Sales of Drones Used in Farming Are Subject to Sales Tax
May 18, 2016
This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated March 28, 2016.
The facts as presented in your letter ruling request are summarized as follows:
Applicant is a retailer of farming equipment. Applicant makes sales of unmanned aerial vehicles (drones) for use by farmers to survey and scout the land upon which crops are grown. The drone is used to determine planting locations, map the layout of the land, monitor field health, and generally remove the need for a physical surveillance of the property. The drone is designed to be used over several production cycles.
Are Applicant's sales of drones used for farming purposes subject to sales tax?
Yes. Applicant's sales of drones used for farming purposes are subject to sales tax.
Section 144.020.1(1), RSMo, imposes a sales tax "[u]pon every retail sale in this state of tangible personal property[.]"
Section 144.030.2(23), RSMo, exempts from tax, in relevant part, "all sales of farm machinery[.]" The section further defines "farm machinery" as "new or used farm machinery and equipment . . . which is: (a) Used exclusively for agricultural purposes; (b) Used on land owned or leased for the purpose of producing farm products; and (c) Used directly in producing farm products to be sold ultimately in processed form or otherwise at retail or in producing farm products to be fed to livestock or poultry to be sold ultimately in processed form at retail[.]"
There are certain aircraft exempted as farm machinery under Section 144.047, RSMo, which provides "all sales of aircraft used solely for aerial application of agricultural chemicals shall be considered farm machinery and therefore, exempt from state and local sales and use tax. . . ." The drones sold by Applicant are not used for aerial application of agricultural chemicals.
Applicant is selling drones used to surveil agricultural property. The drones do not apply agricultural chemicals and do not participate in the production of any agricultural products. The drones merely allow a visual inspection of property, saving the farmer from performing a physical inspection. As such, the drones are not "used directly" as required by the exemption. Therefore, the sales of the drones are subject to sales tax.
This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.
Should additional information be needed, please contact Associate Counsel Spencer Martin, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.