Important Updates for Agricultural Businesses and Equipment Dealers
The Arizona Department of Revenue recently issued Transaction Privilege Tax (TPT) Ruling TPR 25-1, which provides significant clarification on tax deductions for agricultural machinery and equipment. This April 2025 ruling supersedes the previous TPR 95-20 and reflects important statutory changes made in October 2022 that expand tax benefits for the agricultural sector.
Why This Matters for Agricultural Businesses
Understanding what equipment qualifies for this expanded deduction can result in significant tax savings for agricultural businesses purchasing or leasing machinery and equipment. The removal of restrictions on used equipment and lease terms provides greater flexibility and potential cost savings for the agricultural community.
Key Changes in the New Ruling
The updated ruling addresses two major expansions to the TPT deduction:
- Used Equipment Now Qualifies: Previously, only new agricultural machinery and equipment qualified for the deduction. Under the amended statute, both new and used equipment are now eligible.
- Lease Term Requirement Eliminated: The prior law required a minimum two-year lease term for leased agricultural equipment to qualify for the deduction. This requirement has been removed, making shorter-term leases eligible as well.
What Qualifies for the Deduction?
Arizona Revised Statutes § 42-5061(B)(14) provides a deduction under the retail classification for the gross proceeds of sales of machinery and equipment used for commercial production of agricultural, horticultural, viticultural, and floricultural crops in Arizona.
Qualifying agricultural machinery and equipment includes:
- Agricultural aircraft
- Tractors
- Off-highway vehicles
- Tractor-drawn implements
- Self-powered implements
- Machinery and equipment for extracting milk
- Equipment for cooling milk and livestock
- Drip irrigation lines not already exempt under other provisions
Understanding Off-Highway Vehicles
The ruling provides important clarification about off-highway vehicles, which are specifically defined as vehicles:
- Modified at the time of sale to function as a tractor or to tow tractor-drawn implements
- Not equipped with a modified exhaust system to increase horsepower or speed
- Not having an engine larger than 1,000 cubic centimeters
- Having a maximum speed of 50 miles per hour or less
Examples from the Ruling
The ruling provides several examples to illustrate how the deduction applies:
Example regarding used equipment: A farmer purchases a used tractor for use in his commercial farming operation. Under the amended statute and this ruling, the purchase now qualifies for the deduction, whereas under the previous law, it would not have qualified because it was used equipment.
Example regarding off-highway vehicles: The ruling clarifies which types of vehicles qualify as “off-highway vehicles” for purposes of the deduction, ensuring that only appropriate agricultural vehicles receive the tax benefit.
How REDW Can Help
REDW offers comprehensive TPT compliance services and specialized consulting to help agricultural businesses identify TPT savings opportunities. Our tax professionals can help you determine how these deductions apply to your specific operations and ensure you’re taking full advantage of all available tax benefits.
Whether you’re an agricultural business owner, equipment dealer, or tax professional serving the agricultural industry, our team can provide guidance on implementing these new provisions correctly.
Next Steps
Contact REDW today for a consultation on how this deduction applies to your business. Our tax specialists will help you navigate these changes and maximize your potential tax savings.
