What Tax Revenue People Say About Sales Tax Exemptions

Officials try to enforce rules consistently based upon interpretation.

Published on: Jan 25, 2011

Stephanie McFarland is a very pleasant-sounding lady on the phone. She may not say what you want to hear, but she believes in what she says, and gives the same answer each time, no matter who's asking.

She's the senior communication specialist for the Indiana Department of Revenue. Recently, issues have arisen about whether field tile and tiling machines are subject to sales tax at the time of sale. The issue arose because a routine audit of a business that sells tile plows showed they weren't collecting the tax. They believed they had the correct authorization so that they didn't have to collect the tax.

McFarland reads directly from the regulations, and goes by the interpretations others in the department have made, based on how they read the law.

How some of the wording got into the present law is puzzling. For example, one clause says things may still be non-exempt and subject to sales tax even if they are 'necessary, essential or convenient' for farming. Talk about a head-scratcher! But that's the language upon which they are instructed to interpret how to enforce the law.

Where field tile and tiling machines currently fall into the abyss under the current language is that the language says things that are tax exempt for farming must 'have a direct and immediate effect' upon the crop or livestock produce that is being produced. Tax officials have interpreted that field tile, while helpful, doesn't have a direct effect upon the crop, as might fertilizer, insecticides and pesticides.

It's easy to make the argument that it does, especially if you've farmed land where yields jump 50 to 60 bushels per acre once time is installed. But to this point, that's not how regulators say they can interpret it based upon the language the legislature has provided. So it's an argument that would be tough to win.

However, McFarland says she will be happy to set up meetings with a group of farmers and tax officials who want to ask questions and explain their point of view.

Meanwhile, legislators are already trying to change the law as written, and close what has been a loophole that works against farmers.