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Committee briefed on agricultural sales-tax exemptions, 75% use rule for machinery emphasized
Summary
Staff reviewed two major Vermont sales-tax farm exemptions: a product-based exemption for agricultural supplies and a use-based machinery-and-equipment exemption that requires predominantly agricultural use (defined as 75% or more). Members probed boundaries such as sod farms, timber and hobby farmers.
The Ways & Means Committee heard a detailed explanation of Vermont's two principal agricultural sales-tax exemptions: a product-based exemption for specified agricultural supplies and a use-based exemption for machinery and equipment used in agricultural production.
Kirby, the committee staff member leading the briefing, described the product-based exemption as a statutory list of items (seed and other inputs). "If what's being bought is on that list, then it's exempt," Kirby said, noting the fact sheet walks purchasers through a sequence of questions to determine eligibility.
Kirby contrasted that with the machinery-and-equipment exemption, which is more use-based and typically involves larger purchases. The staff memo and briefing lay out sequential tests: (1) whether the item is machinery or equipment; (2) whether it will be used on a farm, orchard, nursery or greenhouse primarily for producing commodities for sale; and (3) whether it will be used predominantly in production (defined in statute as 75 percent or more of the time). "If you say yes to that, you move on to the next question ... that predominantly question means 75% or more of the time it is in use," Kirby said, noting the statutory change from a previously stricter standard.
Committee members raised boundary cases. One member asked whether a sod farm is agriculture or manufacturing; Kirby said the exemptions are written differently and a business could qualify for both exemptions in different parts of its operation (for example, an orchard and a processing plant). Members also asked whether hobby farmers could use the machinery exemption; Kirby said the exemption requires production "for sale," so purely noncommercial use would not qualify.
Kirby provided a practical example: carrot seeds used to grow crops for sale would be exempt under the product-based rule, but grass seed normally sold for lawns would not be exempt unless the buyer intended agricultural use. The staff recommended using the department's fact sheet and lister's handbook for detailed assessment.
The committee did not vote on any changes. Members requested additional materials and the staff fact sheet referenced in the briefing.
