PHOENIX — Far West Equipment Dealers Association President and CEO Joani Woelfel, and Tim Robinson, Agricultural Manager for Empire Caterpillar and owner of Iron City Polaris, testified Feb. 2 at the Arizona State Capitol to advance House Bill 2400 and Senate Bill 1197 that would expand a sales tax exemption for used, leased and off-highway agricultural equipment.
House Bill 2400 and Senate Bill 1197 would amend Arizona law to expand the current Transaction Privilege Tax exemption to used agricultural machinery and equipment, short-term rentals and leases of less than 2 years, and provides a narrow exception for off-highway vehicle (OHVs). FWEDA joined the Arizona Farm and Ranch Group in pushing for the change to be more competitive in agricultural sales.
HB 2400 passed the House Ways & Means Committee 6-4 on a party-line vote, while the Senate Finance Committee passed SB 1197, 8-1-1 with bipartisan support. SB 1197 moves to the Senate Rules Committee.
“Arizona is the only state in Far West’s seven-state territory that does not currently exempt used and leased agricultural equipment and parts from sales tax collections, which puts Arizona businesses at a significant competitive disadvantage,” Woelfel told lawmakers on 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.
“Soaring inflation, supply-chain pressure, advances in technology and climate mandates are also driving up the cost of new equipment and this increases the pressure on farmers and end users to buy used and to lease equipment to be competitive,” she added.
The only way to regulate sales tax collections on used equipment is when purchasing through a dealer. Robinson said that means Arizona dealers must cut margins or lose sales.
Rep. Denise Epstein, D-18, questioned why does “agriculture need subsidies”?
“Specifically speaking to agriculture, we are challenged in this state, we have half as much water as we once had. Margins have always been a razor thin issue and the growers are pushed by this tax to go out of state and buy used and not pay sales tax,” Robinson said.
Pinal County rose farmer Tyler Francis asked lawmakers to support the bill. He said medium and small growers cannot afford to buy new, larger equipment, so they purchase smaller used models, and they lease machinery. Thus, large growers disproportionately benefit from sales tax exemptions on new equipment.
“I currently employ about 180 people and with the economic challenges we’re facing currently, 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 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. This amendment would return OHVs to their intended status under the state TPT exemption for agricultural use.
HB 2400 sponsor Tim 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.
“Regarding the OHVs, we use (them) to carry irrigation pipes,” he said. “We had a tax exemption on that until DOR decided to change the interpretation of it.”
CALL TO ACTION
Urge your representatives to support HB 2400 and SB 1197
