The Illinois Department of Revenue has replied to the industry's request to review the applicability of sales tax to sales of cover crop seed.  Several months ago, an IFCA member was audited by the DOR and was fined for not collecting sales tax on the sales of cover crop seed, under the contention that since these crops are not harvested or resold, they do not qualify for the ag input sales tax exemption.  However, after an effective argument made by the industry, DOR has now indicated that cover crop seed is exempt so long as it is providing benefits to the following crop, such as providing nutrients or weed suppression.  The DOR did state, however, that seed sold only for the purposes of controlling soil erosion, such as seed used in waterways or buffer strips, is subject to sales tax unless the grass produced on these planted areas is harvested or resold.  

 

IFCA recommends that you keep on file a sales tax exemption form, signed by the purchaser of fertilizer, chemicals and seed or feed, assuring that the purchaser will be using the item in a manner that is exempt from sales tax. Click here to download the sales tax exemption form; it is in Word so that you can include your business name and address at the top.  You should have your customers sign this form once every 3 years and keep it on file in case you are audited by DOR.  One signed form will cover all of their purchases of these products.  This is the only way to truly protect your business from being responsible for tax on items that may be used in a manner that is not exempt from sales tax.  For example, someone could purchase fertilizer and use it on their lawn instead of on a crop, and if they sign the form, they are liable for the tax, you as the seller of the product are not.  If you have questions about this issue or other tax issues, please call the IFCA.