NE 29-87-9 Tax Incentives 1987-11-03

For Nebraska's LB 775 personal property tax exemption, do 'agricultural products' include partially-processed farm goods that a company buys and processes further before they reach the consumer?

Short answer: Yes. Under Revenue Ruling 29-87-9, 'agricultural products' for purposes of the LB 775 personal property tax exemption include products grown or raised on the farm or ranch and the intermediate products processed from them that are not yet ready for use by the final consumer. Neb. Rev. Stat. section 77-4105(2)(c) exempts business equipment used directly in the manufacture or processing of agricultural products. So a taxpayer that buys partially-processed farm goods from someone else and continues processing them toward a consumer-usable form is still processing 'agricultural products,' because the goods -- though physically altered by the initial processing -- have not yet undergone significant change from their state on the farm. This is true whether the full conversion into an edible consumer product is done by one taxpayer or by a series of unrelated taxpayers. Once a product has been processed or manufactured into an edible consumer product, it is no longer an 'agricultural product' for purposes of the Employment and Investment Growth Act.

Apply this to your situation

This page answers the general question as of 1987. Ezel answers yours, under current Nebraska tax law, with citations.

Disclaimer: This is an official Revenue Ruling of the Nebraska Department of Revenue, a guidance document stating the Department's interpretation of how Nebraska tax law applies. Each Nebraska guidance document carries the notice that it 'is advisory in nature but is binding on the Nebraska Department of Revenue until amended.' Unlike a private letter ruling, a Revenue Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it. Nebraska's local option sales and use taxes are administered by the Department, not self-collected by home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Nebraska tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Nebraska's Employment and Investment Growth Act (LB 775) included a personal property tax exemption for business equipment used directly in the manufacture or processing of agricultural products. This ruling defines how far "agricultural products" reaches -- specifically, whether goods that have already been partially processed (and are bought from someone other than the original farmer) still count.

The core holding: "agricultural products" include those that are grown or raised on the farm or ranch and the intermediate products processed from such products that are not yet ready for use by the final consumer.

The exemption comes from Section 77-4105(2)(c), which provides that personal property that is business equipment "utilized in a business which is involved directly in the manufacture or processing of agricultural products" is exempt from the tax on personal property.

The facts: the taxpayers process products grown or raised on a farm or ranch, but they don't buy directly from the farmer or rancher. They buy from another person who has already partially processed the goods from their original farm form, and then the taxpayers continue processing or manufacturing them into a product usable by the final consumer.

The Department's test. The key is that the taxpayers are buying products "substantially the same as the products on the farm." The goods may have been physically altered by the initial processing, but they have not yet undergone significant changes from their state on the farm. So the taxpayer is "merely completing the change from agricultural farm products to edible consumer products." That completion counts as the manufacturing or processing of agricultural products -- whether the full conversion is done by one taxpayer or by a series of unrelated taxpayers.

The cutoff. Once a product "has been processed or manufactured into an edible consumer product, it will no longer be considered an 'agricultural product'" for purposes of the Employment and Investment Growth Act. In other words, the exemption follows the goods through the intermediate stages but stops at the finished, consumer-ready product.

What this means for you

A mid-chain food or agricultural processor under LB 775

You don't lose the personal property tax exemption just because you buy partially-processed farm goods instead of raw product straight from the farmer. If what you receive is still substantially the same as the on-farm product -- altered but not yet consumer-ready -- your processing equipment can qualify as being used directly in the manufacture or processing of agricultural products.

Where you sit in the processing chain matters

The exemption spans the intermediate steps even across several unrelated companies. But equipment used only after the goods have become a finished, edible consumer product is working on something that is no longer an "agricultural product" for this exemption.

Common questions

Q: Do "agricultural products" include partially-processed goods?
A: Yes. The ruling defines agricultural products to include intermediate products processed from farm- or ranch-grown goods that are not yet ready for use by the final consumer.

Q: Does it matter that I buy from a processor rather than the farmer?
A: No. The ruling applies whether the full conversion to a consumer product is done by one taxpayer or by a series of unrelated taxpayers, as long as what you handle is still substantially the same as the on-farm product.

Q: When does something stop being an "agricultural product"?
A: Once it has been processed or manufactured into an edible consumer product, it is no longer an agricultural product for purposes of the Employment and Investment Growth Act.

Q: Can I rely on this ruling today?
A: It states the Department's interpretation and is "binding on the Nebraska Department of Revenue until amended," but the LB 775 program has since evolved. Confirm current law and consult a Nebraska tax professional.

Citations and references

Nebraska Revenue Ruling 29-87-9, "Economic Development Tax Incentives -- Agricultural Products" (Nebraska Department of Revenue, issued November 3, 1987; approved by State Tax Commissioner Donald S. Leuenberger).
Neb. Rev. Stat. § 77-4105(2)(c) (R.S.Supp., 1987) -- personal property tax exemption for business equipment used directly in the manufacture or processing of agricultural products.

Source

Original ruling text

Revenue Rul!ng 29-87-9

ment Tax lncentives--A rícultural Products.
RODUCTS INCLUDE THOSE
HAT ARE
GROWN OR RAISED ON THE FARM OR RANCH AND THE INTERIvIEDIATE
PRODUCTS PROCESSED FROM SUCH PRODUCTS THAT ARE NOT YET
READY FOR USE BY THE FINAL CONSUMER.
Economi
AG

Develo
L

Advice has been requested as to whether the term "agricultural
products" as set out in the personal property tax exemption piovided in
the Employment a nd I nveitment G'rowth Act includes p rod ucts that a re
partially manufactured or processed and ane sold for more processing
before they are in a consumer useable form.

Section 77-4105(2) (c), R.3. Supp ., 1987, provides in part that:

Personal property which is business equipment
utilized in a business which ís involved
di rectly in the manufactu re or processi ng o{

agricultu ral pnoducts,

Such prope'rty shall be'exempt from the tax on
personal property.

The taxPayers are processing prôducts that are grown or raised on a
farm or ranch.'The taxpayers do not purchase the products directly
f rom the farmer or rancher, but pu rch¡ase them f rom another person who
has partially processed the products from the original form they weie in
when on the farm or ranch. The taxpayer will continue processing or
manufacturing the products, thereby making another product that will be
useable by the final consumer.

The key is that the taxpayers are pu rchasing procucts that are
substantially the same as the products on the farm. While the products
may have been phrisically altered by the initial processing, the products
have not yet undergone significant changes from their state on the
farm. Therefore, the taxpayer is merely completing the change from
agricultural farm products to edible consumer products.

Reven.ue Ruling, 29-87-9

Page 2

This is considered the manufacturing or processing of agricultural

products whether the complete conversión into edible cãnsrmer- products
is done by one taxpayer, or by a series of unrelated taxpayers. once
product has been processed or'manufactured into an e'di'ble consumera
product, ¡t will no longer be considered an "agricultural product" for
purposes of the Employment and lnvestment Growtñ Act.
A

Donald S. Leuenberger
State Tax Commissioner
November /

, ,rü

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