Tax receipts on farm machinery fall in agriculture slowdown

Farm Forum

PIERRE, S.D. (AP) — South Dakota’s sales tax collections on farm equipment have fallen from record highs in recent years as profits in the agriculture sector decline, a slide that has forced farmers to tighten budgets and caused sales slumps for machinery dealers.

The U.S. Department of Agriculture predicts farm income will drop again in 2016 to its lowest level in nearly 15 years. Agricultural equipment sales taxes match farm income closely, said State Economist Jim Terwilliger, who expects receipts for the current budget year to be down about 15 percent.

The drop has been a factor during the last two legislative sessions, making state budget-setters cautious about sales tax growth that helps drive state spending, lawmakers on the state’s Joint Committee on Appropriations said. Terwilliger said it’s not surprising to see collections “come back down to earth” after the farm boom, given low commodity prices and falling income.

Sales tax collections on farm equipment peaked in the state’s 2014 budget year at an estimated $43.9 million, falling to $33.6 million in fiscal 2015. Estimated tax due was about $22.6 million through March, down $4.3 million from the same period in the previous budget year, according to state figures.

“When it was going crazy in 2013, you just couldn’t keep up. It was a madhouse. I think we sold too much stuff,” said Rod Paul, a sales manager at C & B Operations, an equipment dealer. “It’s just steady business now. It’s not slow or dead, it’s not overly wild either.”

During leaner times, producers limit purchases and often opt to do more repairs and maintenance of their current equipment rather than upgrading to new machinery, said Keith Alverson, president of the South Dakota Corn Growers Association. Some purchases across the state over the last several years may have been for convenience rather than necessity, he said.

“With the change in commodity prices, things are a little tighter around the farm,” said Alverson, who has mostly corn on about 2,500 acres. “Sometimes it’s just staying in the game rather than trying to make the big wins.”

Grossenburg Implement, which has six stores in Nebraska and South Dakota, will take a major sales hit after recent record years, said CEO Barry Grossenburg. But the family-owned business will still be able to afford its bills and pay its employees, he said.

Nationally, sales of large farm equipment have dropped significantly, according to the Association of Equipment Manufacturers. This year, sales through March of two-wheel-drive tractors 100 horsepower and above are down nearly 33 percent over the same period in 2015, while four-wheel-drive tractor sales are down about 38 percent so far.

But sales of smaller tractors have spiked, according to the trade group.

“Agriculture is always a cyclical business,” Senior Vice President Charlie O’Brien said. “I think that this is just one of the cycles that we all deal with, but it’s lower than we’ve seen in quite a while.”