Introduction: This Directive lists items used in producing cranberries, and states whether each is exempt from sales or use tax.

Discussion of Law: Massachusetts law imposes a five percent sales tax on all retail sales, unless otherwise exempted. See G.L. c. 64H, § 2. "Sales" include renting and leasing. G.L. c. 64H, § 1. Exemptions exist for sales of materials, tools, and fuels consumed and used directly and exclusively in agricultural production, G.L. c. 64H, § 6(r), and for sales of machinery and replacement parts used directly and exclusively in agricultural production. G.L. c. 64H, § 6(s). The distinction between a "tool" and "machinery" is important, since the §6(r) exemption (materials, tools, and fuels) only applies when the exempted material or fuel has a normal useful life of less than one year, or if its cost is allowable as an ordinary and necessary business expense for federal income tax purposes. A material or tool that cannot be expensed, or is capitalized and depreciated is not eligible for the exemption, unless exempt under some other provision of G.L. c. 64H, § 6. The 6(s) exemption for machinery is not limited by the federal tax code.

1. "Machinery"

The Supreme Judicial Court defines "machinery" as "any combination of mechanical means designed to work together so as to effect a given end." Warner Amex Cable Communications, Inc. v. Assessors of Everett, 396 Mass. 239, 242 (1985), quoting Assessors of Brockton v. Brockton Olympia Realty Co., 322 Mass. 355 (1948), cited in DD 92-2, "Farm Machinery Used in Agricultural Production."

2. "Tools"

The word "tool" is not given a specialized meaning in the case law. In such cases the general rule of construction is that the word is interpreted in accordance with its usual and natural meaning. Commissioner of Revenue v. AMIWoodbroke, Inc., 418 Mass. 92, 95 (1994). The word "tool" is defined as "an instrument (as a hammer) used or worked by hand : implement." Webster's Ninth New Collegiate Dictionary, 1243 (1987). A tool is thus hand held and does not operate in a mechanical way, with parts working together.

3. "Used directly and exclusively in agricultural production"

Departmental Directive 92-2, "Farm Machinery Used in Agricultural Production," interprets the phrase "directly and exclusively in agricultural production" to include the preparation of land for cultivation, harvesting, and storage, and all the intermediate steps of growing crops and raising livestock. "Agricultural production" also encompasses certain incidental agricultural operations, including the storage of crops and preparation for market, to the extent that such storage and preparation activities occur on the agricultural premises.

The term "used directly," in G.L. c. 64H, § 6(r) and (s), also has no specialized meaning in the case law. The term is therefore also interpreted in accordance with its usual and natural meaning. Commissioner of Revenue v. AMIWoodbroke, Inc., 418 Mass. 92, 95 (1994). The word "directly" is defined as "in a direct manner." "Direct" is "proceeding from one point to another in time or space without deviation or interruption : straight; characterized by close logical, causal, or consequential relationship." Webster's Ninth New Collegiate Dictionary, 358 (1987). The term "used directly" is thus a use without an intervening step.

Directive: A. The following items are exempt from sales or use tax.

1. Machinery and replacement parts. For this exemption to apply, the machinery must be used directly and exclusively in the cultivation, growing, harvesting, or storage of cranberries. The taxpayer should maintain records to show that particular purchases of machinery fall within the exemption. If a sale of machinery is exempt, the rental or lease of the same machinery used for the same purpose is also exempt. Examples of exempt machinery include:

Harvesting machinery, including water reels, booms (racks), dry harvesting machinery, elevators, pumps and pump trucks (provided the pump trucks serve no purpose other than transferring fruit from a bog to a delivery truck, and further provided that they are not required to be registered with the Registry of Motor Vehicles).

Mechanical vine setters and mechanical pruners.

Flumes, flume boards, and flume staples used for water control in the bogs.

Bog irrigation machinery, including pumps and lines transporting water into the bogs, sprinklers, and switches and transformers used exclusively for the pumps.

Pesticide application machinery, including "chemigation" injection equipment, hand-sprayers, power-sprayers, and granular herbicide applicators.

Bog construction and maintenance machinery, including bulldozers, excavators, backhoes, loaders, and laser equipment used exclusively in building or maintaining the bogs.

Frost management machinery, including electronic frost warning systems and sensors.

Computer hardware and software connected to bog monitoring equipment and dedicated exclusively to monitoring and responding to bog conditions. Any other use of the computer hardware, including research and development, renders it and any software taxable.

Fruit preparation and storage machinery, to the extent that such storage and preparation activities occur on the agricultural premises.

Chain saws, brush saws, and mowers used exclusively in maintaining the bogs, and replacement parts for them.

Sanding equipment, including ice sanders, barge sanders, rail sanders, and sand elevators, used exclusively in maintaining the bogs.

Replacement parts, including oil, grease, and filters, used in the above machinery.

2. Materials, tools and fuels. For this exemption to apply the materials, tools and fuels must be consumed and used directly and exclusively in the cultivation, growing, harvesting, or storage of cranberries. The materials, tools and fuels must have a normal useful life of less than one year, or their costs must be allowable as ordinary and necessary business expenses for federal income tax purposes. The taxpayer should maintain records to show that particular purchases of materials, tools or fuels fall within the exemption. Examples of such materials, tools and fuels include:

Harvesting tools not capitalized or depreciated for federal tax purposes.

Pesticide application tools, including hand wipers and clippers.

Frost management tools, such as thermometers and spotlights used exclusively in the bogs.

Pest management materials and tools, including scopes, sweep nets, pheromone traps, pest identification guides, and spotlights, when these items are used exclusively in the bogs.

Bog testing materials and tools, including oxygen meters, pesticide test kits, plant (chlorophyll) tissue meters, soil nutrition testers, and soil moisture readers ("tensiometers").

Fruit preparation and storage materials and tools, to the extent that such storage and preparation activities occur on the agricultural premises.

Straw or hay used exclusively in erosion control, to prevent soil from washing into the bogs.

Seed mats.

Waders that are used exclusively in harvesting activities to protect the fruit.

Culverts (usually aluminum or plastic), used to distribute water directly in the bogs, when these materials are expensed for federal tax purposes.

Spill kits, used to keep polluting effluent from the bogs.

Fuels, such as gas or electricity, used in the bogs themselves or used to power pumps.

3. Other exempt items.

Fertilizers.

Pesticides.

Cranberry plants suitable for planting to produce food for human consumption.

B. The following items, when used in the production of cranberries, are subject to sales or use tax:

1. Machinery and replacement parts. Machinery is subject to tax when not used directly or exclusively in the cultivation, growing, harvesting, or storage of cranberries. The use of machinery off the agricultural premises is use not directly or exclusively used in agricultural production. Cf. Rowe Contracting Co. v. State Tax Commission, 361 Mass. 158 (1972). Examples of such machinery include:

Motor vehicles that are required to be registered with the Registry of Motor Vehicles.

Replacement parts used in motor vehicles that are required to be registered with the Registry of Motor Vehicles.

Rentals of items, such as snowplows, backhoes, etc., that are not used exclusively in agricultural production, but are used for other purposes, such as for office maintenance or parking access.

Computer hardware and software that is not directly and exclusively connected with monitoring the bogs.

Machinery used in research and development, including Geographic Information Systems and Global Positioning Tracking Systems.

Sand screening machinery.

2. Materials, tools and fuels. Materials, tools and fuels are subject to tax when not consumed and used directly and exclusively in the cultivation, growing, harvesting or storage of cranberries, or when they have a normal useful life of one year or greater, or when their cost is not allowable as an ordinary and necessary business expense for federal income tax purposes. G.L. c. 64H, § 6(r). Examples of such materials, tools and fuels include:

Harvesting materials and tools that are capitalized or depreciated for federal income tax purposes.

Materials used to build pump houses, screen houses, other buildings used to prepare fruit for delivery to market, machinery maintenance shops, and bridges across ditches in the bogs.

These building materials are used for structures that have an intervening activity between the structure's function and agricultural production.

Tools used in a machinery maintenance shop, or any tools used to maintain machinery, including hand tools (wrenches, hammers, pliers, etc.), welders and associated rods and gases, lubrication equipment (grease guns, oil, filters), parts cleaning tanks, and paint. Machinery maintenance is appurtenant use and not use directly in agricultural production.

Books and other training materials used for employee training.

Office supplies.

Communications equipment, such as two way radios, "Nextels" and beepers, and telecommunications services.

Pesticide application work clothes, including respirators, coveralls, gloves and goggles.

Pesticide warning signs.

Fencing.

Fuels and utilities not used directly in agricultural production, such as fuels used in offices and machinery maintenance shops.

/s/Frederick A. Laskey
Frederick A. Laskey
Commissioner of Revenue

FAL:DMS:dt

June 24, 1999

DD 99-8