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Revenue Administrative Bulletin 2023-9

Revenue Administrative Bulletin 2023-9

SALES AND USE TAX AGRICULTURAL PRODUCTION EXEMPTION

 

Approved: July 19, 2023

(Replaces Revenue Administrative Bulletin 1991-11)

Note: A taxpayer may rely on this Revenue Administrative Bulletin (RAB) until it is revoked by Treasury or until a law on which this RAB is based is altered by legislation or by binding judicial precedent. See MCL 205.6a and RAB 2016-20.

RAB 2023-9.  This Revenue Administrative Bulletin (“RAB”) describes the agricultural production exemptions under section 4a of the General Sales Tax Act (“Sales Tax Act”), MCL 205.54a, and section 4 of the Use Tax Act, MCL 205.94, (collectively, “Acts,”) and replaces RAB 1991-11.  This RAB reflects legislation enacted after the issuance of RAB 1991-11; the most notable being 2016 PA 431 (“PA 431”), 2016 PA 432 (“PA 432”), 2018 PA 113 (“PA 113”), and 2018 PA 114 (“PA 114”). A summary of the changes made by these Public Acts, with their respective effective dates, is provided at the end this RAB.  This RAB also incorporates legal principles from binding precedent decided after the issuance of RAB 1991-11 such as TruGreen Ltd Partnership v Dep’t of Treasury (On Remand), 338 Mich App 248 (2021), lv den 2023 Mich LEXIS 745 (May 12, 2023); Sietsema Farms Feeds, LLC v Dep’t of Treasury, 296 Mich App 232 (2012); Michigan Milk Producers Ass’n v Dep’t of Treasury, 242 Mich App 486 (1999), and; William Mueller & Sons, Inc, v Dep’t of Treasury, 189 Mich App 570 (1991).

INTRODUCTION

Generally, the Acts provide that the sale, use, storage, or consumption of tangible personal property in Michigan is subject to either sales or use tax at a rate of 6% of the sales (purchase) price.  MCL 205.52(1) and MCL 205.93(1).  However, the Acts provide a qualified exemption from sales and use tax for certain tangible personal property used or consumed in furtherance of the agricultural purposes (activities) described in the Acts.   Although the statutes referenced below often refer to the exempt agricultural production activities or uses as exempt “purposes,” this RAB will generally use the word “activities” to describe, collectively, those exempt uses or purposes.

The agricultural production exemption is a use-based exemption, not an entity-based exemption.  In other words, the key aspect of the agricultural production exemption is the requirement that tangible personal property be used or consumed for an exempt agricultural purpose described in section 4a(1)(e) or (f) of the Sales Tax Act and/or section 4(1)(f) or (bb) of the Use Tax Act; non-exempt uses of property are subject to sales/use tax.

Accordingly, although a person may be engaged in any business enterprise, that person (except for a contractor under section 4a(1)(g) of the Sales Tax Act or section 4(1)(cc) of the Use Tax Act) must actually use or consume the tangible personal property for the exempt agricultural purposes described in the Acts in order to be eligible for the agricultural production exemption.  See TruGreen, Mueller & Sons, and Sietsema.

The Acts further provide that property used for both an exempt agricultural purpose and a taxable purpose must be apportioned based on the percentage of exempt use to total use as determined by a reasonable formula or method approved by the Department.  MCL 205.54a(2) and MCL 205.94(2).  The formula or method used does not have to be pre-approved by the Department, but it must reasonably reflect the percentage of exempt use to total use.

A general condition on eligibility for the agricultural production exemption is that the property does not become permanently affixed to or become a structural part of real estate.  The test described in Sequist v Fabiano, 274 Mich 643 (1936), determines if property is permanently affixed to real estate as discussed in RAB 2016-4 and Brunt Assoc v Dep’t of Treasury, 318 Mich App 449 (2017).

ISSUES

  1. What activities qualify for the agricultural production exemption?

     

  2. Who may claim the agricultural production exemption?

     

  3. What property is included in the agricultural production exemption?

     

  4. What property is excluded from the agricultural production exemption?

     

  5. How does the agricultural production exemption apply to property that is used for both exempt and taxable activities?

CONCLUSIONS

1.     Activities Eligible for the Agricultural Production Exemption. 

In addition to any other requirements (or subject to any other limitations) under the Acts, for tangible personal property to qualify for the agricultural production exemption, it must be used or consumed (directly or indirectly) in at least one of the following two categories of agricultural activities described in MCL 205.54a(1)(e) or MCL 205.94(1)(f):

  • Tilling, planting, draining, caring for, maintaining, or harvesting of things of the soil.

The reference to “things of the soil” in these statutes “pertains to the products of farms and horticultural businesses, not to blades of well-tended grass.” TruGreen, at 258.  

  • Breeding, raising, or caring for livestock, poultry, or horticultural products, including transfers of livestock, poultry, or horticultural products for further growth.

A “product” is an “object that may be sold to another.”  See TruGreen (Shapiro J, concurring).

The activities described above are collectively referred to as “agricultural production” or “agricultural producing” in this RAB.  References to “agricultural producing” in this RAB also include the meaning of that phrase as defined in Mich Admin Code, R 205.51. As explained by the Court of Appeals, the collection of words and phrases in the exemption “logically connotes that the … exemption incentivizes investment in the agricultural realm” as it “encourages the production of market resources, not their consumption.”  TruGreen, at 260, n 4.

Agriculture refers to “the science, art, or practice of cultivating the soil, producing crops, and raising livestock and in varying degrees the preparation and marketing of the resulting products.” See Merriam Webster Dictionary, http://www.merriam-webster.com/dictionary/agriculture (accessed May 15, 2023).  Horticulture means the “science or art of cultivating fruits, vegetables, flowers, or ornamental plants.” See The American College Dictionary (3rd Ed).   Specifically, horticulture involves the cultivation of plants for food (pomology and olericulture) and plants for ornament (floriculture and landscape horticulture or arboriculture).  See https://www.britannica.com/science/horticulture (accessed July 5, 2023) and  https://www.nifa.usda.gov/sites/default/files/resources/definition_of_specialty_crops.pdf (accessed May 16, 2023).  While “horticulture” involves only plants, “agriculture” can involve both plants and animals.  In general, a distinguishing feature between “horticulture” and “agriculture” in relation to the growing of plants is the scale of production.  In terms of scale, horticulture falls between domestic gardening and field agriculture. See https://www.britannica.com/science/horticulture (accessed July 5, 2023) For example, horticulture includes both gardens and orchards.  See Defining Orchards (U.S. National Park Service) (nps.gov)(accessed July 5, 2023).

In addition to any other exclusions under the Acts, tangible personal property that is not used for at least one of the activities listed above, as well as transfers of food, fuel, clothing, or any similar tangible personal property for personal living or human consumption, is not eligible for the agricultural production exemption.  MCL 205.54a(3); MCL 205.94(3).  In short, the agricultural production exemption requires, at a minimum, agricultural or horticultural production (i.e., that the tangible personal property is used in “agricultural producing” activities).  See Mich Admin Code, R 205.51.  See also TruGreen; Mueller & Sons at 573; Michigan Milk Producers at 493; Sietsema Farms Feeds at 232, 239-40. 

Example 1: ABC, Inc. is engaged in the business of offering its customers lawn and ornamental plant care services, such as the application of fertilizers, pesticides, and herbicides, for a set fee under seasonal or annual subscriptions.  ABC’s customers are not engaged in agricultural production endeavors such as nurseries, tree or nut farms, or fruit and vegetable production.  Rather, ABC’s customers are residential homeowners, business parks, airports, or others that maintain property for non-agricultural production activities (e.g., use at parks, malls, school grounds, business parks, airports, and athletic fields). ABC is not caring for “things of the soil” for purposes of the exemption and is not otherwise engaged in an exempt agricultural production purpose as its activities are “unrelated to crop cultivation or agriculture in general.”  See TruGreen, at 258. Therefore, ABC may not claim the agricultural production exemption since the tangible personal property it uses in rendering its services is not used for agricultural production or otherwise used in “agricultural endeavor.” See TruGreen, at 262 citing Mueller & Sons at 574.

Example 2: XYZ, Inc. is engaged in the business of growing sod for eventual harvest and sale at retail.  XYZ may claim the agricultural production exemption for tangible personal property used to grow the sod because the use involves agricultural producing activities in that the sod is being grown as a product for retail sale.

Example 3: ABC, LLC is engaged in the business of raising crops for sale to local markets.  ABC purchases a drone and uses it to monitor its agricultural fields for irrigation and other crop maintenance purposes.  ABC may claim the agricultural production exemption, subject to apportionment as described in Part V of this RAB if applicable, because the drone is used indirectly in caring for and maintaining things of the soil as part of agricultural producing activities. 

Example 4: XYZ, LLC is engaged in the business of raising beef cattle for commercial purposes and purchases a portable shelter (barn) that is not affixed to or made a structural part of real estate and uses it to protect hay used to feed the beef cattle from adverse weather conditions and pests. XYZ may claim the agricultural production exemption, subject to apportionment as described in Part V of this RAB if applicable, for the purchase of the shelter.

Example 5:  ACME Orchards, LLC is engaged in the business of growing apples for sale to a local grocer. ACME purchases fertilizer and equipment for use to grow, prune, and otherwise care for the apple trees that produce the apples.  ACME may claim the agricultural production exemption for the fertilizer and equipment because they are used in agricultural producing activities (in this case, the production of horticultural products).

Example 6: Let-it-Bee, LLC is engaged in commercial beekeeping (apiculture) for the purpose of collecting honey and other products produced by the bees to sell to its customers.  Let-it-Bee purchases live bees for this purpose.  Let-it-Bee may claim the agricultural production exemption for the purchase of the live bees.

Example 7: Clear Cut, Inc is a tree service business that focuses on cutting, trimming, and removing trees and limbs and clearing bushes and brush for a utility to provide necessary clearance for the utility’s lines and related purposes.  Clear Cut purchases equipment necessary to provide those services.  Clear Cut is not engaged in agricultural production, so it is not entitled to the exemption. 

2.     Persons Who May Claim the Agricultural Production Exemption.

In general, the agricultural production exemption is available only for tangible personal property that is sold to a person engaged in a business enterprise that uses and consumes the property for agricultural production activities. The agricultural production exemption extends to servicers who use their equipment for any of the exempt agricultural production activities described in Part I of this RAB.

The business enterprise does not need to be engaged in the actual business of agricultural production itself to qualify for the exemption, but it must use or consume the tangible personal property in one of the exempt agricultural activities to avail itself of the agricultural production exemption. See Mueller & Sons at 573-574, and Sietsema at 238-239.

An exception to the general rule described above applies to contractors under section 4a(1)(g) of the Sales Tax Act, MCL 205.54a(1)(g), and section 4(1)(cc) of the Use Tax Act, MCL 205.94(1)(cc).  These subsections provide that the sale of agricultural land tile, subsurface irrigation pipe, a portable grain bin, a greenhouse, or grain drying equipment to a contractor is exempt from sales and use tax under the agricultural production exemption to the extent that it is affixed to and made a structural part of real estate for others and is used for agricultural production.

Example 8: ABC Tree Service, Inc. is engaged in the business of planting, transplanting, pruning, and otherwise caring for ornamental trees and flowers for XYZ, a nursery business that sells the trees and flowers at retail.  ABC Tree Service may claim the agricultural production exemption for property that it uses to perform these agricultural producing activities (in this case the planting and caring for things of the soil and transplanting horticultural products for further growth).     

Example 9: ABC, Inc. is in the business of applying fertilizers to fields used by farmers to grow various produce; ABC does not use the equipment for any other purpose.  The tangible personal property used by ABC to apply fertilizer to the fields is exempt from sales and use tax because it is used for agricultural producing activities.  If, on the other hand, ABC also used the equipment for non-exempt activities, such as spreading fertilizer on ABC’s corporate campus lawn, ABC would have to apportion the exemption as described in Part V of this RAB.

Example 10: XYZ, Inc. manufactures feed for livestock and sells it to persons engaged in the business of raising livestock.  XYZ is not entitled to the agricultural production exemption because the XYZ is not the one using or consuming the tangible personal property for an exempt agricultural purpose.  See Sietsema at 238-240.  The business enterprises that purchase feed from XYZ for their livestock may claim the agricultural production exemption.  However, XYZ may be eligible to claim an industrial processing exemption if the conditions under MCL 205.54t and/or MCL 205.94o are met.

Example 11: Contractor purchases subsurface irrigation pipe that it affixes and makes a structural part of real estate on behalf of Farmer.  Farmer uses the subsurface irrigation pipe in furtherance of its farming operations (e.g., to care for and maintain its crops). The sale to, and use, storage, or consumption by Contractor of the subsurface irrigation pipe is exempt from sales and use tax under the agricultural production exemption because it is used for “agricultural producing” activities under section 4a(1)(g) of the Sales Tax Act and section 4(1)(cc) of the Use Tax Act.   

3.     Tangible Personal Property Eligible for the Agricultural Production Exemption.

In addition to property that is involved in agricultural production, generally, the Acts expressly exempt the following tangible personal property (unless excluded under section 4a(3) of the Sales Tax Act, MCL 205.54a(3), or section 4(3) of the Use Tax Act, MCL 205.94(3)), when used or consumed by a business enterprise for agricultural production activities:

  • Machinery that is capable of simultaneously harvesting grain or other crops and biomass, and machinery used for the purpose of harvesting biomass. MCL 205.54a(1)(f)(i); MCL 205.94(1)(bb)(i).

    “Biomass” means “crop residue used to produce energy or agricultural crops grown specifically for the production of energy.”  MCL 205.54a(5)(d); MCL 205.94(5)(d).

  • Agricultural land tile and subsurface irrigation pipe. MCL 205.54a(1)(f)(ii); MCL 205.94(1)(bb)(ii).

    “Agricultural land tile” means “fired clay or perforated plastic tubing used as part of a subsurface drainage system for land used in the production of agricultural products as a business enterprise.”  MCL 205.54a(5)(a); MCL 205.94(5)(a).  Only the agricultural land tile itself is exempt; any other property used or consumed in the tiling process, such as metal outlet pipes or culverts, is subject to sales/use tax.  The exemption applies only to land tile in land used for agricultural production.  Tile used in areas or for purposes other than agricultural production is subject to sales/use tax.  For example, tile used in a residential area or in the yard around a farmhouse is subject to sales/use tax.

  • Portable grain bins, including tangible personal property affixed (or to be affixed) to portable grain bins and directly used in the operation of a portable grain bin. MCL 205.54a(1)(f)(iii); MCL 205.94(1)(bb)(iii).

    A “portable grain bin” means “a structure that is used or is to be used to shelter grain and that is designed to be disassembled without significant damage to its component parts.”  MCL 205.54a(5)(g); MCL 205.94(5)(g).

  • Grain drying equipment and the fuel or energy source used to power such equipment, including tangible personal property affixed (or to be affixed) to that equipment and directly used in the operation of grain drying equipment. MCL 205.54a(1)(f)(iv); MCL 205.94(1)(bb)(iv).
  • Tangible personal property purchased and installed as a component part of a structure such as a barn or shop (including the maintenance or improvement of existing structures) to the extent not permanently affixed to or a structural part of real estate including, but not limited to:

    i.     a water supply system

    ii.     a heating and cooling system (including agricultural fans)

    iii.     a lighting system

    iv.     a milking system

    v.     any other appurtenance used for the agricultural production activities described in Part I of this RAB (or section 4a(1)(f)(v) of the Sales Tax Act or section 4(1)(bb)(v) of the Use Tax Act), including the maintenance or improvement of existing structures, to the extent that it is not permanently affixed to and does not become a structural part of real estate. MCL 205.54a(1)(f)(v); MCL 205.94(1)(bb)(v).

    For purposes of sections 4a(1)(f)(v) and 4a(3) of the Sales Tax Act and sections 4(1)(bb)(v) and 4(3) of the Use Tax Act, property installed as a component part of a structure as provided in those subdivisions is not considered permanently affixed to or a structural part of real estate if it is  assembled and installed in a manner that it can be disassembled without affecting the physical structural functionality of the original structure and reassembled and reused for an agricultural purpose. 

  • Greenhouses, including tangible personal property affixed to (or to be affixed to) greenhouses and directly used in the operation of a greenhouse if the greenhouse is assembled and installed in a manner that it can be disassembled and reassembled without affecting the functionality of the greenhouse upon being reassembled. MCL 205.54a(1)(f)(vi); MCL 205.94(1)(bb)(vi).See RAB 2016-4 (providing an example from Tuinier v Charter Twp of Bedford, 235 Mich App 663 (1999), of greenhouses that were determined by the Court of Appeals to be affixed to real estate).The greenhouses described in Tuinier would not qualify for the agricultural production exemption under PA 113 and PA 114.

    “Greenhouse” means a structure covered with transparent or translucent materials for the purpose of admitting natural light and controlling the atmosphere for growing horticultural products.  Greenhouse does not include a structure primarily used to grow marijuana.  MCL 205.54a(5)(e); MCL 205.94(5)(e).  However, aside from this limitation the growing of marijuana generally qualifies for the agricultural production exemption.

  • Any other tangible personal property used or consumed directly or indirectly in an agricultural producing activity that is not specifically excluded from the exemption. MCL 205.54a(1)(e) and MCL 205.94(1)(f).

Example 12: XYZ Farm, Inc. purchases large fans and heating lamps and installs them in its barn by attaching them (with screws and bolts) to the ceiling and the support beams.  The barn is used to house and care for livestock.  The fans and lamps are assembled and installed in a manner that they can be disassembled without affecting the physical structural functionality of the barn and can be reassembled and reused in another barn for the same or other agricultural production purpose.  The fans and heating lamps are eligible for the agricultural production exemption.  MCL 205.54a(1)(f)(v); MCL 205.94(1)(bb)(v).  

Example 13: ABC Agriculture and Horticulture Inc. hires a contractor to install agricultural land tile to help drain its crop fields and to construct two greenhouses for its production of horticultural products (e.g., ornamental and fruit trees) that it resells to nursery businesses.  The first greenhouse includes a concrete foundation, steel posts embedded in the concrete foundation and has its superstructure bolted to the steel posts.  The second greenhouse lays atop a concrete pad but does not have any of its support posts or any other aspect of the greenhouse embedded in the concrete.  Instead, the second greenhouse relies on staking and heavy weights placed on ledges built into the corners and edges of the greenhouse to keep it in place.  In general, the greenhouses can be dissembled and reassembled without affecting the functionality of the greenhouse upon being reassembled, except that the concrete and embedded posts of the first greenhouse cannot be.  The sale of the agricultural land tile to the contractor would be exempt from sales and use tax under the agricultural production exemption.   MCL 205.54(1)(g), (3); 205.94(1)(cc), (3).  The sale of a greenhouse to the contractor would only be exempt if the greenhouse is not going to be permanently affixed to and become a structural part of real estate.  MCL 205.54(3); MCL 205.94(3).  The first greenhouse is not exempt under the agricultural production exemption because it is permanently affixed to has become a structural part of real estate.  See MCL 205.54a(1)(f)(vi), (3); MCL 205.94(1)(bb)(vi), (3).  The second greenhouse is eligible for the agricultural production exemption as it is not permanently affixed to and does not become a structural part of real estate. 

Example 14: XYZ, Inc. is in the business of applying fertilizer to fields used to grow crops.  The property used to apply the fertilizer to the fields is eligible for the agricultural production exemption. 

4.     Property That Is Not Eligible for the Agricultural Production Exemption.

In addition to property that is not involved in agricultural production, the Acts expressly provide that the following property is not eligible for the agricultural production exemption:

  • Food, fuel, clothing, or any other tangible personal property used or consumed for personal living or human consumption. MCL 205.54a(3); MCL 205.94(3).

     

  • Tangible personal property permanently affixed to and becoming a structural part of real estate (unless it is agricultural land tile, subsurface irrigation pipe, a portable grain bin, or grain drying equipment). MCL 205.54a(3); MCL 205.94(3).

     

    For purposes of MCL 205.54a(3) and MCL 205.94(3), property installed as a component part of a structure as provided in MCL 205.54a(1)(f)(v) and MCL 205.94(1)(bb)(v) (e.g., a barn or shop) is not considered permanently affixed to or a structural part of real estate if it is assembled and installed in a manner that it can be disassembled and reassembled without affecting the functionality of the original structure upon being reassembled and reused for any of the exempt agricultural production activities described in those subparagraphs or for agricultural production.

    • Motor vehicles used on a public highway that are required by the Michigan Vehicle Code, 1949 PA 300, to have registration license plates and any fuel, tires, oil, and parts for such a motor vehicle. Mich Admin Code, R 205.51(5)(f)(ii)-(iii).

       

    • Property not directly or indirectly used and consumed for agricultural production. MCL 205.54a(1)(e); MCL 205.94(1)(f). See also Sietsema.

Example 15: Acme Farms, LLC hired a contractor to build a pole barn to shelter Acme’s animal feed and livestock.  The posts of the pole barn are embedded in concrete footings or surface mounted to a concrete pier or masonry foundation.  The costs to construct the barn are not eligible for the agricultural production exemption because the barn is permanently affixed to and has become a structural part of real estate. 

Example 16: Acme Farms, LLC hired a contractor to replace sections of the metal roof of a pole barn which were damaged or destroyed by a storm.  The metal roofing materials consumed by the contractor and installed on the barn are not eligible for the agricultural production exemption because they are permanently affixed to and have become a structural part of the barn. 

Example 17: Farming, LLC owns and operates a commercial farm that grows vegetables for a large grocery chain.  Farming, LLC purchases electricity and natural gas from a local utility for lighting, heating and cooling of its office building located on the same parcel as the land used for farming.  The employees who work in the office building handle the administrative functions of the farming operation.  These purchases are not exempt because they are not used directly or indirectly in either of the two categories of agricultural production activities.    

5.     Dual Use Property.

When property is used or consumed for both a taxable and an exempt purpose, the exemption is limited to the percentage of exempt use to total use. MCL 205.54a(2); MCL 205.94(2).The allocation between exempt use and total use shall be determined by any reasonable formula or method approved by the Department. Id. Although Department approval is required by statute, the formula or method used does not need to be pre-approved by the Department, but it must reasonably reflect the percentage of exempt use to total use. Adequate records must be maintained to document and otherwise support the prorated usage .

Example 18: ABC, Inc., a business enterprise engaged in the business of farming, owns a tractor.  Half the time the tractor is used for agricultural production in fields that grow crops the farmer will sell. The other half of the time the tractor is used to mow the lawn, remove snow, and other non-agricultural activities.  Half of the purchase price of the tractor is eligible for the agricultural production exemption, while the other half of the purchase price is subject to sales/use tax.

Example 19: XYZ, Inc., a farming business, owns a tractor.  The tractor is used 90% of the time for agricultural production in fields that grow crops the farmer will sell. The other 10% of the time the tractor provides hayrides.  The agricultural production exemption is allowed for 90% of the purchase price of the tractor, while 10% of the purchase price of the tractor is subject to sales/use tax.

Example 20: Farmer owns a tractor.  The tractor is used 80% of the time for agricultural production in fields that grow crops Farmer will sell. The other 20% of the time the tractor is used on a field that grows produce that will be consumed by the Farmer’s own household.  The agricultural production exemption is allowed for 80% of the purchase price of the tractor, while 20% of the purchase price of the tractor is subject to sales/use tax.

Example 21: XYZ, LLC, which is engaged in the business of farming, owns a skid-steer loader that it uses 75% of the time to transport fertilizer to farm fields, load fertilizer into a fertilizer spreader for field crops and transport irrigation pumps and filters used in the farming operations.   The other 25% of the time, the Loader is used to load and unload mulch and other landscaping products for the business store front and related non-farming purposes.  Because the Loader is used indirectly for the care and maintenance of the things of the soil 75% of the time, 75% of the purchase price of the Loader is eligible for the agricultural production exempt and the other 25% of the purchase price is subject to sales/use tax.    

SUMMARY OF PAs 431-432 AND PAs 113-114

PA 431 amended section 4a(1)(e) of the Sales Tax Act, MCL 205.54a(1)(e), to include within the agricultural production exemption all the following:

  • property used or consumed in the “draining” of things of the soil;
  • a portable grain bin and grain drying equipment purchased by a contractor (i.e., a person in the business of constructing, altering, repairing, or improving real estate for others) to the extent that it is affixed to or made a structural part of real estate and is used for an exempt agricultural purpose;
  • certain property affixed to (or to be affixed to) and directly used in the operation of a portable grain bin or grain drying equipment;
  • any fuel or energy source used to power grain drying equipment; and
  • agricultural land tile and subsurface irrigation pipe sold to a contractor to the extent that it is affixed to or made a structural part of real estate and is used for an exempt agricultural purpose.

PA 431 also clarified that agricultural land tile, subsurface irrigation pipe, portable grain bins, and grain drying equipment are excepted from the exclusion to the agricultural production exemption for tangible personal property permanently affixed and becoming a structural part of real estate.  Changes to the agricultural production exemption made by PA 431 became effective March 29, 2017.

PA 432 amended section 4(1)(f) of the Use Tax Act, MCL 205.94(1)(f), to generally reflect the changes to the agricultural production exemption made by PA 431 and made changes to harmonize the use tax exemption with the sales tax exemption.  Changes to the agricultural production exemption made by PA 432 became effective March 29, 2017.  Unlike the changes made to the agricultural production exemption for sales tax under PA 431, PA 432 did not include an exemption for subsurface irrigation pipe sold to a contractor to be used for an agricultural purpose.  PA 114 corrected this omission.

For purposes of the agricultural production exemption, PA 113 rewrote section 4a(1)(e) of the Sales Tax Act and added new subsections (1)(f)-(g), (3), (4), and (5).  One of the key additions made by PA 113 is the concept of “indirect” uses for agricultural production activities.   In general, PA 113 was effective April 25, 2018, and does not apply to a claim for a refund filed prior to April 9, 2018.  However, PA 113 further provides that subsections (1)(e), (f), and (g) of the Sales Tax Act (as amended by PA 113) are intended to be retroactive and apply to all open periods under MCL 205.27a, but do not apply to any refund claims filed prior to April 9, 2018.  Likewise, PA 114 made similar changes to the Use Tax Act.   

PA 113 and PA 114 also moved the exemption language related to commercial fishing out of the agricultural production exemption.  The commercial fishing exemption is now found in section 4a(1)(h) of the Sales Tax Act, MCL 205.54a(1)(h), and section 4(1)(dd) of the Use Tax Act, MCL 205.94(1)(dd).