Farm equipment repairs now tax-free; Certificate needed to qualify

ISSUE

Earlier this year the Legislature passed Engrossed House Bill 1902, which expands the sales and use tax exemption on replacement parts for qualified farm equipment and machinery to include labor to install those replacement parts.  In addition, licensed farm vehicles were added to the definition of “farm equipment and machinery.”  The new exemption takes effect July 22, 2007.

The exemption is only available to “eligible farmers” and new farmers meeting certain criteria.  In order to qualify, a farmer must submit an application for an Exemption Certificate to the state Department of Revenue.  The application must include IRS form 1120, Schedule F from IRS form 1040, or a signed declaration under penalty of perjury verifying that the farmer had gross sales from agricultural products or crops with a harvested value of $10,000 or more during the previous year.

The exemption only applies to repairing qualified farm machinery and equipment (including licensed farm vehicles), replacement parts essential to maintain the working condition of that machinery or equipment, and the labor to install those replacement parts.  Generally, such things as paint, fuel, oil and grease, hydraulic fluids, anti-freeze, and the like are not exempt.

More detailed information about the exemption is available in a Special Notice published by the Department of Revenue.  A link to that document appears below.

IMPACT

According to the state’s Office of Financial Management, this exemption is expected to save qualifying farmers nearly $6.5 million during the 2007-09 biennium.  That’s an average savings of $441.79 per farmer.

ACTION

Farm Bureau members are encouraged to apply for this exemption from the Department of Revenue.  The Special Notice and Application for Exemption Certificate is available online at http://dor.wa.gov/Docs/Pubs/SpecialNotices/2006/sn_06_FarmReplacementParts.pdf.