SALT Report 1921 – The Tennessee Department of Revenue issued a letter ruling regarding a Taxpayer’s purchases of farming equipment and machinery. The Taxpayer grows and packs produce in Tennessee and is in the process of constructing a facility to process and pack the produce that is grown throughout the state.
Among the items that the Taxpayer purchased for use in the facility are: stainless steel wash lines; water chillers, pulse sanitizing instruments, ice machines, ice storage and distribution system, racking, and office equipment. The Taxpayer claims that each of these items will be used in the production and transformation of produce that will ensure it is fit for human consumption.
The Department determined that ice machines, ice storage and distribution systems, racking equipment, and office equipment are subject to tax pursuant to Tennessee Code § 67-6-207 (2011). Although the ice machines, ice storage machines, and distribution systems may be necessary for the post-production packing of produce, they are not used directly in the production of produce. Further, the ice is used to keep the product at an ideal temperature after production in completed. Similarly, the racking equipment used to hold the boxed produce in cold storage prior to shipment and office equipment used for administrative purposes are not used directly in the production of produce.
However, the Taxpayer may purchase stainless steel wash lines, water chillers, and pulse sanitizing instruments exempt from sales and use tax under Tennessee Code § 67-6-207(a)(1). The stainless steel wash lines, water chillers, and pulse sanitizing instruments meet the requirement that the item be an appliance “used directly and principally for the purpose of producing agricultural products…for sale and use or consumption off the premises.”
The regulation further states that an item is considered to be “used directly and principally” for the purpose of producing agricultural products if it is used more than 50% of the time by a farmer in the production of agricultural products.
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