A Guest Editorial
"By Jerry Newby, President"
MONTGOMERY When the tax spenders in Montgomery say they need more money, all too often sales tax exemptions for agriculture come under attack. Our organization represents Alabama farmers, so we obviously support the sales tax exemptions for agriculture. But these exemptions are not the product
of a special interest, but of fairness and logic. While sales tax exemptions for agriculture always seem to be the first mentioned, there are many, many other such exemptions for other segments of Alabama's economy.
First of all, everyone should understand that a farmer does pay sales tax on his truck, his farm equipment, his fencing, his tractor tires and other such products he uses on his farm. His sales exemption applies only to production input items-items that go into producing an end product. This
exemption is the same as for any other business. An automobile manufacturer does not pay sales tax on individual parts he uses in building an automobile. The wholesaler doesn't pay it either. Neither does a newspaper pay tax on the paper or ink it uses. Sales tax is paid by the person who purchases the final product. Likewise, fertilizer and seed are exempt because the farmer uses these items to produce a finished product that ultimately will be subject to sales tax at the retail level. To tax these input items would be double or triple taxation since the end product
Let's use another example. In the production of poultry, should the egg be taxed, then the baby chick be taxed, then the grown chicken be taxed? And when it goes to the processor should it be taxed again, then again when the
grocery store purchases it, then taxed again when the consumer buys it? The legislature wisely realized that taxing input items and taxing a product at every level before it reaches the consumer would be overly
burdensome and ridiculous.
Farmers are one of the few, if not only, producers of a product who have no way to pass on costs of production, including taxation. Farmers buy input items at a set price but when they sell their product, they must take what the market will pay them (which today is below the cost of
production.) While we don't think it would be fair for a manufacturer to pay sales taxes on his input items, either, at least he would have the option of increasing the price of his product to compensate for increased taxation. A farmer cannot set the price of his cotton, soybeans, cattle or
anything else he sells so he has no way to pass on any increase in taxes. He would have to absorb a new tax just as he absorbs any increase in other production costs.
Farmers pay taxes on end products like everyone else. Sales tax exemptions for agriculture are not special treatment. Like other businesses, farmers do not pay taxes on items that go into production of their product. Removing these exemptions would create an unfair, compound, multi-level of taxation.