Michigan sales tax and farm exemption

Editor’s note: This article is from the archives of the MSU Crop Advisory Team Alerts. Check the label of any pesticide referenced to ensure your use is included.  

Many MSU County Extension offices get phone calls from farmers wondering how they can get a tax exempt number so they do not have to pay sales tax on items used for their farm. There are a few key points that need to be made regarding this matter. First, there is no such thing as a “sales tax exemption number” for agriculture; and farmers should not use your social security number as proof for a sales tax exempt purchase. USDA defines a farm as “any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the census year." The $1,000 is the gross value or the gross sales amount of the product. The KEY WORDS are that the farm or entity is in “the production of qualified agricultural or horticultural pursuits as a business enterprise.”

Second, please note there are some items that are not exempt for agriculture, such as building supplies for affixed real estate structures. Drainage tile does qualify, as does grain drying equipment and natural or propane gas used to fuel that equipment for agricultural purposes.

The certificate that qualifying producers, organizations and other exempt entities may use, is the Michigan Sales and Use Tax Certificate of Exemption or form 3372 found at website: http://www.michigan.gov/documents/taxes/3372_216612_7.pdf

Producers will note on item 4, in section 3, that you are to indicate the percentage of the purchase item is for agricultural production and that percentage would be exempt from sales tax. Producers are encouraged to complete this form and give to vendors when making exempt purchases.

Most farm retail businesses simply have a location on the purchase paperwork for qualifying items, requesting the producer’s signature. Vendors or sellers are required to retain the exemption certificates for a period of at least four years. It is optional for businesses to accept or reject any or all exempt purchases.

Note in section four of form 3372, where the producer fills in contact information and signs the form, declaring “that the information on this certificate is true…” Businesses may be audited by the Michigan Department of Treasury; however, the signature on the form is the person or business that will ultimately be required to show proof and be in compliance, not the vendors or seller.

More information can be found at the Michigan Department of Treasury website: http://www.michigan.gov/treasury

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