Agriculture and Timber Industries
Frequently Asked Questions
Agricultural Sales Tax
1. How do I claim the agricultural sales tax exemptions?
Until Jan. 1, 2012, purchasers claiming the agricultural sales tax exemptions on purchases of qualifying items found in Tax Code Section 151.316 may claim an exemption from sales tax on qualifying purchases by issuing a valid exemption certificate to suppliers at the time of purchase. See Rule 3.296 and Tax Exemptions for Agriculture (Pub. 94-101) for additional information.
A new law, House Bill 268 (82nd Legislature Regular Session, 2011), requires farmers and ranchers claiming agricultural exemptions to register with the Comptroller to obtain Ag/Timber Number. Beginning on Jan. 1, 2012, farmers and ranchers will be required to issue an exemption certificate, complete with the registration number, to sellers in lieu of paying tax on qualifying items used exclusively on a farm or ranch in the production of agricultural products for sale.
To apply online, see our www.GetReadyTexas.org webpage to register. Applicants who apply online will receive a registration number immediately. To receive an application by fax, call 1-800-531-1441.
2. Who is eligible for the new Ag/Timber Number?
Anyone engaged in the production of agricultural or timber products for sale in the regular course of business may complete an application for Ag/Timber Number, including:
- farmers and ranchers who raise agricultural products to sell to others;
- persons engaged in aquaculture and apiculture; (i.e., commercial fish farms or beekeepers);
- custom harvesters;
- persons engaged in agricultural aircraft operations, as defined by 14 C.F.R. Section 137.3 (crop dusting);
- commercial nurseries engaged in fostering growth of plants for sale (i.e., growing stock from seed or cuttings, replanting seedlings in larger containers); and
- timber producers, including contract lumberjacks.
3. Who is NOT eligible for an Ag/Timber Number?
A person who is not engaged in the production of agricultural or timber products for sale is not eligible for an Ag/Timber Number.
- home gardening;
- horse racing;
- florists and similar retailers who only store or maintain plants prior to sale;
- wildlife management and/or land conservation/maintenance;
- operating hunting and fishing leases;
- horse boarding and trail rides;
- commercial fishing; and
- pet breeding and pet kennels.
4. Can shoppers from foreign countries and other states claim the agricultural exemption when buying items in Texas?
Yes, anyone engaged in the production of agricultural or timber products for sale in the regular course of business can claim the agricultural exemption on qualifying items purchased in Texas.
Beginning Jan. 1, 2012, all purchasers, including non-Texas residents, must have a valid Ag/Timber Number issued by the Comptroller to claim exemption from Texas tax.. Purchasers who do not have a valid number must pay tax to suppliers at the time of purchase. The purchaser may then apply for a number, and, upon approval, may submit a refund claim for the purchased item directly to the Comptroller's office. Purchasers who do not have a valid registration number at the time of purchase may not request a refund directly from the supplier.
5. Do Ag/Timber Numbers expire?
Yes. All Ag/Timber Numbers are subject to renewal in four year intervals, regardless of when the number was initially issued. For example, a registration number issued any time in 2011, 2012, 2013 or 2014 will expire in December 2015, and registrants will be required to renew their numbers at that time. We will provide information about the renewal process at a later date.
6. I see that most agricultural items only qualify for exemption if used exclusively on a farm or ranch. What qualifies as a farm or ranch for Texas sales and use tax purpose?
A farm or ranch is defined in Tax Code Section 151.316(c)(1) as “one or more tracts of land used, in whole or in part, in the production of crops, livestock or other agricultural products held for sale in the regular course of business.” This definition includes feed lots, dairy farms, poultry farms, commercial orchards, commercial nurseries, and similar commercial agricultural operations. The term “farm or ranch” does not include home or community gardens, kennels, zoos, parks, horse racing stables, horse boarding and training facilities, timber operations, or similar operations that are not engaged in the production of agricultural products for sale. Open or undeveloped areas; land used for hunting or fishing leases; and wildlife preserves are not farms or ranches for sales tax purposes, even if the land has received an agricultural appraisal for property tax purposes.
While timber operations are not farms or ranches, they do qualify for exemption under Tax Code Section 151.3162 when purchasing qualifying items used exclusively in the production of timber for sale. See Rule 3.367 for more information.
7. Can furniture and housewares that will be used in a farm or ranch office or housing be purchased tax free?
No. Furniture and housewares do not qualify as farm machinery or equipment used exclusively in the production of agricultural products for sale even if located on a farm or ranch.
8. Is an All Terrain Vehicle (ATV) taxable if used occasionally for farm use?
Yes. An ATV can only qualify for exemption if purchased for use on a farm or ranch exclusively in the production of agricultural products for sale. For example, an ATV used exclusively on a ranch to run fences, feed cattle or herd livestock qualifies for exemption. That same ATV would lose the exemption if it were used for hunting or recreational riding because it is not exclusively used on a farm or ranch in the production of agricultural products as required by the statute.
9. Are materials used in the construction of a barn exempt?
No. Building materials or structural components used to construct or repair barns used for storage or equipment repair and other general purpose buildings are taxable.
10. What kinds of building structures are considered equipment necessary for agricultural production, thereby qualifying for tax exemption?
Effective Sept. 1, 2011, commercial dairy farmers can claim an exemption from tax on the purchase of building materials and other tangible personal property that will be incorporated into or attached to a free-stall dairy barn, or a dairy structure located on a commercial dairy farm used solely for maternity purposes and used or employed exclusively for the production of milk.
Buildings specifically designed for agricultural production and that cannot be economically used for any other purpose are tax exempt. Examples are automated laying houses, farrowing houses and commercial greenhouses.
11. What kinds of items can a commercial nursery buy under an agricultural sales tax exemption?
Commercial nurseries that grow plants from seeds or cuttings or otherwise foster the plant's growth prior to sale may purchase fertilizer, pots, bowls, flats, hangers and other supplies to package the agricultural products they grow tax free by issuing an exemption certificate with the registration number to the supplier.
12. Is a commercial nursery able to buy and install a sprinkler system or irrigation system tax free?
Machinery or equipment, such as sprinkler systems or portable irrigation systems, used exclusively by a commercial nursery producing or fostering the growth of agricultural products for sale, can be purchased tax free with an exemption certificate containing the registration number.
13. Can a nursery buy plastic sheeting, mesh netting and other supplies to protect the plants from frost or sun damage tax free?
A commercial nursery, farm or ranch producing agricultural products for sale may purchase plastic sheeting, mesh netting and other supplies to protect agricultural products from frost or sun damage tax free with an exemption certificate containing the registration number.
14. Can a commercial nursery build a temporary shelter tax free?
A building or structure (such as a greenhouse) that is essentially an item of equipment necessary for producing items sold by the nursery qualifies for exemption. The structure must be specifically designed for such production and cannot be economically used for any other purpose.
General purpose structures, such as a portable storage building, do not qualify for exemption.
15. Is pet food taxable?
Feed purchased for animals kept as a pet is taxable. Pets normally include dogs, cats, rabbits, hamsters, mice, snakes, exotic birds and tropical fish.
Feed for animals raised for human consumption, but that may also be kept as pets (such as rabbits)is exempt provided the animals are sold in the regular course of business. An exemption certificate is required to document use of the feed in an exempt manner because feed for animals kept as pets is taxable.
16. Can I buy food for my herding dogs tax free?
Yes. Feed for farm and ranch work animals that have been trained to perform a specific function or task related to the production of agricultural products (such as herding sheep or cattle) is exempt. An exemption certificate is required because feed for animals kept as pets is taxable.
17. Is food purchased for breeding animals and their offspring held for sale taxable?
Food for animals used for breeding purposes whose offspring are held for sale, along with food for the offspring, may be purchased tax free by issuing an exemption certificate in lieu of tax. For example, a breeder may purchase dog food for dogs being bred, and for the puppies raised for sale, tax free by issuing an exemption certificate to the food supplier.
18. Can I buy dog food tax free for dogs I board?
No. Food and supplies used or consumed to board and care for dogs or other animals used for sport, show and as pets are taxable.
19. Is deer corn taxable? What about wild bird seed?
No. Sales tax is not due on hay, corn, oats or any other type of feed normally consumed by wildlife. Examples of feed purchased for wildlife include deer corn, wild bird seed and perishable bait used for commercial, sport and recreational fishing.
20. Can I buy deer feeders and deer blinds for my hunting lease tax free?
No. Persons who run hunting operations, as with game and wildlife preserves, are not producing agricultural products for sale. The agricultural exemption in Tax Code Section 151.316 allows tax-free purchases of equipment that is exclusively used on the farm or ranch in the production of agricultural products held for sale.
21. What kinds of exemptions are available for construction and/or repair of pasture roads?
Machinery and equipment exclusively used or employed on a farm or ranch in the building or maintaining of roads, water facilities or in the production of food for human consumption, grass, feed for animal life or other agricultural products to be sold in the regular course of business qualifies for exemption.
A separately stated charge for labor to construct a new pasture road is not subject to tax. The materials incorporated into the roads are taxable if the materials are processed materials such as asphalt, crushed or mixed aggregate. Unprocessed soil, gravel or caliche is not taxable. The tax responsibilities for any processed materials used in the new construction of pasture roads are determined by the type of contract (i.e., lump sum or separated) the contractor has with the farmer or rancher. The contractor will owe tax on taxable materials at the time of purchase if the contract with the farmer is a lump-sum contract. If the contractor and the farmer enter into a separated contract, the farmer or rancher will owe taxes on the separately stated charge for materials, but not on the labor charge to build the road.
The total charge for both processed materials and labor to repair a pasture road is taxable regardless of whether a lump-sum or separated contract is used. The farmer or rancher may not issue an exemption certificate in lieu of paying tax for the repair of farm or ranch roads. The agricultural exemption does not apply to improvements to realty or taxable services. A pasture or ranch road is a nonresidential improvement to realty.
22. I am hired by farmers and ranchers to do road repairs and grade roads using a bulldozer or maintainer. Am I providing a taxable service?
Repairing or grading a farm or ranch road is a taxable nonresidential repair or remodeling service. Farm and ranch roads are roads located on private property that run from a public roadway to any portions of a farm or ranch where production of agricultural products occurs, but does not include driveways to residences that branch off of a road. Tax is due on the entire amount charged to repair or remodel a nonresidential road.
Roads that run directly from a public roadway to residential dwellings and driveways are considered residential improvements to real property. Labor to repair or remodel a residential road or driveway is not taxable. A contractor repairing an existing residential road under a lump sum contract should pay or accrue tax on all taxable materials used to construct the road and should not collect tax from the farmer/rancher. When such roadwork is performed under a separated contract, the contractor should collect tax only on the separately stated charge for taxable materials because the charge for labor on this type of job is not taxable.
When a road runs to a residential dwelling and then extends past the home to agricultural production areas, the section of the road from the public roadway to the residence is considered residential while the remaining portion of the road is nonresidential. A charge for repairing or remodeling a road that is partially residential and partially nonresidential is presumed taxable if the work done on the nonresidential portion of the road represents more than 5 percent of the total.
23. Does a farmer or rancher need to present an exemption certificate each time a purchase is made for agricultural purposes?
When a seller sells taxable items and items that may qualify for the agriculture exemption, the seller may obtain a single “blanket” exemption certificate from the farmer or rancher at the time of initial purchase. The seller should keep that exemption certificate on file as verification of exemption for subsequent exempt agricultural purchases by the farmer/rancher. When subsequent exempt purchases are made, the retailer can simply stamp, write or print a statement on the invoice that says the items purchased on the invoice will be used for “Exempt agricultural purposes”. The stamped invoice must also include the customer's registration number and signature.
If an order for qualifying items is placed by phone, Internet or mail by a customer who has a blanket exemption certificate on file with the retailer, the invoice for the transaction must show the purchaser's registration number and the retailer must make a note on the invoice indicating that the order was received via the phone or Internet, etc.
Beginning Jan. 1, 2012, persons claiming an agricultural exemption must provide the seller with a new Texas Agricultural Sales and Use Tax Exemption Certificate (Form 01-924) (PDF, 297KB) containing the purchaser's Ag/Timber Number. The generic exemption certificate (Form 01-339) (PDF, 57KB) cannot be used to claim the agricultural exemption. “Blanket” exemption certificates issued to suppliers on the old form must be replaced with new certificates containing the purchaser's Ag/Timber Number for purchases made on or after Jan. 1, 2012. (updated 11/17/2011)
24. What is the taxability of the sale of perennial plants?
Perennial plants are subject to sales tax. The products of perennial plants which constitute food for human consumption (such as vegetables, fruits and herbs) are not subject to tax.
25. Are wild game and bird feeders exempt?
Feeders for birds and wild game are subject to sales tax
26. Is work clothing used on a farm or ranch taxable?
Yes, tax is due on work clothing. Clothing does not qualify for the agriculture exemption.
27. Can an aircraft be exempt from sales tax for agricultural purposes?
Under Tax Code Section 151.316(a)(11), machinery and equipment used exclusively in an agricultural aircraft operation, as defined in Section 137.3 of Title 14 of the Code of Federal Regulations (C.F.R), qualifies for exemption. This means that aircraft licensed by the Federal Aviation Administration for the aerial application of fertilizers and other chemicals used exclusively for aerial spraying on farms and ranches in the production of agricultural products sold in the regular course of business can qualify for the agricultural exemption. The exemption includes repair and replacement parts and labor for the aircraft, as well as other machinery or equipment directly used in the agricultural operation. The exemption does not apply to items such as office furniture and supplies.
Tax Code Section 151.328 also provides an exemption for aircraft sold for use in connection with an agricultural use, as defined by Tax Code Section 23.51 relating to appraisal methods and procedures for property tax. Also exempt are aircraft used for:
- predator control;
- wildlife or livestock capture;
- wildlife or livestock surveys;
- census counts of wildlife or livestock;
- animal or plant health inspection services; or
- crop dusting, pollination, or seeding.
The exemption applies only to aircraft, and repair and replacement parts and labor for qualifying aircraft. The exemption does not apply to other machinery or equipment used on or with the aircraft, or by the aircraft owner or operator.
In order to qualify for this exemption, at least 95 percent of the use of the aircraft must be in connection with an agricultural use, as defined by Section 23.51. Travel of less than 30 miles flight each way to a location to perform a service described above does not disqualify an aircraft from the exemption. Persons who claim an exemption must maintain and make available to the Comptroller flight records for all uses of the aircraft.
28. Is the sale of apple or other fruit-bearing or nut-bearing trees taxable?
The sales tax law does not provide an exemption on the purchase of perennial plants which produce food for human consumption; therefore, apple trees and other fruit or nut trees are taxable. Please note: fruit and nuts derived from perennial plants which normally constitute food for human consumption are nontaxable.
A commercial orchard, however, may claim an exemption from tax when buying trees that will be used to raise fruit and/or nuts for sale in the regular course of business by issuing an exemption certificate in lieu of the tax to the seller.
29. Can fencing materials be purchased tax free?
Fences, cattle guards, gates, and chutes used to contain livestock or to enclose fields and pastures on a farm or ranch qualify as exempt machinery and equipment. An exemption certificate is required.
The same materials are taxable when purchased for use on land that does not qualify as a farm or ranch, or when used on a farm or ranch to enclose a residential yard. For example, a person owning or operating a game management or wildlife preserve cannot purchase fencing materials tax free because he is not producing agricultural products for sale in the regular course of business.
30. Is sales tax due for labor (included in a lump-sum contract) for the construction of fences, gates, cattle guards, roads; or for labor for the repair of fences, gates, cattle guards, roads, etc. on a farm or ranch?
Labor to install fence posts, gates, and cattle guards qualifying as new construction of an improvement to realty, is not taxable whether billed lump sum or separately stated from the charge for materials. The labor to repair or remodel an existing fence, gate, cattle guard, or road is taxable real property repair and remodeling. See Rule 3.357, Labor Relating to Nonresidential Real Property Repair, Remodeling, Restoration, Maintenance, New Construction, and Residential Property and Tax Code Section 151.0047. In order to be exempted, fence posts, gates, and cattle guards must be separately stated from installation labor on repair or remodeling jobs performed on a farm or ranch.
Fence posts, cattle guards, gates and chutes installed under a lump-sum contract with the farmer do not qualify for the agricultural exemptions because the contractor is considered the consumer of the items. See Tax Code Section 151.056.
31. Can I buy traps, guns and ammunition used for predator control on my ranch tax free?
No. There is no exemption available for equipment used by farmers and ranchers to control predators.
32. I'm a student and participate in FFA and 4-H. Can I purchase water bottles, feed bowls and cage materials for my chickens and rabbits that will be shown and sold at the fair?
Yes. Students and teachers participating in FFA, 4-H or a vocational agriculture course of study may claim an exemption from tax on items used exclusively on a farm or ranch (including a school “farm”) to raise livestock, poultry and rabbits that will be shown and sold.
33. I own a farm, but rent my land to a farmer (tenant) under a crop share arrangement. As the landowner, I pay a fixed percentage of certain expenses the farmer incurs in the production of crops raised on my land. In turn, I receive that same fixed percentage of the crop proceeds. The farmer has full authority to decide what purchases are necessary to incur maximum crop development. The farmer has an Ag/Timber registration number and makes tax-free purchases of qualifying agricultural exempt items. The retailer making the sales of exempt agricultural items to the farmer has agreed to bill the farmer and me (the landowner) separately based upon our agreed percentages. The farmer receives a bill for his portion of the cost of the exempt items and in turn pays his percentage of the shared expenses to the vendor. The supplier of these qualified expenses also bills me directly for my share of the exempt purchases. I do not have an Ag/Timber registration number. Can I provide my tenant farmer's Ag/Timber number to the supplier to pay my share of the expenses of exempt items that were purchased by the farmer?
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 agricultural 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.