Agriculture and Timber Industries
Frequently Asked Questions
1. I am a landowner who leases my land to a tenant who uses the land to produce agricultural products for sale. I am responsible for maintaining the fences. Am I eligible for an ag/timber number to purchase items such as the fencing for the land tax-free?
No. In order to be eligible for an ag/timber number you must produce agricultural products for sale in the ordinary course of business. Since its enactment in 1961, the agricultural exemption has been limited to persons who produce agricultural products for sale. This provision was not modified by the recent changes in statute. See Tax Code Sec. 151.316.
2. I lease my land to a person who raises cattle for sale. The cattle graze on this land, and my lease agreement states that I am responsible for providing grass for the cattle. Do I qualify for an ag/timber number?
Yes. Because your contract requires you to provide grass for the cattle, you can obtain an ag/timber number and use it to purchase tax-free those items used exclusively to produce the grass.
3. I lease land to a tenant who raises agricultural products for sale on the land. Under the terms of our lease contract, he is responsible for maintaining the fences that surround the leased areas, but I reimburse him for the costs. Can he use his ag/timber number to buy the fencing materials tax free? Does the fact that I reimburse expenses disqualify my tenant from the exemption?
Your tenant can use his ag/timber number to buy the fencing materials tax free for the land used to produce agricultural products for sale. Your reimbursement agreement does not disqualify your tenant from appropriately using the ag/timber number to claim an exemption on qualifying items used in the commercial production of agricultural products.
4. I lease land to a tenant who has an ag/timber number. Can I use my tenant's ag/timber number to buy materials necessary to repair the fencing that surrounds the land he uses to produce agricultural products for sale?
Yes, you can use your tenant's ag/timber number to claim an exemption on the fencing materials and other qualifying items used on the land in the production of the agricultural products that will be sold, if your tenant authorizes you to do so. The tenant is still responsible to ensure the number is used properly in accordance with the law. An ag/timber number holder may authorize others who are associated with the commercial agricultural or timber operation (i.e. family members, employees) to use their number to make qualifying purchases on their behalf; however, the number holder should not allow anyone to use the number for personal or non-qualifying purchases. Misuse of an ag/timber number may result in criminal and civil penalties for the number holder, as well as revocation of the number.
5. I raise cattle for sale. Because of the drought, I was forced to sell my entire herd earlier this year. As a result, I am not actively engaged in the production of agricultural products for sale right now, but will begin again as soon as the drought is over. Do I qualify for an ag/timber number?
Yes, since your ordinary course of business is the production of agricultural products for sale, you are eligible for an ag/timber number. You can use the number to claim an exemption on items that will be used exclusively to maintain or prepare the land for commercial agricultural production.
6. I rent my land under a shared expense/profit arrangement. As the landowner, I pay one-third of the expenses incurred by the farmer I rent the land to. I also share in one-third of the profit made from sales of the agricultural products produced on the land. The farmer pays two-thirds of the expenses and keeps two-thirds of the profits made from sales of the agricultural products produced on the land. Do I need an Ag/Timber Number?
This type of an arrangement is a partnership. The farmer and landowner may obtain one Ag/Timber Number for the partnership. Either partner may issue an exemption certificate with the partnership's number when making qualifying exempt purchases.
Outside of the partnership, however, the landlord is leasing land, not producing agricultural products for sale, and is not entitled to an Ag/Timber number.