Recently, an IFCA member was audited by the Illinois Department of Revenue (DOR) and penalized for not collecting tax on the sales of cover crop seed.  Many agricultural inputs such as seed, fertilizer, feed and crop protection chemicals are exempt from sales tax because they produce a crop or livestock (i.e. meat or dairy) for resale or market, which is defined as "production agriculture."  In 86 Illinois Administrative Code 130.2110 it explains when sellers of seed are exempt from collecting and remitting tax as follows:

 

"Persons who sell seeds to purchasers who employ such seeds in raising vegetables, crops or other plants for sale are selling seeds to purchasers for the purpose of resale and are not required to remit Retailer's Occupation Tax measured by their gross receipts from such sales."  

 

Cover crops may not produce a crop itself that will be marketed or resold (such as corn, wheat, alfalfa or soybean crops can be resold), but they are interpreted by the ag industry as being part of system of agricultural production.  As a refresher, click here to read the detailed explanation of activities which are defined as production agriculture for purposes of when sales are tax exempt.  

 

As IFCA investigates this further with the DOR and our fellow ag organizations, we advise you to take no action at this time on the sales of cover crop seed.  The DOR has been very responsive to our concerns and they are investigating the statute and laws pertaining to this matter, and will provide guidance in the next 30-60 days.  We do not expect they will take any additional enforcement against seed retailers on these sales while this issue is under review.  IFCA has a very good relationship with DOR and they have a tough job to do, so please do not over react and blame them, the ag sales tax exemptions when it comes to cover crop seeds is a gray area.

 

This serves as a reminder to educate yourself on the sales tax exemptions.  IFCA has a form on our website that we encourage our members to have your farmer customers sign from time to time for all purchases of seed, fertilizer, or crop protection chemicals.  These items are exempt from sales tax, but it still demonstrates your due diligence as a seller of those products to ensure the persons you are selling to are clearly using them in agricultural production.  By signing this form they claim the responsibility to use those products in that manner--i.e. to produce a crop for resale or market.  When you have these forms on file, if the DOR wishes to investigate any possible tax liability, they would then follow-up with the purchaser who signed the form vs. penalizing the retailer.  The sales tax exemption form for purchasers to sign is available on the IFCA website, under "Regulations" and "Taxes" or click here.   

 

IFCA will keep you posted on efforts to resolve this issue pertaining to the sales of cover crop seed.  Sales of these seeds are increasing, which is why it's important to resolve this issue with DOR to ensure clear policy going forward.  If you have questions please contact Jean Payne.