Farmers Guide to Iowa Taxes
This publication is intended as a general guide. For additional details reference Iowa Administrative Code Chapter 701-226: Agricultural Rules.
"Production of Agricultural Products" Begins With:
- Cultivation of land previously cleared for planting crops; or
- The purchase or breeding of livestock or domesticated fowl.
"Production of Agricultural Products" Ceases When:
- An agricultural product has been transported to the point where it will be sold by the farmer or processed for further use.
"Agricultural production" includes the following:
- The raising of crops or livestock for market on an acreage
- Raising of flowering, ornamental, or vegetable plants in commercial greenhouses or elsewhere for sale in the ordinary course of business
- Raising catfish
- Feedlot operations, whether or not crops to feed the livestock are grown on the property or if the livestock are owned by feedlot operators
- Operations that grow and raise seed for sale to nurseries, ranches, orchards, and dairies.
Examples of activities that are not "agricultural production":
- Production of Christmas trees
- Raising mink and other nondomesticated furbearing animals
- Raising nondomesticated fowl (other than ostriches, rheas, and emus)
- Land placed in the federal government’s Conservation Reserve Program (CRP)
- Clearing or preparation of previously uncultivated land
- Creation of farm ponds
- Construction of machine sheds, confinement facilities, storage bins, or other farm buildings
Sales by Farming Operations
Usually exempt for resale, processing, or human consumption:
- Any other farm or garden product
Examples of items that are taxable when sold to the ultimate user:
- Pet food
- Grain for race horses
Purchases by Farming Operations
Purchases by farmers may be exempt from Iowa sales and / or use tax. Just because something is purchased by a farmer, it is NOT automatically tax exempt. Anyone claiming exemption must be able to show they are entitled to it.
See Purchases and Sales: Taxable and Exempt below.
Taxable purchases from suppliers who do not collect Iowa sales tax are subject to Iowa use tax if the purchase is for use in Iowa. Anyone making these kinds of purchases regularly must register for a consumer's use tax permit. A consumer's use tax permit is not needed for occasional purchases of this type, but the use tax must still be paid to Iowa.
- Sale of qualifying farm machinery or equipment
- Casual sale*
*A casual sale is one that does not occur on a regular basis (nonrecurring). The seller does not usually sell goods or taxable services for profit. If the seller does, the sale must be outside the regular course of business to be a casual sale. Two separate selling events outside the regular course of business within a 12-month period are considered nonrecurring.
The casual sale exemption does not apply if there are three separate selling events within a 12-month period. Tax applies beginning with the third separate selling event. View Iowa Administrative Code 701-18.28 for additional details.
Exempt if used for agricultural livestock or fowl:
- Any other materials used for bedding
Chemicals and Fertilizers
Exempt if for direct use in agricultural production to kill pests, insects, or weeds, or promote the growth of plants:
- Chemicals, including adjuvants and surfactants
Taxable when purchased by a farmer
- Breeds commonly thought of as draft animals
- Belgian, Clydesdale, Percheron, and Shire
- Other horses used for pulling loads
Sale or installation as part of agricultural production
In all other cases, drainage tile is taxable as a building material.
Machinery used in laying drainage tile is generally taxable.
Food for Animals
Exempt for livestock and domesticated fowl:
- Antibiotics added to feed or water
- Vitamins and minerals
- Food for pets and racing animals
Global Positioning Systems (GPS)
Exempt if attached to farm implements
- Maps made from the GPS information
Exempt for the production of flowering, ornamental, or vegetable plants intended for sale:
- Fuel used for heating or cooling of production areas
- Electricity used in production
- Machinery and equipment used directly and primarily in production
- Auxiliary attachments
- Replacement or repair parts
- Water used for production
- Heating or cooling office space
- Repair labor
Exempt when specifically designed for use in agricultural, dairy, and livestock production:
Hand tools that can serve a variety of purposes, such as construction tools of all kinds
Livestock and Domesticated Fowl
Exempt - Livestock
“Livestock” is domesticated animals to be raised on a farm for food or clothing. The following are examples of livestock that are exempt from tax:
- Farm deer*
- Preserve whitetail deer
- Fish and other animals which are products of aquaculture
* “Farm deer” includes fallow deer, red deer, elk, sika, whitetail, and mule deer but not free-ranging whitetail or mule deer. Farm deer does not include unmarked free-ranging elk.
Exempt - Domesticated Fowl
“Domesticated fowl” is fowl raised as a source of food, either meat or eggs. Examples of domesticated fowl are:
The following are examples of animals that, even if raised on a farm as a source of food or clothing, are taxable:
Machinery and Equipment Purchase or Rental
Exempt when used directly and primarily in agricultural or livestock production:
- Self-propelled implements
- Implements customarily drawn or attached to a self-propelled implement
- Auxiliary attachments which improve the performance, safety, operation, or efficiency of the farm machinery or equipment
Exempt when used in agricultural production and attached to or towed by a self-propelled implement of husbandry:
- Snow blower
- Rotary cutter
Certain farm machinery and equipment which is not self-propelled or attached to self-propelled equipment are also exempt from tax.
Exempt when used primarily in agricultural production and attached to or towed by a self-propelled implement of husbandry or any vehicle:
- Diesel fuel trailer
- Seed tender
Medicine sold by a veterinarian or any other person
When treating livestock and domesticated fowl
When treating pets and other non-livestock / non-domesticated fowl
Exempt if used in agricultural, livestock, and dairy production:
Pets and Racing Animals
- Horses, except draft horses
- Other pets
- Racing animals
- Other animals not generally associated with agricultural production
- Purchased to be immediately offered for resale
In general, machinery or equipment is real property if:
- It becomes a substantially permanent part of the farm property or
- Its removal after installation is difficult or
- If removal substantially lessens the value of the machinery or the location where it was placed
- Machinery and equipment that will become real property after installation
There are exceptions to this general rule for certain items. For example, agricultural drainage tile is exempt from tax.
Exempt for livestock or dairy production, aquaculture production, or the production of flowering, ornamental, or vegetable plants:
- Auger systems
- Curtains and curtain systems
- Dip systems,
- Fans and fan systems
- Shutter or inlet systems
Exempt when used in the operation of eligible farm machinery or equipment:
- Oil filters
- Spark plugs
- Gas filters
Taxable supplies include:
Exempt if used for agricultural production:
- Natural gas
- Liquefied petroleum gas (LPG)
- Other forms of energy / fuel
- Energy / fuel used in heating or cooling (not general lighting) of livestock buildings on the farm
- Fuel used in an implement of husbandry, such as a tractor or combine
- Energy / fuel used to dry grain
Energy used for other purposes, such as recreation, hobbies, lighting, or for farm shops
State sales tax does not apply to residential energy use; however, local option sales tax, if any, does apply.
Exemption certificate for energy used in agricultural production
To claim exemption, complete Iowa form 31-113 (pdf) and give it to your supplier. The energy supplier will require an updated form at least every three years. Documentation of the energy used for agricultural production must be provided to the utility company.
When filling out the exemption certificate for your utility company, you will need to show what percent of your total energy consumption is for agricultural production. Separate meters for production and non-production use are ideal for determining the exempt and nonexempt energy percentages. However, a separate meter for non-production use is not practical for some farmers. If you do not have production and non-production uses metered separately, you need to determine the percentage of total energy used in agricultural production.
Your previous year's monthly utility bills can be used as a guide to help you determine your total annual use. Ordinarily, the 12-month period immediately preceding the date you apply for exemption is used. However, your circumstances can dictate that you use a shorter or longer period than 12 months or that you use a 12-month period other than the immediately preceding one. If for some reason your usage last year was not typical, select a 12-month period that is more representative; be sure to have adequate documentation. Your utility company may be able to assist you.
See these links for additional information: Worksheet and Example for Determining Electricity used in Processing / Agriculture; Worksheet and Example for Determining Natural Gas used in Processing / Agriculture
Registered vehicles, such as the following, are subject to the 5% one-time registration fee, even if used in agricultural production:
- Stock trucks
- Grain trucks
- Camping trailers
- Livestock trailers
Farm tractors, combines, and others
- Used directly and primarily in agricultural production
- Self-propelled, and
- Not subject to registration
Implements customarily drawn by self-propelled implements
- Directly and primarily used in agricultural production and
- Not subject to registration
Diesel fuel trailers and seed tenders attached to or towed by a self-propelled implement or any vehicle
- Primarily used in agricultural production
All-Terrain Vehicles (ATVs)
- Primarily used in agricultural production
- Not subject to registration
Prior to 7-1-15, ATVs were required to be directly and primarily used in agricultural production to qualify for exemption.
- Primarily for recreation
ATVs do not qualify for exemption as a "casual sale."
Veterinary services are not taxable.
- Used directly as drinking water for livestock or domesticated fowl production
- Used by greenhouses for agricultural production
- Household use
- Swimming pools
- Other personal use
When water is used in livestock production and for other purposes but is not separately metered, the first 5,000 gallons of water per month is taxable. The balance is exempt as agricultural production.
Wind Energy Conversion
- Materials used to manufacture, install, or construct property used to convert wind energy to electrical energy
A seller must obtain a completed exemption certificate from the purchaser to verify the purchase qualifies for the exemption.
Services performed on a farm are generally taxable to the same degree that they are taxable to any other type of business.
- Exterminating bugs, roaches, and all other pests in the farm home
- Exterminating bugs, rodents, and all other pests in grain bins, full or empty
- Repairing a tractor or other farm equipment
- Routine maintenance services, such as oil changes
- Pressure washing a livestock building
- Spraying pests to prevent or control infestation of cropland
- Parts used during repair may be exempt; see Replacement Parts
If sales or use tax is paid in error, the person who paid the tax should file an IA 843 Claim for Refund (pdf) with the Department to request a sales / use tax refund. Refunds may be requested up to three years from when the tax payment was due or one year from when the tax was paid, whichever time is the later.
1Exempt if drawn or attached to a self-propelled farm implement or, if not real property, used directly and primarily in agricultural production
Hypodermic syringes and needles, non-disposable
1 Exempt if drawn or attached to a self-propelled farm implement or, if not real property, used directly in dairy or livestock production
2 Exempt when used as livestock and poultry bedding
3 Designed for farm use
Greenhouse monorail systems*
*Exempt if not real property.
Lubricants and fluids
*The buyer of building materials is responsible for paying sales tax or use tax on those materials. This includes materials to construct grain bins. The buyer is the person who pays the vendor.
Iowa income tax withholding is applied to the same wages and compensation as federal income tax withholding.
Registering as a Withholding Agent
Employers required to withhold must register with the State of Iowa and the Internal Revenue Service as a withholding agent. There is no fee for registering.
First register with the Internal Revenue Service to obtain a Federal Employer Identification Number (FEIN). You may call 1-800-829-4933 instead of applying online.
Filing and Paying Withholding Tax
Iowa withholding returns are submitted electronically through the eFile & Pay system. Once you are registered as a withholding agent, the Department will send you a Business eFile Number (BEN). This number is necessary to access the paperless system.
Every withholding agent is required to file a return for each period during the calendar year, even if tax was not withheld.
Penalty and Interest on Delinquent Returns
Returns and deposits must be filed no later than the due date to be timely. After the due date the amount of tax due is subject to penalty and interest.
See Penalty and Interest.
Employees must complete the federal and the Iowa W-4.
The Federal W-4 (pdf) is available on the IRS website at www.irs.gov
The Iowa W-4 is available online (pdf).
Within 15 days, each new hire and rehire is required to complete and sign an Iowa W-4. It must show the number of allowances the employee is claiming. If for any reason the employee does not complete an IA W-4, the employer must withhold at zero allowances.
Some employees are exempt from withholding. See the W-4 instructions.
Employers must keep copies of W-4 forms in their files for at least four years.
Verified Summary of Payments Report
All withholding agents must submit a completed Verified Summary of Payments Report (VSP) by January 31 for withholding payments made in the prior calendar year. The VSP is submitted online through eFile & Pay or by touch-tone telephone.
Employers are not required to send copies of W-2s or 1099s to the state of Iowa with the VSP. Employers are still required to keep copies of the W-2s and 1099s for at least four years from the end of the year for which the forms apply.
W-2s must be given to employees on or before the last day of January following the tax year or within 30 days of the time the last wage payment is received if requested by the employee.
Blank W-2s may be obtained by contacting the IRS at 1-800-829-3676, ordering online from the IRS at www.irs.gov/, or from a commercial printer.
If you need a copy of your W-2, first ask your employer. The Iowa Department of Revenue isnot able to furnish W-2s. If you are unable to obtain a copy from your employer, here are some other possible options:
- Social Security Administration (SSA) - will provide copies of Forms W-2 for retirement purposes at no charge and for other than retirement purposes for a fee. Call 1–800–772–1213, or visit the SSA website at www.ssa.gov for instructions on how to obtain wage information from the SSA.
- Internal Revenue Service (IRS) – will provide an exact copy of a previously filed and processed tax return with attachments (including Form W-2). You should complete Form 4506, Request for Copy of Tax Return, and mail it to the address listed in the instructions. A fee will be charged for each tax year requested.
Tax paid on fuel used in agricultural production is eligible for credit or refund.
Motor Fuel Credits and Refunds
Credit or refund of fuel tax:
- File your Iowa income tax return with form IA 4136; see income tax forms
- No permit needed
- Obtain a refund permit; Iowa Fuel Tax Refund Permit Application (80-005)
- Use call-in system
- See 85-030 Information on Motor Fuel Tax Refund Claims (pdf)
Dyed Diesel Fuel
Dyed diesel fuel may be purchased free of Iowa fuel tax. Therefore, farmers should purchase dyed diesel fuel for agricultural use whenever possible. Since fuel tax will not be charged at the time of purchase, no refund or credit will be necessary. Dyed diesel cannot be used in registered vehicles.
Fuel used to power implements engaged in agricultural production is exempt from sales/use tax.
This section is written for cooperatives, elevators, agricultural-chemical dealers, and fertilizer dealers.
- Machinery and equipment used directly and primarily in the production of agricultural products
- Machinery and equipment used directly and primarily in a manufacturing process
- Replacement parts for exempt machinery and equipment
- Computers used in processing or storage of data by a commercial enterprise (farmers cannot purchase computers tax free, but an agribusiness may be eligible for exemption)
- All vehicles subject to registration
- All equipment attached to a vehicle subject to registration
- Labor to repair exempt machinery and equipment
- Parts not separately itemized from labor
- Grain testing
- Grain storage
- Pest eradication
Taxable vs. Exempt Examples
Example 1: Nurse Tank (for example, an anhydrous ammonia tank)
Taxable if attached to a vehicle subject to registration
Exempt if drawn by a self-propelled implement of husbandry used in agricultural production
Example 2: Grain Vacuum Conveyor
Taxable if used at an elevator
Exempt if used directly and primarily on a farm in agricultural production
Example 3: Tractor
Taxable if purchased by an elevator to primarily haul grain from an unloading dock to a silo
Exempt if used to till fields and harvest crops
Example 4: Skidloader
Exempt if primarily used in agricultural production. A co-op uses a skidloader 60% of the time to clean the feedlot of its livestock operation. The remaining 40% is used to handle fertilizer and do utility work on the co-op premises. The skidloader is exempt because it is primarily (more than 50%) used in agricultural production.
Taxable if a co-op uses a skidloader 100% of the time to load bags of seed, fertilizer, and feed on customer’s trucks.