What Farm Machinery Equipment Is Exempt From Personal Property Taxation? BY: SAMANTHA BAYER, ASSOCIATE POLICY COUNSEL, OREGON FARM BUREAU FEDERATION
Goals of the Presentation: Provide a basic understanding of the statue, its varied interpretations, and implementation. Discuss current and future legislative efforts. Encourage audience to inventory machinery and equipment, and work with personal accountants and lawyers to determine what should be listed on personal property return.
Background: In general, if you operate a business in the State of Oregon, you must file an annual return listing the equipment used to run your business. However, there are several tangible personal property exemptions that exist in statute. ORS 307.394 exempts certain items of farm machinery and equipment. Unfortunately, there is confusion from taxpayers, assessors, and the department of revenue as to what farm machinery and equipment should actually be exempted. In 2018, Marion County farms identified discrepancies in the implementation of the exemption. Specifically, some farmers started to receive letters from their assessors stating that certain pieces of machinery and equipment should be taxed, while other farmers in the same county did not receive letters and did not pay the tax.
ORS 307.394 – Farm Machinery and Equipment “Tangible personal property” Used primarily “in the field” or placing farm crops in storage Farm machinery and equipment used in animal husbandry + apiaries + dairies Remediation plan Catchall provision Repair, maintenance, and construction tools owned by farmers used for farm purposes https://www.oregonlaws.org/ors/307.394 (last visited 10/16/19)
https://www.oregon.gov/DOR/programs/property/Pages/personal-property.aspx (last visited 10/16/19) https://www.co.washington.or.us/AssessmentTaxation/AppraisalAppeals/BusinessPersonalPropertyAssessment/property-exempt-from-tax.cfm (last visited 10/16/19)
https://www.co.lincoln.or.us/assessor/page/personal-property (last visited 10/16/19)
ORS 307.394 – Farm Machinery and Equipment “Tangible personal property” Used primarily “in the field” or placing farm crops in storage Farm machinery and equipment used in animal husbandry + apiaries + dairies Remediation plan Catchall provision Repair, maintenance, and construction tools owned by farmers used for farm purposes
Subsequent Interpretations: Oregon Administrative Rules: OAR 150-307-0010(2)(b)(B) OAR 150-307-0030(4) OAR 150-307-0460(1)(b) OAR 150-307-0460(2) Etc. Case Law: Saunders v. Dept. of Rev., 300 Ore. 384, 711 P.2d 961 (1985) Seven-Up Bottling Co. v. Dep't of Revenue, 10 Or. Tax 400, 401 (1987) Columbia River Egg Farm v. Dep't of Revenue, 12 Or. Tax 418, 421-22 (1993) King Estate Winery, Inc. v. Dept. of Rev., 329 Ore. 414, 419-420, 988 P.2d 369 (1999) Etc.
“Two - Step” Analysis: Real or Tangible Personal 1. Property? ➢ Real = Taxed ➢ TPP = Exempt Processing or for Harvest? 2. ➢ Processing = Taxed ➢ Harvest = Exempt
Is the Machinery or Equipment Real or Tangible Personal Property? “Real property” is defined as "all buildings, structures, improvements, machinery, equipment or fixtures erected upon, above or affixed to the land.” ORS 307.010(1)(b)(B). DOR defines “affixed to” as ”annexed or attached to the real property by bolts, screws, nails or by being built into the structure. Also, items may be constructively affixed to the land or building and considered real property by virtue of their weight or size .“ OAR 150- 307-0010(2)(b)(B) Ex. pipeline milking equipment, seed cleaning equipment, rock crushing plants, and plywood machinery and presses.
Is the Machinery or Equipment Real or Tangible Personal Property? “Tangible personal property” includes but is not limited to “all chattels and movables, such as boats and vessels, merchandise and stock in trade, furniture and personal effects, goods, livestock, vehicles, farming implements, movable machinery, movable tools and movable equipment.” ORS 307.020(1)(c) DOR further defines “personal property” as “ movable machinery, movable tools and movable equipment include items readily movable as opposed to apparently stationary or fixed items.” OAR 150-307-0030(4) Saunders v. DOR : The legislature intended to exempt personal property that “ generally is moved or movable in the ordinary course of business[.]” Saunders v. Dept. of Rev ., 300 Ore. 384, 711 P.2d 961 (1985)
Is the Property For “Harvesting, Cultivating, Placing Crops In Storage” or “Processing”? DOR defines “processing” as “altering the crop in any way such as: washing , icing , sorting , grading , waxing , boxing , slicing , or cutting .” OAR 150 -307-0460(1)(b) DOR also states that, “[m] achinery and equipment used to place a farm crop in storage are exempt from taxation. However, once processing of the crop is begun, it is no longer a crop, but a product.” OAR 150 -307-0460(2) Ex: Apples are picked and go directly into cold storage. This would be considered “placing in storage of farm crops.” When these same apples are sorted, washed or boxed it becomes a product and placing back into cold storage until sold is not considered “placing in storage of a farm crops.” At this point apples change from a crop to a product. The Oregon Supreme Court clarified that the statute “ does not include the processing of farm crops ; neither does it include the sale of farm crops or the sale of processed farm crops.” King Estate Winery, Inc. v. Dept. of Rev., 329 Ore. 414, 419-420, 988 P.2d 369 (1999)
To recap, under administrative rule… Farm machinery must be moved or moveable in the ordinary course of business to be considered exempt tangible personal property. Any farm machinery or equipment must NOT be “erected upon” or “affixed to” real property, as in hard -plumbed, welded, built into, or even bolted, screwed, or nailed to real property. Machinery and equipment used for cultivating, harvesting, or placing farm crops in storage is exempted from personal property taxation. Any machinery or equipment used to wash, ice, sort, grade, wax, box, slice, or cut, or otherwise “process” farm crops is NOT exempt from personal property taxation.
Implementation: Because of a lack of guidance and education to both assessors and the taxpayer: Discrepancies in assessment county to county and even farm to farm. In 2018, Marion County farms identified discrepancies in the implementation of the exemption. Specifically, some farmers started to receive letters from their assessors stating that certain pieces of machinery and equipment should be taxed, while other farmers in the same county did not receive letters and did not pay the tax. Marion County assessor attempted to address this issue by conducting inventory. Continued Litigation. Frustration from assessors and taxpayers.
Legislative Efforts: 2019 Legislative Session – HB 2264: Machinery or equipment bolted for safety reasons; Stationary machinery and equipment; Preparing farm crops from storage; The current list of activities in ORS 307.394(a) fails to incorporate necessary activities needed to prepare farm crops for storage, such as sorting out rotten produce, hydrocooling crops, boxing produce, cleaning off mud or dirt, wrapping Christmas trees, etc. In sum, there is a gap in the law between harvesting and placing farm crops in storage. Implementation 2020 Legislative Workgroup
Questions? Samantha Bayer Samantha@oregonfb.org (541) 261-9961
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