the machinery or equipment primarily to lessees who do not use it in a manner that would qualify for the exemption, the purchaser-lessor will become liable for the tax from which the purchaser-lessor was previously exempted. 2)         On and after January 1, 2025, farm machinery and equipment that is subject to the tax on leases under the Act and that is purchased for lease may be purchased tax-free for resale.  See Section 130.210(e).  If the machinery or equipment will be used by the lessee primarily in an exempt manner, it qualifies for the exemption.  The lessee leasing such machinery or equipment must certify that the machinery or equipment will be so used.  If the lessee subsequently uses the machinery or equipment in a nonexempt manner, the lessor is liable for the tax on the gross receipts from any lease payment received thereafter if notified by the lessee of the nonexempt use.  If the lessee does not notify lessor of a nonexempt use, the lessee is liable for the tax. h)         Custom farmers or special service operators, who provide a service-for-hire , such as crop dusting, pollinating, fertilizer spraying, combining, or corn shelling, that is an integral part of production agriculture on farms other than their own may also claim the exemption if the equipment is used primarily in production agriculture. i)          State and federal agricultural programs.  The State or federal agricultural programs can include agricultural programs administered by the United States Department of Agriculture or state agriculture agencies (e.g., Illinois Department of Agriculture) under which government cost-share funds are provided to agricultural producers for expenditure for land treatment structures or devices such as terraces or grass waterways.  This exemption can be claimed by any person, including subcontractors, who will use machinery or equipment primarily in State or federal agricultural programs. j)          No item qualifies for the exemption in and of itself, and no transaction is exempt unless the seller obtains a certification that contains the information required by subsection (e).  Machinery and equipment that is used both in qualifying and non-qualifying activities must be used primarily in a qualifying activity for the exemption to apply.