Tax Provisions on Crop Insurance, MAVs Included in Budget Package

Two tax provisions that will benefit Pennsylvania farmers—one offering flexibility related to state taxes on crop insurance payments and another clarifying when multipurpose agricultural vehicles are exempt from state sales tax—have been adopted as part of the 2021-2022 state budget package.

The measures, both of which Pennsylvania Farm Bureau advocated in support of, had been introduced as stand-alone bills but were rolled into the tax code bill that accompanies the budget.

The provision on crop insurance allows farmers to defer crop insurance payments from state income taxes for one year, bringing state tax policy on crop insurance in line with federal rules. PFB believes the move gives farmers greater flexibility in paying taxes on crop insurance payments at the times when they need it the most. Because crop insurance payments are triggered at times of severe weather and significant crop loss, farmers receive such payments when the year did not go as planned. Greater flexibility for state income taxes will help farmers manage income and expenses in difficult years.

The other measure clarifies when purchases of MAVs for agricultural purposes are exempt from state sales taxes. Farmers receive a sales tax exemption when purchasing MAVs to be used primarily for farming. However, the state Department of Revenue has a narrow definition of what is considered a farming activity. Many farm chores—maintaining and repairing pasture fencing, for example—fall outside of the department’s definition.

PFB has heard from an increasing number of members who have faced state tax audits after claiming the exemption for MAVs used on the farm and had to pay state sales tax because their use of the equipment did not meet the department’s criteria for farming. The measure expands the scope of activities considered “farming” to include the wide range of ways MAVs can be used on a farm to support the farmer and their business.