The Arkansas Department of Finance and Administration ("Department") recently ruled that an all-terrain vehicle (ATV) purchased for farm use did not qualify for an agricultural exemption. The purchaser was a farmer engaged in timber production. At the time of purchase, the farmer completed a "Commercial Farming Machinery & Equipment Sales Tax Exemption Certificate," certifying that he was engaged in timber production, and that the purchase would be used exclusively in the production of food or fiber.
The Department disallowed the exemption and issued an assessment to the farmer that included the sales tax amount based on the purchase price of the ATV plus interest. Arkansas exempts farm equipment and machinery from sales tax, but only when used in the production of food, fiber, grass sod, or nursery products as a commercial business. The production and severance of timber is excluded from the exemption. Because the taxpayer used the ATV for timber production, the administrative law judge affirmed the Department's rejection of the exemption and upheld the assessment in full.