How to Become Farm Tax Exempt in Indiana: A Deep Dive for Hoosier Farmers

Becoming farm tax exempt in Indiana isn’t about waving a magic wand; it’s about understanding the regulations, meeting the criteria, and navigating the application process. Essentially, it involves proving to the Indiana Department of Revenue that your farming operation qualifies as an agricultural business primarily engaged in producing food or commodities for sale. This allows you to purchase certain items tax-free, directly related to your agricultural production.

Understanding the Basics of Farm Tax Exemption in Indiana

To achieve farm tax exemption, you need to obtain a Farm Status Number (FSN) from the Indiana Department of Revenue. This number acts as your key to unlocking tax-exempt purchases for eligible items. But before you start celebrating potential savings, you need to ensure you meet the specific requirements that define a legitimate farming operation in the eyes of the state. This hinges on demonstrating that your primary intention is to operate a commercial agricultural enterprise.

Qualifying for a Farm Status Number (FSN)

Here’s a breakdown of what the Indiana Department of Revenue looks for:

• Primary Business: Your farming operation must be your primary business. This doesn’t necessarily mean it’s your only source of income, but it must be a significant and active part of your livelihood. This often means that farming activities consume a substantial amount of your time and resources.
• Commercial Agriculture: You must be engaged in commercial agriculture. This means your intent is to produce agricultural products (crops, livestock, dairy, etc.) for sale and profit. A hobby farm or a large garden primarily for personal consumption will generally not qualify.
• Sales Requirement: There is no explicit minimum sales dollar amount required by the state to qualify for an FSN. However, you’ll need to demonstrate an intent and reasonable expectation to generate sales. Documentation of past sales, marketing plans, and business plans can strengthen your application.
• Land Use: The land you use for farming must be actively used for agricultural production. This could include planting crops, raising livestock, or engaging in other farming activities. Vacant land or land used primarily for non-agricultural purposes won’t cut it.
• Application Process: You must apply for a Farm Status Number (FSN) through the Indiana Department of Revenue’s online portal, INBiz. The application requires detailed information about your farming operation, including the type of agricultural activities you engage in, the size of your operation, and your expected sales.
• Maintaining Your FSN: Your FSN isn’t a “set it and forget it” deal. You may need to renew it periodically (typically every three years). Furthermore, the Department of Revenue might conduct audits or reviews to ensure you still meet the eligibility requirements. Keep accurate records of your farming activities and sales to be prepared for any scrutiny.

Eligible Purchases Under the Farm Tax Exemption

Once you have your FSN, you can purchase certain items tax-free when directly used in your agricultural production. These generally include:

• Farm Machinery and Equipment: Tractors, combines, planters, irrigation systems, and other machinery directly used in planting, cultivating, and harvesting.
• Livestock and Poultry: Animals raised for sale or used in agricultural production (e.g., dairy cows).
• Feed and Seed: Feed for livestock and poultry, and seed for planting crops.
• Fertilizer and Chemicals: Fertilizers, pesticides, and herbicides used in crop production.
• Fuel and Utilities: Fuel and utilities (electricity, propane, etc.) used directly in agricultural production. Note: The use of Fuel and Utilities tax exemption requires additional verification.
• Building Materials: Materials used to construct or repair farm buildings, such as barns, greenhouses, and storage facilities.

Ineligible Purchases Under the Farm Tax Exemption

It’s equally important to know what you can’t purchase tax-free with your FSN. These often include:

• Personal Items: Food, clothing, and other items for personal use.
• Vehicles Used for Personal Transportation: Trucks or cars used primarily for personal transportation, even if they are also used for some farm-related activities.
• Items Used for Non-Agricultural Purposes: Tools or equipment used for non-farming activities.
• Items for Resale: You cannot purchase items tax-free simply to resell them (unless you have a separate retail merchant certificate).

Navigating the Application Process for a Farm Status Number (FSN)

The process, while straightforward, requires attention to detail. Here’s a step-by-step guide:

1. Gather Your Information: Before you begin the application, gather all necessary information, including your Social Security number or EIN, details about your farming operation (acreage, type of crops or livestock, expected sales), and any relevant business plans or financial records.
2. Create an INBiz Account: Visit the INBiz website (the official online portal for Indiana businesses) and create an account. If you already have an account, simply log in.
3. Locate the Farm Status Number Application: Once logged in, navigate to the section for tax-related applications and find the application for a Farm Status Number.
4. Complete the Application: Fill out the application form carefully and accurately. Provide all required information and answer all questions truthfully. Be prepared to explain the nature of your farming operation and your intent to engage in commercial agriculture.
5. Submit Supporting Documentation: The application may require you to submit supporting documentation, such as a business plan, financial statements, or photographs of your farming operation. Make sure you have these documents readily available.
6. Submit Your Application: Once you’ve completed the application and attached all necessary documentation, submit it electronically through the INBiz portal.
7. Await Approval: The Indiana Department of Revenue will review your application. This process can take some time, so be patient. You may be contacted if additional information is needed.
8. Receive Your FSN: If your application is approved, you will receive your Farm Status Number. Keep this number in a safe place, as you will need it when making tax-exempt purchases.

Frequently Asked Questions (FAQs) About Farm Tax Exemption in Indiana

Here are some of the most common questions farmers have about obtaining and using a Farm Status Number in Indiana:

1. What is the difference between a Farm Status Number (FSN) and a Sales Tax Exemption Certificate?

An FSN is specifically for agricultural operations buying items directly used in farming. A Sales Tax Exemption Certificate is for other types of businesses that qualify for exemptions under different circumstances (e.g., purchasing items for resale).

2. Do I need an FSN if I only sell my products at a farmers market?

If you’re selling agricultural products at a farmers market, you likely need to collect and remit sales tax on those sales. An FSN allows you to purchase certain inputs for your farming operation tax-free. Obtaining the FSN is still very beneficial in this scenario.

3. Can I use my FSN to purchase groceries for my family?

Absolutely not. The FSN is strictly for items used in your farming operation, not for personal consumption. Misuse of the FSN can result in penalties.

4. What happens if I use my FSN improperly?

Improper use of your FSN can lead to audits, penalties, and even revocation of your FSN. Be sure you understand the rules and only use it for eligible purchases.

5. How often do I need to renew my Farm Status Number?

Currently, Farm Status Numbers are valid for a period of three years from the date of issuance.

6. I’m a small-scale farmer. Do I still qualify for an FSN?

Yes, size isn’t the only factor. The key is whether you are engaged in commercial agriculture with the intent to sell your products for profit, not simply for personal consumption. Documenting your intent and business plan is extremely helpful.

7. Can I get a refund on sales tax I paid on farm equipment before I had an FSN?

Potentially, yes. You can file a claim for refund (Form GA-110L) with the Indiana Department of Revenue, but you’ll need to provide documentation to support your claim.

8. What kind of records should I keep to support my farm tax exemption?

Keep detailed records of all purchases made with your FSN, including invoices, receipts, and documentation showing how the items were used in your farming operation. Keep production records showing the type of crops and the quantity produced and sold.

9. If I lease farmland, can I still get an FSN?

Yes, leasing farmland does not automatically disqualify you. As long as you meet the other requirements, such as engaging in commercial agriculture, you can still obtain an FSN.

10. Does the Indiana Department of Revenue ever audit farms claiming tax exemption?

Yes, the Department of Revenue can and does conduct audits of farms claiming tax exemption. This is why it’s crucial to maintain accurate records and understand the rules.

11. Can I use my FSN in other states?

No. Your Indiana FSN is only valid in Indiana. If you farm in multiple states, you’ll need to investigate the tax exemption rules for each state.

12. What should I do if my Farm Status Number application is denied?

If your application is denied, you will receive a notice from the Indiana Department of Revenue explaining the reason for the denial. You have the right to appeal the decision. The appeal process involves submitting a written protest to the Department of Revenue outlining the reasons why you believe the denial was incorrect.

By understanding these guidelines and meticulously following the application process, Hoosier farmers can successfully navigate the path to farm tax exemption and reap the benefits of this valuable program.