United States

Nebraska bill adds additional sales tax exemption

Relief extended to commercial agricultural machinery and equipment parts


On April 2, 2014, Nebraska Governor Dave Heineman signed into law Legislative Bill 96 (LB 96), which, effective Oct. 1, 2014, exempts from sales or use tax and local option sales or use tax the purchase of depreciable repairs or replacement parts for agricultural machinery and equipment that is used in commercial agriculture.   Additionally, LB 96 provides that any taxpayer that paid Nebraska sales or use tax and local option sales or use tax on the purchase of such repairs or replacement parts prior to Oct. 1, 2014, may apply for a refund with the Nebraska Department of Revenue, giving the exemption retroactive effect. However, such refund claims must be filed within three years of the date of original purchase, which may limit this retroactive benefit.

For the purposes of applying this exemption, agricultural machinery and equipment used in commercial agriculture includes property that is used directly in the business of cultivating a crop, raising or caring for animal life, or collecting or processing an agricultural product of a farm or ranch for the purpose of selling such crop, animal life, or agricultural product, but does not include office equipment, motor vehicles, well-drilling equipment, or any building or fixture.  Repairs and parts for agricultural machinery or equipment are considered depreciable, and are therefore exempt, if (1) the purchase of the repairs and parts is an ordinary capital expense, and (2) the repairs and parts are expected to prolong the useful life of the machinery or equipment, arrest its deterioration, or increase its value or usefulness.

Prior to the enactment of LB 96, Nebraska was one of only eight states that imposed sales tax on agricultural machinery and equipment repair and replacement parts. Lawmakers hope that LB 96 will eliminate a competitive disadvantage that previously existed for Nebraska’s farm implement dealers, as well as lower costs for the state’s farmers. The bill is estimated to provide more than $9 million a year in tax relief to commercial farmers.

This law change could present a significant refund opportunity for large commercial farms and other taxpayers that have large fleets of agricultural machinery and equipment, such as farm implement dealers, and that have made investments in equipment repair in recent years. It may also provide substantial cost savings going forward, especially to high-volume purchasers of repairs and replacement parts for agriculture machinery and equipment.

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