in-20250625-IR-045250314NRA: DEPARTMENT OF REVENUE

DEPARTMENT OF REVENUE Information Bulletin #9 Sales Tax June 2025 Effective Date: July 1, 2025 (Replaces Bulletin #9, dated June 2023) SUBJECT: Agricultural Production Exemptions REFERENCES: IC 6-2.5-4-5; IC 6-2.5-5-1; IC 6-2.5-5-2; IC 6-2.5-5-5.1; IC 6-2.5-5-48; 45 IAC 2.2-5-1; 45 IAC 2.2-5-2; 45 IAC 2.2-5-3; 45 IAC 2.2-5-4; 45 IAC 2.2-5-5; 45 IAC 2.2-5-6; 45 IAC 2.2-5-7 DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided herein should serve only as a foundation for further investigation and study of the current law and procedures related to the subject matter covered herein. SUMMARY OF CHANGES Apart from technical, nonsubstantive changes, this bulletin has been updated to reflect a new exemption for agricultural commodities sold at the Indiana State Fair, as provided for in House Enrolled Act 1427 (2025). INTRODUCTION The general rule for the application of Indiana sales or use tax is that a purchase of tangible personal property to be used in Indiana is subject to tax unless a specific exemption is available. The purpose of this bulletin is to provide guidance concerning the exemptions from Indiana sales and use tax that pertain to agricultural production. It is important to note that just because a person is involved in agricultural production, it does not mean that they are eligible for the specific exemptions pertaining to agricultural production. Further, just because an item is utilized by a person for agricultural production does not make an item exempt. Purchases must meet the very specific requirements for the specific exemptions pertaining to agricultural production as outlined below. PURCHASES Indiana law provides several exemptions from sales and use tax relating to agricultural production. The exemptions are limited to purchases of animals, feed, seed, plants, fertilizer, pesticides, fungicides, and other tangible personal property and agricultural machinery, tools, and equipment to be directly used in the direct production of food or commodities that are sold either for human consumption or for further food or commodity production. To be “directly used in direct production” is what is called a “double direct” test. The tangible personal property has to be directly used, and the direct use of the property has to be in direct production. The phrase “directly used in direct production” means that the property must be integral and essential to the production process. Property is integral and essential to the production of food or commodities if it is necessary to carry on production and plays a key role in the actual production of the food or commodity (i.e., it must directly affect or be a component of the food or commodity). Some examples of property that are directly used in direct production are discussed later. Animals, Feed, Seeds, and Farm Products Purchases of animals, animal feed, seeds, fertilizer, plants, pesticides, fungicides, and other similar items of tangible personal property are exempt from sales and use tax if two conditions are met. The person, company, partnership, or corporation acquiring the property must directly use the property in the direct production of food or commodities for sale and the person must be occupationally engaged in the production of food or commodities sold for human or animal consumption or for further use in food or commodity production. To be occupationally engaged in the production of food or commodities, a person, company, partnership, or corporation must be regularly engaged in commercial production for the sale of vegetables, fruits, crops, livestock, poultry, and other food or agricultural products. Persons, companies, partnerships, or corporations who do not intend to operate at a profit or who produce food or agricultural commodities for sale as a hobby are not occupationally engaged in the production of food or agricultural commodities. (Generally, evidence that individual taxpayers are “occupationally engaged” in farming is presented by the filing of federal Schedule F with the 1040.) The term “feed” includes salt, grains, tankage, oyster shells, mineral supplements, vitamins, and other generally recognized animal feed. “Fertilizer” means any commodity that contains one or more substances to increase the available plant food content of the growing medium. Generally, the contents of the fertilizer must become part of the plants grown and must be used as a fertilizer. Agricultural Machinery, Tools, Equipment, and Buildings Used Directly in Direct Production The purchases of agricultural machinery, tools, and equipment are exempt from sales and use tax if the machinery, tools, and equipment (including material handling equipment purchased for the purpose of transporting materials into activities from an onsite location) are directly used in the direct production, extraction, harvesting, or processing of agricultural commodities. The machinery, tools, and equipment must have an immediate effect on the commodity produced. The exemption includes safety clothing or equipment that is required to allow a worker to participate in a production process without injury or to prevent contamination of the product during production, as well as machinery, tools, and equipment used: Regarding the exemption for material handling equipment, this term means pieces of equipment that transport materials within the production process and within an onsite location. The type of equipment that would fall within the meaning of this term would include dollies, forklifts, chain or belt conveyers, and pallet jacks. Further, the term “onsite location” means a location where the agricultural production takes place that is owned or leased by the person occupationally engaged in agricultural production and property contiguous to said property, which is also owned or leased by the same person occupationally engaged in agricultural production. If the machinery or equipment is not directly used in the direct production of agricultural commodities but is designed for use in the gathering, moving, or spreading of animal waste, the machinery or equipment may be exempt if the following conditions are met: Purchases of agricultural machinery or equipment (including material handling equipment purchased for the purpose of transporting materials into activities described in this subsection from an onsite location) by a service provider may be exempt from sales and use tax. A service provider is one who is occupationally engaged in providing certain agricultural services described below on property that is (1) owned or rented by another person occupationally engaged in agricultural production and (2) used for agricultural production. The purchases of agricultural machinery or equipment are exempt from the state gross retail tax if the service provider acquiring the property acquires it for their direct use in the direct application of fertilizers, pesticides, fungicides, seeds, and other tangible personal property, or the direct extraction, harvesting, or processing of agricultural commodities, for consideration. Regarding the exemption for material handling equipment, the “onsite location” still refers to a location where the agricultural production takes place that is owned or leased by the person occupationally engaged in agricultural production and property contiguous to said property, which is also owned or leased by the same person occupationally engaged in agricultural production. The “onsite location” in this instance is not property owned or leased by the service provider, unless said property is located within the property that is owned or leased by the person occupationally engaged in agricultural production. Confinement buildings that confine animals in order to (1) maintain physical integrity of the product; (2) create and control the environment to facilitate production; and (3) function in conjunction with exempt machinery such as fans, thermostats, vents, and cooling and heating systems are exempt. To qualify for the exemption, the confinement building must serve a breeding, gestation, farrowing, nursing, or finishing function. For purposes of this exemption, confinement involves holding the animal within the confines of the building or an attached confined porch area. The purchase of components of a “drainage water management system” may be exempt from the state gross retail tax. “Drainage water management system” means a subsurface system of drainage tubing, drainage tiles, water flowgates, control valves, and related control systems designed to facilitate controlled water drainage from agricultural land used for crop production. Such purchases of components of a “drainage water management system” would be exempt if the component meets this definition above and the person acquiring the component is engaged in the business of agriculture. A contractor installing a drainage water management system on behalf of a person engaged in the business of agriculture may accept a completed General Sales Tax Exemption Certificate (Form ST-105). The contractor would then issue their own ST-105 to the supplier of drainage materials. It is important to note that the exemption for agricultural machinery, equipment, and tools used directly in direct production does not apply to machinery, tools, and equipment used for any of the following: These categories of items are taxable because they are not considered by the department to be directly used by the purchaser in the direct production, extraction, harvesting, or processing of agricultural commodities.      Utilities Under certain circumstances, Indiana law provides an exemption from sales tax for the purchase of the following utilities: electrical energy, natural and artificial gas, water, and steam and steam heat. The utilities listed here are exempt from tax if they are directly used in the direct production of agricultural commodities. Thus, if a person occupationally engaged in the production of agricultural commodities purchases electricity to dry grain, the electricity would be exempt because drying grain is integral and essential to the production of grain. The purchase of electricity to run a fan to ventilate a dried grain storage silo would be taxable because the farmer purchasing the electricity is not going to subject the dried grain to further processing. If a person engaged in agricultural production buys utilities from a public utility and predominantly uses the utilities directly in the direct production of agricultural commodities, the utility is not required to collect tax on the purchase of the utilities. Each meter measuring the consumption of a utility is treated separately for purposes of determining whether a utility is predominantly used in production. Further, a utility is predominantly used in agricultural production when more than 50% of the utility is being directly used in direct agricultural production. Before utilities can be purchased tax exempt from a public utility, an application for a predominant use exclusion must be filed with the department on Form ST-200. If the application is approved, the department will mail an exemption certificate, ST-109, to the exempt entity, who must then forward to the utility provider. If a person is entitled to an exemption for only a percentage of utilities purchased, all of the tax must be paid and a refund claimed for the exempt percentage. Utilities purchased from a source other than a public utility may be purchased exempt using an exemption certificate. See Section II, “Exemption Certificates.” Example #23: Grow, Inc., has two meters for electricity and buys natural gas directly from the wellhead. One of the meters measures electricity used to dry grain. 55% of the electricity measured by the meter operates drying equipment used to dry grain. The other meter measures electricity used to heat the chicken coop and power the egg incubators. 49% of the electricity measured by the meter is used for the incubators. 51% is used for general heating. The natural gas is used to heat the farmhouse and dry grain that is harvested during periods of high humidity. 60% of the natural gas dries grain. The electricity meter for the grain silos is not taxable because the electricity is predominantly used directly in the direct processing of grain. Drying grain is integral and essential to the processing of grain. The electricity for the chicken coops is not predominantly used in the direct production because only 49% of the electricity is used for the incubators. Therefore, Grow, Inc. is entitled to an exemption for only 49% of the cost of the electricity. The natural gas, though predominantly used in direct production, is only 60% exempt from tax because the gas was not purchased from a public utility. To purchase the electricity for the silos tax exempt, an ST-200 application must be filed with and approved by the department. The sales tax charged for the chicken coop electricity must be paid to the utility and a claim for refund (Form GA-110L) should be filed with the department to recover the exempt percentage. Tax should be paid for the purchase of the natural gas, and a claim for refund should be filed to recover the tax paid for the exempt percentage. The department realizes that the percentage of exempt use changes from year to year. Thus, the department may request a new application to be filed if the department believes the percentage of exempt consumption has changed. EXEMPTION CERTIFICATES Two types of exemption certificates can be used to purchase exempt agricultural-use property (excluding utilities as explained in the section above). Form ST-105, the Indiana general sales tax exemption certificate, allows property to be purchased exempt from tax if the property fits under one of the agricultural exemptions provided by Indiana law. NOTE: As explained above, if a piece of equipment is used for both exempt and nonexempt purposes, please refer to department Form AGQ-100 (Agricultural Equipment Exemption Usage Questionnaire), which provides a list of activities to determine the percentage of use that is exempt. The AGQ-100 does not need to be provided to the vendor by the purchaser. If the purchase does not qualify for a 100% or predominate exemption, the ST-105 should not be issued to the vendor. Instead, sales tax should be paid on the purchase, and the purchaser should file a Claim for Refund (Form GA-110L) with the department and include the AGQ-100. Form F0003 (SSTGB Exemption Certificate) is an exemption certificate used by states participating in the Streamlined Sales and Use Tax Agreement. This form should be accepted by Indiana retailers and can be used by nonresident purchasers. The forms are available at in.gov/dor/tax-forms/sales-tax-forms/. The purchaser does not need a certificate for each item purchased. However, the purchaser must complete the form for each purchase before the exemption will be allowed, unless the purchaser checks the “blanket exemption” box, in which case the retail merchant may keep the exemption certificate on file for future purchases. AGRICULTURAL COMMODITIES SOLD AT THE INDIANA STATE FAIR As of July 1, 2025, sales of agricultural commodities by an agricultural commodity trade association are exempt from Indiana sales tax if the transaction is conducted at the Indiana state fair and is conducted to make money to carry on the agricultural commodity trade association's nonprofit purpose. In order to obtain this exemption, an agricultural commodity trade association must first either be registered as a retail merchant with the department or establish with the department that they are not required to be registered as a retail merchant at the time of the transaction. For purposes of this exemption, the following definitions apply: If you have any questions concerning this bulletin, please contact the Tax Policy Division at taxpolicy@dor.in.gov. _________________________