Illinois – Farmer’s Forklift Purchase Was Taxable

2/15/2013

SALT Report 2154 – The Illinois Department of Revenue issued a ruling regarding a use tax assessment imposed on Farmer’s purchase of a forklift. The Farmer protested the assessment arguing that the forklift was an exempt purchase because it was used primarily for agricultural production which includes:  farm maintenance, loading cattle feed and minerals in and out of storage, and loading or unloading seed corn and beans.

In its decision the Department referred to section 3-5(11) of the Use Tax Act which provides an exemption for, “farm machinery and equipment, both new and used, including that manufactured on special order, certified by the purchaser to be used primarily for production agriculture.”

Section 3-35 of the Use Tax Act defines production agriculture as 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.

As the statutes indicate, the forklift must be used primarily for production agriculture which is limited to activities that are necessary for the actual farming process. Further, those operations that do not involve production but involve storing or transportation are specifically excluded from the definition of production agriculture.

Therefore, the Department determined that the forklift did not meet the requirements of the farm machinery and equipment exemption because the forklift was not used in the farmer’s production process; rather the forklift was used primarily to move items in and out of storage.

For Further Information

Illinois Department of Revenue – Administrative Hearing Decision Number UT 12-06