Beginning July 1, 2007 the activity of "silviculture" was added to the list of businesses recognized as "farm businesses" in the State of Wisconsin. Now that Wisconsin recognizes tree farmers as farmers, you are now eligible for the same sales tax exemptions as the grain farmer down the road!
Before you rush out and claim the exemption on everything you purchase, keep in mind that you need to meet the same requirements as your neighbor to qualify. Those requirements can be a little confusing.
To start off, note that purchases will qualify only if they meet one of two conditions:
- the purchase will be used exclusively and directly in the tree farming activity, or
- the purchases are consumed or lose their identity in the tree farming activity.
Note the term "directly". A chain saw that is used to actually harvest your trees would be used directly in the activity as would a pruning saw so they would meet the first condition. How about the file you use for sharpening your saw chain? Its use would be indirect since you don't actually use it to harvest trees or to prune them or anything else directly related to them. As such it would not qualify under the first condition but will qualify under the second. So would items such as safety equipment, lubricants and fuel.
Why the distinction? Because the rules are slightly different depending upon whether the purchase qualifies under the first condition or under the second condition! Nothing like making this easy!
Purchases that are used "directly" must also be used "exclusively". In this case "exclusively" means that at least 95% of the asset's use must be in the tree farming activity. So if 10% of the new chainsaw you just purchased is used to cut firewood to heat your home, it does not qualify for the sales tax exemption.
Purchases under the second condition must be used 100% in the tree farming activity to qualify. So if you are going to use that pair of chaps at any time in cutting your personal firewood, it also will not qualify. If the chainsaw and chaps are both used 95% in the tree farming activity the chainsaw would qualify whereas the chaps would not.
Most any purchase of what they call "tangible personal property", as long as it meets the above conditions, will qualify. This includes equipment such as tractors and machines along with their accessories, attachments and parts; non-powered equipment, seeds, plants and consumables such as fuel and lubricants. It also includes charges for service and repair to equipment used in an exempt purpose. A notable exception to this general rule are automobiles, trucks or any other motor vehicle designed for highway use along with their attachments, i.e. trailers. Also not qualifying is property that is any manner a part of a building or other real property (with exceptions) or any property used or consumed in the construction or erection of buildings or other real property.
It's interesting to note that services provided by a forester are also covered under this exemption as is the equipment used by the forester in the performance of "custom farming services".
"Logging" is also included in the definition of silviculture. This means that purchases by loggers qualify for the silviculture exemption as long as they meet the conditions.
The tax release uses the term "business" rather loosely. The exact definition of silviculture reads as follows: "the business of raising trees for timber, lumber and other wood products. Silviculture includes the logging of timber when it is performed by a person engaged in the business of silviculture and the logging is conducted with respect to timber produced as a result of that person's silviculture activity. Silviculture does not include pulp or sawmill operations."
So what do they mean by "business"? Do you need to file a business schedule in order to take advantage of the sales tax exemption? A Department of Revenue employee answered that question in the affirmative. However, Fact Situation 5 in the tax release indicates that an individual who purchased the land for "investment and recreational purposes" is engaged in the business of silviculture. Since it is in writing, I would go with the more liberal interpretation in the release.
Just because you qualify for the exemption when you purchase the asset doesn't mean you may not have to pay any sales tax on the purchase. If, at some point, your purchase no longer qualifies (i.e., an increase in personal use), you will become liable for the tax. If the first taxable use occurs within a period up to six months of purchase you are liable for the full amount of the tax. If the first taxable use occurs after six months you may calculate the tax based on the fair market value of the asset at the time of its first taxable use. If the fair market value is higher than the purchase price you could base the tax due on the purchase price.
Retailers must charge you sales tax unless they have your signature on a statement that the purchase qualifies for the exemption. Many retailers that deal a lot with farmers will have those statements available right at the checkout. For those that don't, you will need to provide them with a Form S-211 (available on the Wisconsin Department of Revenue website at www.dor.state.wi.us). On this form you can either indicate that you are exempt for a single purchase or for all purchases. Note that in signing this form you are personally certifying that the item purchased will be used for an exempt purpose. You will be liable for the tax, along with interest and penalties, if that proves not to be the case.
If you are interested in more information on this subject or would like to view the various fact situations put forth by the Wisconsin Department of Revenue you can view their release in Wisconsin Tax Bulletin 152 - July 2007 beginning on page 19.