Were a state commission's purchases of conservation tillage machines and drip-trickle irrigation installation equipment exempt when the commission owned the machines but assigned them to conservation districts for farmers' use?

Plain-English summary

South Carolina Private Letter Ruling 89-16 held that the Land Resources Conservation Commission's purchases of 38 pieces of conservation tillage equipment and 18 drip-trickle irrigation installation machines and trailers were exempt from sales and use tax.

The Commission would own the equipment and assign it to conservation districts for farmers to use. That ownership arrangement did not defeat the exemption. The ruling said the equipment's use—rather than who owned it—determined whether the farm-machinery exemption applied.

Both categories qualified because they were motor-drawn or motor-operated machinery used in planting or cultivating farm crops.

The conservation program

The Land Resources Conservation Commission was a state agency providing professional, technical, and financial assistance to South Carolina's 46 conservation districts. A special program funded through a grant approved by the Governor's office would acquire the equipment and introduce farmers to new agricultural technologies and techniques.

The Commission would retain ownership while assigning the machines to conservation districts for farmers' use.

The three-part equipment test

Section 12-35-550(17) exempted animal-drawn or motor-drawn or operated machinery used to plant, cultivate, or harvest farm crops. Section 12-35-820(2) extended the sales-tax exemption to use tax.

Regulation 117-174.243 described three requirements:

1. The item had to be a machine.
2. It had to be animal-drawn, motor-drawn, or motor-operated.
3. It had to be used to plant, cultivate, or harvest farm crops.

The regulation treated planting as including necessary soil preparation through sowing seed. It treated cultivation as including loosening soil, controlling soil moisture, and controlling weeds and pests.

Why the tillage equipment qualified

The conservation tillage equipment was machinery used to plant various farm crops. It therefore satisfied the required agricultural use.

Why the drip-irrigation equipment qualified

Each drip-trickle irrigation installation device was mounted on a special trailer and pulled by a tractor. It performed several connected functions:

• forming beds for planting crops;
• laying plastic tubing that supplied water; and
• covering the bed and tubing with plastic that held moisture in the soil.

Those functions placed the equipment within planting and cultivation as the regulation defined those terms.

Why government ownership did not matter

The ruling cited Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission for the principle that use of the machinery controls the exemption, not ownership.

The Commission's ownership and assignment of the equipment to conservation districts therefore did not disqualify the purchases. The farmers' qualifying use of the machinery controlled the result.

What this means for you

Agricultural equipment programs

Under this historical ruling, equipment owned by a public agency could qualify when it was actually used by farmers for exempt planting or cultivation work.

Farmers and conservation districts

The function of the equipment mattered. Tillage machines qualified because they planted crops, while the irrigation-installation machines qualified because they prepared beds, installed water lines, and controlled soil moisture.

Equipment purchasers and accountants

Document both the machine's design and its actual agricultural use. Ownership alone did not establish or defeat the exemption in PLR 89-16.

Readers applying the ruling today

PLR 89-16 applied statutes and a regulation cited in 1989. Current exemption language, definitions, and documentation requirements must be checked under current law.

Common questions

Q: How much equipment did the program buy?

A: Thirty-eight pieces of conservation tillage equipment and 18 drip-trickle irrigation installation machines and trailers.

Q: Who owned the equipment?

A: The Land Resources Conservation Commission owned it and assigned it to conservation districts for farmers' use.

Q: Why did the conservation tillage equipment qualify?

A: It was machinery used to plant various types of farm crops.

Q: What did the drip-irrigation installation equipment do?

A: Tractor-pulled machines formed planting beds, laid water-supply tubing, and covered the beds and tubing with plastic to retain soil moisture.

Q: Can another equipment program rely on PLR 89-16?

A: No. The ruling says it applied only to the Commission's facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-550(17) (1976) — farm-machinery sales-tax exemption
• S.C. Code section 12-35-820(2) (1976) — use-tax exemption for property specifically exempt from sales tax
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — PLR authority
• Regulation 117-174.243 — planting, cultivation, and harvesting definitions
• Hercules Contractors and Engineers, Inc. v. South Carolina Tax Commission, 280 S.C. 426, 313 S.E.2d 300 (1984) — qualifying use, rather than ownership, controls

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR89-16.pdf

Original ruling text

SC PRIVATE LETTER RULING #89-16

TO:

ABC Commission

SUBJECT:

Farm Equipment- Exemption
(Sales and Use)

REFERENCE:

S.C. Code Ann. Section 12-35-550(17) (1976)
S.C. Code Ann. Section 12-35-820(2) (1976)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for general distribution.

Question:
Are purchases of certain farm equipment by the ABC Commission (“Commission) exempt from
taxation, pursuant to S.C. Code Section 12-35-550(17) and 12-35-820(2)?
Facts:
The primary function of the ABC Commission ("Commission"), a state agency, is to conserve
the state's land-based natural resources by providing professional, technical and financial
assistance to the State's 46 conservation districts.
The Commission also coordinates development of erosion and sediment control programs for the
state; assures the usefulness, productivity and scenic values of land and water disturbed by
mining activity; reduces the risk of failure of certain dams in the interest of public safety; collects
and disseminates information about the land and related resources; and assures professional
credibility through registration of professional landscape architects and soil classifiers.
As part of a special program, the Commission is to purchase thirty-eight (38) pieces of
conservation tillage equipment and eighteen (18) drip trickle irrigation installation machines and
trailers. This equipment is being purchased through a special grant, approved through the
Governor's office.
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The equipment will be owned by the Commission and assigned to the conservation districts for
use by farmers. The purpose of the program is to make South Carolina farmers aware of new
agricultural technologies and techniques.
Discussion:
S.C. Code Section 12-35-550(17) exempts, from the sales tax, "[t]he gross proceeds of the sale of
animal or motor drawn or operated machinery used in the planting, cultivation or harvesting of
farm crops…; provided that the term 'machines'…shall include the parts of such machines,
attachments and replacements therefore…". Note, it is the use of the machinery which
determines whether the exemption applies; not its ownership. See Hercules Contractors and
Engineers, Inc. v. S.C. Tax Commission, 280 S.C. 426, 313 SE2d 300 (1984).
Further, S.C. Code Section 12-35-820(2) exempts from the use tax, "[a]ll property specifically
exempted from the tax imposed by the provisions of Article 5 of this chapter [sales tax]".
Regulation 117-174.243 further explains the exemption provided at Code Section 12-35-550(17).
That regulation reads, in part:
In order to qualify for the exemption, the item must first constitute a machine; secondly,
it must be animal or motor drawn or operated; and thirdly, it must be used in the planting,
cultivating or harvesting of farm crops.
The word "planting" is construed to include all necessary steps in the preparation of the
soil prior to and including the actual planting or sowing of the seed.
"Cultivation" is construed to include loosening of the soil around growing plants, control
of moisture content of the soil, weed and pest control.
"Harvesting" is deemed to commence with the gathering of the crop and to be complete
when the crop is placed in a temporary or permanent storage area. Provided, however,
that the term shall also include the further preparation for storage or sale of certain crops
such as curing tobacco, grains, peanuts, and the grading and packaging of peaches,
cucumbers, tomatoes, etc.
The equipment in question is machinery, which is motor drawn or operated. The remaining
question is whether the equipment is used "in the planting, cultivating or harvesting of farm
crops".
The "conservation tillage equipment" will be is used to plant various types of farm crops. The
"drip trickle irrigation installation equipment" is a device mounted on a special trailer, and pulled
by a tractor. This equipment performs several interrelated functions. It forms beds for the
planting of crops, lays down plastic tubing for the supplying of water, and covers the bed and
tubing with a sheet of plastic. The sheet of plastic serves to hold moisture in the soil.

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Conclusion:
Purchases of the farm equipment in question, by the Land Resources Conservation Commission,
are exempt for taxation, pursuant to S.C. Code Sections 12-35-550(17) and 12-35-820(2). The
equipment is to be used "in the planting, cultivating or harvesting of farm crops."

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
. 1989
August 23

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