Arizona Gov. Doug Ducey signed an $18 billion, 2023 fiscal year budget that expands the sales tax exemption for used, rental and lease agricultural equipment, and off-highway vehicles (OHVs) for farming and ranching, effective Oct. 1, 2022.
Far West Equipment Dealers Association (FWEDA) joined the Arizona Farm and Ranch Group (AFRG) to convince lawmakers to enhance competition and ease financial burdens on farmers and ranchers in the state with passage of House Bill 2400 amending Arizona law to exempt Transaction Privilege Tax (TPT) collections on used agricultural machinery, and short-term rental and lease equipment of fewer than two years. It also provides a narrow exception for OHVs.
Far West President and CEO Joani Woelfel, and former FWEDA Board Chair Tim Robinson, Agricultural Manager for Empire Caterpillar and owner of Iron City Polaris, testified Feb. 2 at the Arizona State Capitol to advance the bill. The House voted 38-21-1 in March to pass the bill, which includes a conditional enactment clause for the TPT exemption to start Oct. 1.
“We applaud bill sponsor Rep. Tim Dunn and lawmakers’ efforts to level the playing field with Arizona’s neighboring states,” Woelfel said. “We also want to thank Arizona Farm and Ranch Group and Tim Robinson for their work in passing this legislation.”
“With cooperation between the Far West Equipment Dealers Association led by Joani Woelfel, and Arizona Farm and Ranch Group led by Patrick Bray, Arizona farmers and ranchers have been granted relief from the transaction privilege tax on transactions for used machinery and specific OHV units used in crop production,” Robinson said. “These exemptions will help offset rising input costs and create a greater opportunity for growers to update older, less efficient machinery from local inventories. Arizona’s elected officials have stepped up to the plate and provided the agricultural community with a tangible financial solution that will contribute to sustaining this precious economic resource.”
“It was a privilege to work with the Far West Equipment Dealers on common sense tax policy that helps both the dealers and the farmers in Arizona. We are thankful for the leadership of Tim Robinson and the work of Representative Tim Dunn in pushing this tax policy through the Arizona State Legislature,” AFRG Executive Director Patrick Bray said.
Among adjacent states, Arizona was the only one that did not exempt used, rental and lease agricultural equipment and parts from collecting sales tax, which put Arizona businesses at a significant competitive disadvantage, Woelfel told the Senate Finance Committee and the House Ways & Means Committee.
“Importantly, Covid-related supply chain issues significantly affect new inventory of agricultural equipment, and the industry doesn’t expect to see supply shortages to begin easing until late 2023. Industry forecasts say it could take three years to catch up to normal inventory levels so used equipment inventories are sustaining the industry and will continue to do so,” Woelfel said, adding that soaring inflation, advances in technology and climate mandates are also driving up the cost of new equipment.
The only way to regulate sales tax collections on used equipment is when end users purchase through a dealer, which Robinson said forced Arizona dealers to cut margins or lose sales.
Pinal County rose farmer Tyler Francis told representatives and senators that medium and small growers cannot afford new, larger equipment, so they purchase smaller used models, and they lease machinery. Thus, large growers disproportionately benefited from sales tax exemptions on new equipment.
“I currently employ about 180 people and with the economic challenges we’re facing, increased labor costs, labor shortages and massive water shortages, it is becoming more and more difficult to be a farmer in the state of Arizona,” Francis said.
Until six years ago when the Arizona Department of Revenue changed its interpretation, OHVs as defined in Section 28-1171 that are not equipped with a modified exhaust system to increase horsepower or speed, or an engine that is more than 1,000 CCs or that has a maximum speed of 50 mph were exempt under ARS Title 42-5061. The amendment returns OHVs to its intended status under the state TPT exemption for agricultural use.
Dunn asked Robinson to clarify the difference between off-highway agricultural and recreational vehicles.
“It is being used similar to a tractor. Whether it’s to pull a tank to feed cattle with or to haul irrigators back and forth to the field or bring hoses, etc., it is being used as a self-propelled piece of farm machinery,” Robinson said. “We had a tax exemption on that until DOR decided to change the interpretation of it.”