August 28, 2014

Is machinery held in inventory under a floor-plan financing arrangement exempt from local tangible personal property tax?

Written By

Wilson Equipment Co., LLC v. Commonwealth of Kentucky, Finance and Administration Cabinet, Department of Revenue

Kentucky Board of Tax Appeals, File No. K13-R-13.

by Jennifer Smart

This case relates to the question of whether Wilson Equipment Co., LLC’s (“Wilson Equipment”) machinery held in inventory under a floor financing arrangement is exempt from local tax and is subject to state tax only for purposes of tangible personal property taxation under Kentucky law, or is subject to full state and local tax.

During the audit period of 2004 through 2011, Wilson Equipment was an authorized dealer engaged exclusively in the business of selling and leasing machinery and equipment, including farm implements, tractors, farm machinery, construction equipment and parts for the equipment.  Wilson Equipment listed all of its equipment at issue on line 34 of the Kentucky Tangible Personal Property Tax returns, claiming that the inventory qualified for taxation at state rates only under KRS 132.200(16). 

KRS 132.200(16) provides for an exemption from local tax for:  “New farm machinery and other equipment held in the retailer’s inventory for sale under a floor plan financing arrangement by a retailer, as defined under KRS 365.800.”  KRS 365.800, when originally enacted in 1992, defined a “retailer” as any person selling “farm implements, tractors, farm machinery, utility and industrial equipment, including lawn and garden equipment, attachments, and repair parts for such equipment…”  Inventory was originally defined in KRS 365.800 is meaning farm implements, tractors, farm machinery, utility and industrial equipment, including lawn and garden equipment, attachments and repair parts of such equipment.  In 2004, KRS 365.800 was amended to modify the definition of retailer to refer only to the sale of “inventory.”  At the same time, the definition of inventory was expanded to add to the original list of farm implements, tractors, farm machinery, utility and industrial equipment and repair parts, the terms “consumer products,” “construction and excavation equipment” and “superseded parts.”

The Department of Revenue (“Department”) argues before the Board that KRS 132.200(16) applies only to one category of tangible personal property i.e., “new farm machinery,” which it defines as “machinery used in a farming operation that is new and not used” and interprets the words “other equipment” in the statute to also be limited solely to “equipment used in a farming operation that is new and not used.”

Wilson Equipment is arguing that the legislature’s intent in enacting KRS 132.200(16) was to extend the exemption from local taxes not only to “new farm machinery” but

to “other equipment” held under a floor plan financing arrangement.  Further, Wilson Equipment contends the legislature’s intent may be derived from the plain meaning of the words “and other equipment” used in the statute.

The parties have filed cross motions for summary disposition.  The Board heard oral argument on the motions on February 26, 2014.  No decision has been issued as of the date of this article.  The authors’ law firm represents Wilson Equipment in this case.