Michigan Tax Tribunal Reverses Long Standing Policy on Agricultural Exemption
In Sietsema Farms Feeds LLC v. Department of Treasury, Michigan Tax Tribunal, No. 355649, September 21, 2010, released January 26, 2011 the Michigan Tax tribunal determined that a taxpayer engaged in the business of operating a feed mill for the production of farm animal feed was subject to Michigan use tax on certain equipment, including truck scales and storage/processing tanks, because the taxpayer's activities were not part of agricultural production for purposes of the agricultural exemption.
Both the sales tax act and the use tax act exempts property used and consumed in the "tilling, planting, caring for, or harvesting of the things of the soil or in the breeding, raising, or caring for livestock, poultry, or horticultural products for further growth." Though feeding was found to be part of the activity of raising and caring for animals, the taxpayer did not use its equipment to feed livestock. Rather, it used the equipment in its business operations and wholesale sales to farmers. Further, the mixing of grain is not a direct part of the raising or caring for livestock. It was not the Legislature's intent to extend the exemption to all business activities that support agriculture.
Though the taxpayer also contended that it was entitled to the exemption based on its relationship with entities engaged in qualifying activities, the exemption cannot be based on the activities of separate legal entities. The taxpayer claimed that it was part of a group of entities comprising a "unitary business group" as defined in the Michigan Business Tax Act; however, this terminology is not applicable for purposes of the use tax. An industrial processing exemption was also asserted for truck scales and an inventory monitoring system, but the taxpayer failed to present evidence supporting an exempt use.