Policy letter; m & e; Oct28, 1997
Topic Code: M011Machinery & Equipment Document Reference: 97300151
October 28, 1997
Dear Re: Grain dryers, your letter, 10-15-97Thank you for your second letter and your continuing confidence in my ability to answer your questions about Iowa sales and use tax law. In reply to your question concerning purchases of grain dryers by farmers' cooperatives, these purchases could be exempt from Iowa sales tax on several grounds. Under Iowa Code, § 422.45(26), the sale of a "grain dryer" directly and primarily used in "production of agricultural products" is exempt from tax. I do not think that this exemption would ordinarily be applicable to farmers' cooperatives. Included with this letter is a copy of department rule 701--18.44 which explains the exemption in some detail. Note especially subrule 18.44(2) which describes when production of agricultural products ends. Normally, a farmers' cooperative would take possession of grain and use a grain dryer only after agricultural production had ended with respect to the grain.Under Iowa Code, § 422.45(27), sales of machinery and equipment directly and primarily used in "processing" by a "manufacturer" are exempt from tax. Sale of a grain dryer used in a facility which processes seed corn for sale to dealers or other persons could be exempt from tax under § 422.45(27). Code section 422.45(27) was recently and substantially amended by House File 126, enacted during the most recent legislative session. A copy of the House File is included with this letter for your study. Concerning sales of replacement parts, under § 422.45(26) of the Code, the sale of a replacement part for a grain dryer is exempt from tax if the replacement part is "essential to any repair or reconstruction necessary to" the grain dryer's "exempt use in the production of agricultural products". Subrule 18.44(2)"g"(2) explains this and also mentions certain attachments and accessories which are not replacement parts. Concerning exempt sales of "replacement parts" for machinery and equipment used in processing by a manufacturer, House File 126 states that sales of "replacement parts" for exempt machinery and equipment are excluded from tax, but does not otherwise characterize that phrase. It is currently the Department's position that a "replacement part" for machinery or equipment used in processing is any part which materially adds to the value of, appreciably prolongs the life of, or keeps the machinery or equipment in its ordinarily efficient operating condition. In reply to your last question, neither the repair of grain dryers used in agricultural production nor the repair of machinery or equipment used in processing by a manufacturer is exempt from tax. In closing, I must issue my usual warning. The opinions which I have expressed in this letter are informal only. Because of this, the Department could, in the future, take a position contrary to them.Sincerely,Darwin D. ClupperTax Specialist, Policy SectionCompliance Division515-281-3670