SALT Report 2877 – The Maine Department of Revenue Services issued bulletin that addresses the exemption for purchases of depreciable machinery and equipment for use in commercial agricultural production. The bulletin provides guidance regarding the issues most commonly faced by those involved in commercial agriculture and is designed to help these taxpayers better understand their compliance obligations.
Under the provisions of MRS Rule 323, anyone engaged in commercial agricultural production is required to use a certificate of exemption to purchase electricity and depreciable machinery and equipment without paying sales and use tax. However, if a lessor purchases items that will be leased to another person for use directly and primarily in commercial agricultural production, the lessor must pay tax to the seller and then apply for a sales tax refund.
To make exempt purchases, the taxpayer must apply for and obtain an exemption certificate. Once approved, the taxpayer will be issued an exemption card that can be used to purchase electricity and qualified machinery, equipment and repair parts tax free. The exemption cards are typically valid for up to four years and can only be used by the person named on the certificate.
When making an exempt purchase, the machinery and equipment must meet the following requirements. It must be:
- Used directly in commercial agricultural production,
- Used primarily in commercial agricultural production, and
- Depreciable for Federal Income Tax purposes
When making an exempt sale, the seller will be relieved of its tax collecting responsibilities so long as a copy of the exemption card and an affidavit are on file. However, the purchaser will be subject to audit and will be assessed tax, interest and penalties, if the purchase of machinery and equipment does not qualify for the exemption.
Electricity used in commercial agricultural production and support operations can be purchased exempt from sales tax on a meter-by-meter basis. Therefore, if a single meter is used to supply electricity for use in both qualifying and non-qualifying activities, the purchaser must pay tax to the utility provider and then apply for a refund of the portion used in the qualifying activity.
Lastly, the bulletin provides a list of machinery and equipment that may be purchased exempt and addresses restricted exemption card uses, tangible personal property, real property, sales tax refunds, and taxes paid to another jurisdiction.
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