Texas sales tax exemption: 5 things farmers/ranchers should know

By Mike Barnett

When it comes to the Texas sales tax exemption for farmers and ranchers, numbers are a really good thing. Really.

The new agriculture sales tax exemption number—which on Jan. 1, 2012 will be a requirement by the Comptroller’s office for farmers and ranchers to claim the farm use tax exemption—has sparked a lot of interest in the agriculture community. There’s been a lot of miscommunication and misunderstandings about this new process.

Currently, anyone who buys products for agricultural production only has to say they are sales tax exempt and sign a form. This lends itself to abuse of the system. People who do not qualify for the exemption claim it and the retailer may end up holding the bag, or paying the sales tax when a problem arises. The new process seeks to curb the abuse, by issuing only those who qualify a unique number.

Farmers and ranchers apply to the Comptroller’s office for that unique number.  That number will then be provided on an exemption certificate issued by the purchaser or retailer, assuring the retailer that the customer claiming the Texas farm sales tax exemption is indeed eligible. The retailer can retain on file that one certificate, with the new number, as verification that the purchases made by the customer qualify for exemption. It’s as simple as that.

Here are five more things you should know about the new process:

  1. You need a registration number. The Comptroller of Public Accounts will provide a registration number to you upon your successful application for registration so you can claim the exemption. You can apply for the number now. The new requirement takes effect Jan. 1, 2012.
  2. Apply for your registration number at http://www.window.state.tx.us/taxinfo/agriculture/get_ready_texas.html.
  3. You are eligible if you are engaged in the production of agricultural or timber products for sale in the regular course of business.
  4. You are not eligible if you are not engaged in the production of agricultural or timber products for sale in the regular course of business. Examples include home gardening, horse racing and wildlife management and land conservation.
  5. The Texas farm sales tax exemption law does not change.  The agricultural sales tax exemption number does not change the sales tax laws that have been in place since 1961. Only the process for claiming the exemption changes.

The new process may seem like a lot of bureaucratic red tape, until you consider that the agricultural sales tax exemption itself is at stake.

The outcry has grown louder against its abuse—from affected retailers who end up holding the bag to municipalities who miss out on tax receipts. This new process will protect the ag sales tax exemption—so vital to the food and fiber production in this state—without overburdening farmers, ranchers  or retailers.

When it comes to the new requirement, It’s all about the number—your new agricultural sales tax exemption number—which is the simplest solution to a complex problem.

Photo © Michael Shake | Dreamstime.com

Mike Barnett

Director of Publications
Texas Farm Bureau
I’m a firm believer that farmers and ranchers will continue to meet the needs of a growing world population by employing equal measures of common sense, conservation and technology.
Follow Mike on Twitter and Facebook.

27 Responses to “Texas sales tax exemption: 5 things farmers/ranchers should know”

  1. I understand that there are people out there that use Ag Exemption to purchase items for their own personal use (buying ATV’s to go fishing). These folks are cheating all of us and need to be hammered.

    But consider the following:

    I lease property to a rancher to raise and sell cattle.
    When ever there is a problem with the property, the upkeep is my cost (e.g., fence material, water delivery systems, etc.).
    I annually repopulate the property with native grass seed and supply water to germinate.

    According to HB 268, I operate a separate business from raising and selling cattle. That is according to the Comptroller’s Office in Austin (512) 463-4600. Even though I am involved with the raising of the cattle (through making the land available as well as equipment and upkeep), I cannot claim an Ag exemption and will have to reassess the lease agreement with the rancher. This means more costs for the ranchers that rely upon leased property.

    Though this bill may solve one problem, it creates a new problem. Small ranchers who cannot take on risk to expend large amounts of capital rely on leases. Unfortunately, this new bill will increase their cost as expenses (the tax) is passed on. Large ranches that own all of their own land as well as the CAFO’s out there will have another leg up on small startup ranch businesses.

  2. Mike Barnett says:

    Mike,I hear you, but HB 268 does not change the sales tax laws that have been in place since 1961. Anyone engaged in the production of ag or timber products for sale still qualifies. Since you aren’t actually selling cattle, you do not legally qualify for the ag sales tax exemption. Fair or unfair, as in your situation, I can’t say. But it is the law. HB 268 only changes the process for claiming the sales tax. It is meant as a means to better police those who abuse the system, as you mentioned in your example above.

  3. Bill Greggs says:

    What about preparing land for Ag use? We recently purchased land and are building fences, ponds, roads, getting it ready for cattle. According to this application, one must already be in the Ag business to get the permit. Will all of the sales tax paid on materials be refunded once we are in business and can apply for a certificate?

  4. Bill, this latest legisltive action does nothing to change the law – it remains the same as it’s been for decades. Now, there is a mechanism to enforce it. I don’t know of any rebates or refunds in situations you descrive. You might want to check withe the Comptroller’s office.
    Gene

  5. Mike(s),
    Ref: http://www.window.state.tx.us/taxinfo/agriculture/faq_ag_landowners.html#land1

    Regarding fencing, under question #4 you can use your tenant’s ag exemption to buy fencing material *if* your tenant authorizes you to do so (caveats apply).

    Regarding replanting, under question #2, it looks like your lease contract needs to state that *you* are responsible for providing the grass in which case: “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.”

    Mike B is correct that the HB 268 does not change any of this… but the response from the Comptroller’s office seems to conflict with their own FAQs. You could also consider restructuring your lease agreement to qualify for as a partnership (question 6).

  6. John Wagoner says:

    We applied and got our Number but never got a card in the mail. Now every one wants a copy of our card with our number. They never sent me a card – I do have a copy of our form with the number on it. How do I get my card?

  7. James Hanna says:

    I am purchasing several head of cattle and pasturing them on family property. I work on and take care of this property as well. I am about to purchase an ATV and a trailer to pull the tractor. Do i qualify for a tax exemption on these items? What do I have to do to get the tax exemption?

    • Mike Barnett says:

      James, we can’t give that kind of advice. This blog will tell you where to go to see if you qualify.

  8. Bernice M. Vasquez says:

    Small Producer/Operation

    I raised bees on our land and plan to expand, what are the minimum requiredments for me to qualify for a Texas agriculture sales tax exemption number for raising bees.

    Thank You,
    Bernice

    • Mike Barnett says:

      Bernice, you would need to check with the Texas Comptroller’s office.

    • Gene Hall says:

      Bernice, here is some additional information from Glen Jones on our staff. “Gene Hall ask that I respond to your request about getting an Ag Sale Tax Exemption. Go to the State Comptrollers site “www.GetReady Texas.org”. It will provide you with the information you need. If I can be of further help, give me a call at 254 751 2242.”

  9. I have a hunting lease exclusively to hunt wild boar, a pest to farmers, does this qualify me for an ag exemption for the equipment we use for this purpose ?

  10. we purchased land last year and have started raising horses and I want to know if we can get a tax exempt number for feed, hay and fencing.

  11. Gene Hall says:

    Ella, unless you are doing so commercially, you probably do not qualify. http://www.window.state.tx.us/taxinfo/taxpubs/ag_timber_exemption.html

  12. Ted Garcia says:

    There is a problem with the form to get an AG exemption online. If my property is solely for cattle raising and I do not have a dwelling on it. How am I to obtain a physical address? The county will not assign a physical address without a dwelling. So How can obtain an ag exemption, when your online site requires one? I have a title with coordinates on the land platt. Please advise.

    • Gene Hall says:

      Ted, this is the Texas Farm Bureau’s blog. We are not a state agency and it’s not our site. However, if you mean exemption on the sales tax, that’s the state comptroller’s office. I recommend you Google that as a good starting point. Good luck.

  13. Wanda Burgin says:

    We tried to register our farm truck yesterday and they would not let us register as a farm truck. The tax office told us the reason was that the truck was in my name and the exemption is in my husband name. Does this mean we have to have 2 farm exemptions for us to be able to register the truck for farm use? We need to know a solution and how to fix it. It cost us twice as much to register the truck, but we had to have it. How do we get this changed and our money back. Do you need to contact the Van Zandt County Offices and can you get our money and tags corrected??? HELP!!!!!!!!!!!!!

    • Mike Barnett says:

      Wanda, you would need to contact the state comptroller’s office. They would have the answer to your question. I hope you get the issue resolved.

  14. I have 73 acres. Is there a number of cattle per acre to maintain ag exception ?

    • Mike Barnett says:

      David, I am not sure of that answer. Here’s a link to the Comptroller’s officehttp://www.window.state.tx.us/taxinfo/agriculture/ They could answer your question.

  15. Jennifer Hardy says:

    We are considering the purchase of 10 acres in San Jacinto County. We are thinking about raising some Dexter cattle for beef and dairy purposes. If we do this, how easy will it be for us to get a reduction on the property tax amount and expenses for maintaining the property and animals? What should we do?
    Thank you!!!

  16. Jennifer Hardy says:

    We are considering the purchase of 10 acres in San Jacinto County. We are thinking about raising some Dexter cattle for beef and dairy purposes. If we do this, how easy will it be for us to get a reduction on the property tax amount and expenses for maintaining the property and animals? What should we do?
    Thank you!!!
    Is there someone we can talk to?

  17. Terry Berend Dairy says:

    I went to purchase a golf cart at a local business.
    I told them it was farm use. (tax Exempt)
    The golf cart is to be used exclusively for
    use on my Dairy Farm (I wore one out and this is
    my second one). I am 100% farmer with no other
    off farm income. The golf cart store would not
    tax exempt it. I have a registered farm exempt
    number with the state of Texas. Any advise

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