Act 100 of 2016 changed the exemption around agricultural machinery and equipment. The phrase “directly and exclusively” was changed to be “predominately,” defined as 75% or more of the time the equipment is in use.
The exemption available to agricultural and horticultural entities for machinery and equipment is a use-based exemption. That means that items available under the exemption are only available as exempt if the purchaser will use the equipment 75% or more of the time for exempt uses. This declaration is made at the time of purchase by filling out Form S-3A, Agricultural Fertilizers, Pesticides, Supplies Machinery & Equipment.
For more information, please see Agricultural Machinery, Equipment & Supplies: Taxable or Tax Exempt?, the Sales and Use Tax Regulations, and the frequently asked questions below.
Frequently Asked Questions
How often do I need to complete a certificate?
Purchases of machinery and equipment require a certificate for every individual purchase. Multiple purchases of the same agricultural supplies not typically used in agriculture or the same fertilizer and pesticides may use the same certificate by marking the appropriate checkbox.
What about parts for my machinery or equipment?
Parts purchased for exempt machinery or equipment are also exempt from sales tax. If you anticipate buying parts from the same dealer where you bought your equipment, you should select the checkbox indicating that on page 1 of the S-3A. Note: “parts” does not mean implements. If it is a large implement for your machinery or equipment, you will need a new exemption certificate.
What does “typically used in agriculture” mean?
When dealing with agricultural supplies, you have to consider the phrase “typically used in agriculture.” That means that if it is one of the following supplies, and it is the type used for agricultural activities, it is exempt no matter who purchases it. However, if it is an item not typically used in agriculture (grass seed, plants, etc.), and you are using it for agricultural purposes, you will need to complete an S-3A. Here is a list of the supplies that are eligible for the exemption from sales tax:
- Agricultural feeds
- Agricultural seed
- Agricultural plants
- Baler twine
- Silage bags
- Agricultural wrap
- Sheets of plastic for bunker covers
- Liming materials
- Breeding and other livestock
- Semen breeding fees
- Baby chicks
- Turkey poults
- Agricultural chemicals other than pesticides
- Veterinary supplies
- Farm animal bedding
For machinery and equipment, it must be used 75% of the time it is in use for exempt uses. What is an exempt use?
Uses that qualify machinery or equipment for the exemption are those where it is used to produce tangible personal property for sale. In other words, the work on a farm or other agricultural or horticultural operation that is directly involved in producing the final product that will be sold. Common exempt uses include:
- Machinery and equipment used to feed and water livestock and to administer medication to livestock
- Machinery and equipment used to maintain sanitary conditions or health conditions in the immediate area of agricultural production
- Machinery and equipment used to test and inspect the agricultural product during the actual farm production cycle
- Machinery and equipment used in agriculture to handle and preserve agricultural products upon the premises, and to prevent or deter the destruction, injury, or spoilage of agricultural products, livestock, or plants
Cleaning, transportation, land clearing, or building repair are not exempt uses of equipment. Remember: now that the law has changed, machinery and equipment can be used up to 25% of the time for the non-exempt uses.
Our sales and use tax regulations have a more complete list of examples of both exempt and non-exempt uses.
There is nothing on here about fuels – isn’t that exempt if used for farm purposes?
Electricity and fuel used directly and exclusively for farm purposes are not taxable. In most cases, no exemption certificate is required. Some supplies may require that Form S-3F is completed if the use is not obvious or if only a portion of the fuel purchased is exempt.
How often do I need a new form?
If you are using your S-3A for multiple purchases of supplies or fertilizer/pesticides, you should still renew it every 3 years. This ensures the most updated information about you as a purchaser is available to your seller, and it helps to ensure compliance with the exemption.
I am an equipment dealer who sells to farmers. I’m worried that if I accept one of these exemption certificates that turns out to be incorrect I will be charged penalties and interest if I’m audited?
The buyer must present to the seller an accurate and properly executed exemption certificate for the exempted sale. The responsibility is on the seller to determine if the buyer is submitting the exemption certificate in "good faith." This requires the seller to be familiar with Vermont Sales and Use Tax law and regulations, including exemptions, that apply to the seller's business. When the seller accepts the certificate in good faith, the seller is not liable for collecting and remitting Vermont Sales Tax. An exemption certificate is received at the time of sale in good faith when all of the following conditions are met:
- The certificate contains no statement or entry which the seller knows, or has reason to know, is false or misleading.
- The certification is on an exemption form issued by the Vermont Department of Taxes or a form with substantially identical language.
- The certificate is signed, dated, and complete (all applicable sections and fields completed).
- The property purchased is of a type ordinarily used for the stated purpose, or the exempt use is explained. Refer to the fact sheet on agricultural machinery for more information on uses which are NOT considered exempt as agricultural. Use of the S-3A for the sale of items which do not meet the exemption criteria are not considered “accepted in good faith.”
We have additional information posted on our website about how to accept exemption certificates.