Farming and Ranching: Production Exemption
If you change the primary use of an item
If you buy an item exempt to use in a farming activity, it becomes taxable if you stop using it in a farming activity. You must then pay tax on the fair market value of the item.
Example:
You buy a farm tractor for use in planting crops. The tractor qualifies for the exemption because it's reasonably necessary and directly used in your farming operation. After one year, you decide to use the tractor for mowing only the lawn in front of your house. Lawn mowing isn't a farming activity, so the tractor is now taxable on its fair market value. You must determine the fair market value of the tractor, and pay use tax on that amount. All parts and supplies to repair and maintain the tractor from that point on are also taxable.
Note: The opposite isn't true. If you pay tax on an item because you use it in a non-production activity, you can't claim a tax credit if you begin to use it in a production activity.
Example:
On January 1, you bought and paid tax on a tractor to mow the lawn in front of your house. In July, you decide to use the tractor to plant crops (a nontaxable activity). You can't claim a credit for tax paid on the tractor if you move the tractor into a farming activity from a taxable activity.
