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Board of Tax Appeals’ Decision and Amended Regulation Address Agricultural Exemption


In Cox v. Department of Revenue, File No. K07-R-32, Order No. K-20090 (KBTA, July 17, 2008), the Kentucky Board of Tax Appeals (“Board”) granted the Department of Revenue’s Motion for Summary Disposition and held that Jason C. Cox (“Cox”) a pro setaxpayer, was required to pay sales tax on a lawnmower because it did not constitute tax-exempt farm machinery pursuant to KRS 139.480(11) and 103 KAR 30:091.

The Board determined that the sole issue before it was whether the purchase of a lawnmower constituted farm machinery entitled to the agricultural exemption from sales and use tax. KRS 139.480(11) defines “farm machinery” as machinery used exclusively and directly in the occupation of tilling the soil for the production of crops as a business or in the occupation of raising and feeding livestock or poultry or of producing milk for sale, including machinery, attachments, replacements, and repair parts, but does not include automobiles, trucks, trailers, and truck/trailer combinations.

The Board held that because 103 KAR 30:091, Section 3, Subsection 4, specifically lists “lawn and garden equipment” as subject to Kentucky sales tax, regardless of how it is used, the lawnmower was taxable. The Board concluded that “KRS 139.480(11) does not give a ‘carte blanche’ exemption for every purchase made by a farmer.” Significantly, the Board noted that Cox failed to respond to the Department’s Motion for Summary Disposition. Cox apparently failed to introduce any proof that the lawnmower was not “lawn and garden equipment,” but was essentially a tractor used in farming. He also apparently failed to argue that the Regulation’s language taxing “lawn and garden equipment” exceeded the scope of the statute, and was therefore invalid.

Following the Board’s decision in Cox, 103 KAR 30:091 was amended after a pubic hearing. The amended Regulation provides an expanded list of taxable and nontaxable items. The identification of particular items as exempt or taxable is for illustrative purposes only and is not intended to be all inclusive, per the amended Regulation.

Further, the amendments to the Regulation did not change the taxable nature of “lawn and garden equipment” at issue in Cox. One significant difference in the amended Regulation is that lime haulers can no longer execute Agricultural Exemption Certificates on behalf of farmers. The amended Regulation provides that lime haulers may now only submit certificates for which they are themselves eligible (i.e., resale exemption certificates).

Another difference following the amendment of the Regulation is that the Agricultural Exemption Certificate, Form 51A158, was revised so that purchasers of agricultural items used in farming are no longer required to initial numerous sections of the Department’s agricultural exemption certificate forms, but may simply indicate applicable sections with a mark, such as a check mark. Form 51A158 is incorporated by reference into the amended Regulation. Finally, the amended Regulation provides that the Streamlined Sales and Use Tax Agreement Certificate of Exemption, Form 51A260, is also incorporated by reference into the Regulation, may be used by taxpayers.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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