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THE TEXAS SALES TAX<br />

EXEMPTION FOR<br />

AGRICULTURE :<br />

The New Registration Requirement<br />

<strong>Comptroller</strong> <strong>of</strong> Public Accounts<br />

2011


Be<strong>for</strong>e We Start...<br />

3


Introduction<br />

Beginning Jan. 1, 2012,<br />

purchasers wishing to claim<br />

an <strong>exemption</strong> from <strong>Texas</strong><br />

<strong>sales</strong> <strong>tax</strong> on qualifying<br />

items used in <strong>the</strong><br />

commercial production <strong>of</strong><br />

agricultural products must<br />

have a registration number<br />

issued by <strong>the</strong> <strong>Comptroller</strong><br />

<strong>of</strong> Public Accounts.<br />

4


Legal Basis<br />

• House Bill 268, 82 nd Regular Legislative<br />

Session, 2011<br />

• New Tax Code Sec. 151.1551<br />

• Effective Sept. 1, 2011<br />

• Number NOT required until Jan. 1, 2012<br />

• Legislation sought by Ag and Timber industry<br />

groups and retailers.<br />

5


What’s New/What’s Not<br />

• Changes <strong>the</strong> process used to claim <strong>the</strong><br />

agricultural and timber <strong>sales</strong> <strong>tax</strong> <strong>exemption</strong>s.<br />

• No change to <strong>the</strong> types <strong>of</strong> items that qualify<br />

<strong>for</strong> <strong>exemption</strong>, or who is entitled to claim <strong>the</strong><br />

<strong>exemption</strong>s.<br />

6


No Impact to O<strong>the</strong>r Exemptions<br />

• HB 268 did not impact resale, manufacturing<br />

and similar <strong>exemption</strong>s, or <strong>the</strong> processes<br />

used to claim those <strong>exemption</strong>s.<br />

• Purchasers buying <strong>tax</strong>able items <strong>for</strong> resale<br />

continue issuing resale certificates.<br />

• Manufacturers, exempt organizations, etc.<br />

continue to use <strong>the</strong> generic <strong>exemption</strong><br />

certificates, Form 01‐339.<br />

7


What Is New<br />

• Registration Number<br />

• New Exemption Certificates<br />

• Refund In<strong>for</strong>mation<br />

8


Registration Number<br />

• Necessary <strong>for</strong> <strong>exemption</strong> <strong>for</strong> <strong>tax</strong>‐free<br />

purchases <strong>of</strong> most agricultural items.<br />

• 11 Digit Number issued by <strong>Comptroller</strong><br />

– Use on <strong>exemption</strong> certificate<br />

– Convenience cards displaying registration number<br />

available <strong>for</strong> multiple authorized purchasers<br />

– Must be renewed every 4 years<br />

9


Application<br />

• Online or Paper<br />

– Primary owner or operator <strong>of</strong> farm or ranch<br />

completes <strong>the</strong> application<br />

– Custom harvesters, planters, sprayers obtain own<br />

number<br />

Go to GetReady<strong>Texas</strong>.org or call 1‐800‐252‐5555<br />

10


Out <strong>of</strong> State Customers<br />

• <strong>Texas</strong> AgTimber number<br />

required if taking<br />

possession in <strong>Texas</strong><br />

• <strong>Texas</strong> <strong>tax</strong> due if<br />

customer takes<br />

possession in <strong>Texas</strong><br />

• AgTimber number<br />

required <strong>for</strong> <strong>exemption</strong>,<br />

even if item will be<br />

transported out <strong>of</strong> <strong>Texas</strong><br />

after purchase.<br />

11


Registration Number Database<br />

• Searchable Database Available at:<br />

https://ourcpa.cpa.state.tx.us/regagexsearch/<br />

• Online Verification <strong>of</strong> Registration Number<br />

Available but not Necessary Be<strong>for</strong>e Accepting<br />

Exemption Claim.<br />

• Downloadable database coming soon.<br />

12


2 New Exemption Certificates<br />

• <strong>Texas</strong> Agricultural Sales and Use Tax<br />

Exemption Certification, Form 01‐924<br />

• <strong>Texas</strong> Timber Operations Sales and Use Tax<br />

Exemption Certification, Form 01‐925<br />

• Signed copy <strong>of</strong> confirmation letter may also be<br />

used as an <strong>exemption</strong> certificate<br />

13


Acceptance <strong>of</strong> Certificates<br />

• Retailer must receive a new signed <strong>exemption</strong><br />

certificate complete with a registration<br />

number be<strong>for</strong>e allowing <strong>exemption</strong> on or after<br />

1/1/12.<br />

• Only <strong>for</strong> items:<br />

subject to requirement ; AND<br />

type or quantity that would ordinarily be used on<br />

a farm or ranch in <strong>the</strong> production <strong>of</strong> agricultural<br />

products.<br />

14


Blanket Exemption Certificates<br />

• Blanket Exemption Certificates :<br />

– Update retailer records with new Form 01‐924,<br />

01‐925 or signed copy <strong>of</strong> confirmation letter<br />

issued by <strong>Comptroller</strong>.<br />

• Subsequent Invoices Must Include:<br />

– purchasers registration number,<br />

– statement that says “Exempt Agricultural Use,”<br />

and<br />

– signature <strong>of</strong> purchaser or note that order was<br />

received via phone, Internet or mail.<br />

15


Form 01‐924<br />

(front)<br />

16


Form 01‐924<br />

(front)<br />

The highlighted<br />

section lists <strong>the</strong><br />

types <strong>of</strong> agricultural<br />

items that Do Not<br />

Require an<br />

Ag/Timber number.<br />

Your customer may<br />

purchase <strong>the</strong>se <strong>tax</strong>free<br />

without issuing<br />

<strong>the</strong> <strong>exemption</strong><br />

certificate.<br />

17


Form 01‐924<br />

(front)<br />

Retailer’s In<strong>for</strong>mation<br />

18


Form 01‐924<br />

(front)<br />

Description <strong>of</strong><br />

Purchaser’s and<br />

Retailer’s<br />

Responsibilities<br />

19


Form 01‐924<br />

(front)<br />

Purchaser’s<br />

In<strong>for</strong>mation<br />

20


Form 01‐924<br />

(front)<br />

Purchaser’s<br />

Acknowledgement<br />

and Signature<br />

21


Form 01‐924<br />

(back)<br />

22


Refund In<strong>for</strong>mation<br />

• Retailer Collects Tax If Customer Has No<br />

Registration Number<br />

• Customer Applies to <strong>Comptroller</strong> <strong>for</strong> Refund<br />

• Retailer Does Not Refund or Assign <strong>the</strong> Right<br />

to Refund<br />

23


When OK to Refund<br />

• Purchaser had an AgTimber number at time <strong>of</strong><br />

purchase but failed to provide it<br />

• Purchaser provides AgTimber number to <strong>the</strong><br />

retailer when making <strong>the</strong> refund request<br />

• Retailer verifies AgTimber Number was<br />

effective on or be<strong>for</strong>e date <strong>of</strong> purchase<br />

24


What Has Not Changed<br />

• Items Always Exempt<br />

– No Exemption Certificate Required<br />

• Items Exempt By Use<br />

– Exemption Certificate Required<br />

25


<strong>Texas</strong> Sales Tax<br />

Applies to all <strong>sales</strong> <strong>of</strong> tangible personal property<br />

and 17 broad categories <strong>of</strong> services<br />

Exemptions based on<br />

• Law<br />

• Status <strong>of</strong> Purchaser<br />

• Use


Exempt by Law<br />

Items Always Exempt<br />

No Exemption Certificate Required<br />

27


Seeds and Annual Plants<br />

• The products <strong>of</strong> which are<br />

commonly recognized as food<br />

<strong>for</strong> humans or animals, or are<br />

usually raised only to be sold in<br />

<strong>the</strong> regular course <strong>of</strong> business<br />

Tax Code Sec.<br />

151.316(a)(5)<br />

28


Animals, <strong>the</strong> products <strong>of</strong> which are<br />

ordinarily food:<br />

• Cattle<br />

• Sheep<br />

• Goats<br />

• Poultry<br />

• Swine<br />

Tax Code Sec. 151.316(a)(2)<br />

29


• Horses<br />

• Mules<br />

• Donkeys<br />

• Ponies<br />

Tax Code Sec. 151.316(a)(1)<br />

30


Livestock and Wildlife Feed<br />

Feed <strong>for</strong> farm or<br />

ranch animals and<br />

wildlife, such as:<br />

• Oats<br />

• Hay<br />

• Chicken Scratch<br />

• Wild Bird Seed<br />

• Deer Corn<br />

Tax Code Sec. 151.316(a)(3)<br />

31


Prescription Drugs and Medicines<br />

• All medications, tonics,<br />

restoratives or o<strong>the</strong>r<br />

<strong>the</strong>rapeutic<br />

preparations (vaccines<br />

and drenches, <strong>for</strong><br />

example) prescribed or<br />

dispensed by a<br />

veterinarian.<br />

Tax Code Sec. 151.313(a)(1)<br />

32


What Has Not Changed<br />

Items Exempt By Use<br />

O<strong>the</strong>r than Agricultural or Timber<br />

Production<br />

“Generic” Exemption or Resale<br />

Certificate Required<br />

33


Work Animals<br />

• Animals used in <strong>the</strong> aid <strong>of</strong> a person<br />

with a disability or in <strong>the</strong><br />

per<strong>for</strong>mance <strong>of</strong> protective services,<br />

qualify <strong>for</strong> <strong>exemption</strong>, provided <strong>the</strong><br />

animal has been pr<strong>of</strong>essionally<br />

trained <strong>for</strong> that specific purpose.<br />

Tax Code Sec. 151.316(a)(1)<br />

• Purchaser should issue generic<br />

<strong>exemption</strong> certificate that states <strong>the</strong><br />

type <strong>of</strong> work <strong>the</strong> animal per<strong>for</strong>ms.<br />

34


Animals Held <strong>for</strong> Sale<br />

(o<strong>the</strong>r than horses, mules and food animals)<br />

Persons engaged in selling <strong>tax</strong>able<br />

animals can purchase animals that<br />

will be sold in <strong>the</strong> regular course <strong>of</strong><br />

business <strong>tax</strong>‐free <strong>for</strong> resale<br />

Tax Code Sec. 151.006<br />

35


Do NOT Qualify <strong>for</strong> Resale Exemption<br />

Animals used:<br />

• as breed stock <strong>for</strong> <strong>the</strong> production <strong>of</strong> <strong>of</strong>fspring<br />

to be sold;<br />

• in an amusement service (i.e. a petting zoo,<br />

drive through safari or circus);<br />

• to provide a non<strong>tax</strong>able personal service such<br />

as dove releases at weddings; or,<br />

• as stock/game <strong>for</strong> hunting or fishing<br />

operations<br />

36


Pet Food<br />

• Exempt when sold or dispensed under a<br />

veterinarian's prescription.<br />

‣Retailer retains copy <strong>of</strong> prescription in file, no<br />

<strong>exemption</strong> certificate required.<br />

• Feed <strong>for</strong> work animals and animals held <strong>for</strong> sale<br />

in <strong>the</strong> regular course <strong>of</strong> business*, including<br />

dogs, cats, rabbits and exotic animals also<br />

qualifies <strong>for</strong> <strong>exemption</strong>.<br />

‣Generic <strong>exemption</strong> certificate required<br />

*Tax Code Sec. 151.316(a)(4)<br />

37


Exotic & Game Animals Sold <strong>for</strong> Food<br />

(generic <strong>exemption</strong> certificate required<br />

• Exemption can be claimed on farm‐raised exotic<br />

or native game animals purchased <strong>for</strong> food.<br />

• Purchaser must issue regular <strong>exemption</strong><br />

certificate (01‐339) to supplier.<br />

• Does not apply to game animals harvested by<br />

hunting or fishing<br />

38


Ice Used by Commercial Fishing Boats<br />

• Ice exclusively used by commercial fishing<br />

boats in storing aquatic species, including but<br />

not limited to shrimp, o<strong>the</strong>r crustaceans,<br />

finfish, mollusks and similar creatures is<br />

exempt.<br />

• Exemption certificate should state that <strong>the</strong> ice<br />

will be used <strong>for</strong> <strong>the</strong> storage <strong>of</strong> fish or o<strong>the</strong>r<br />

aquatic species.<br />

39


Items Subject to New<br />

Requirement<br />

Exempt Only When Used<br />

Exclusively to Produce<br />

Agricultural or Timber<br />

Products <strong>for</strong> Sale.<br />

Exemption Certificate and<br />

Registration Number Required<br />

40


Most agricultural items qualify <strong>for</strong><br />

<strong>exemption</strong> only if used<br />

EXCLUSIVELY on a farm or ranch<br />

AND<br />

in <strong>the</strong> production <strong>of</strong> food or o<strong>the</strong>r<br />

agricultural products <strong>for</strong> sale.<br />

Timber items must be used<br />

exclusively in <strong>the</strong> production <strong>of</strong><br />

timber products.<br />

41


NOT NEW: Exemptions <strong>for</strong> fertilizer, machinery and<br />

equipment have always required exclusive use on farm or<br />

ranch in commercial production.<br />

Text <strong>of</strong> <strong>the</strong> ag <strong>exemption</strong> from <strong>the</strong> original <strong>sales</strong> <strong>tax</strong> legislation.<br />

HB 20, 57th 1st Called Session, 1961<br />

42


Definition <strong>of</strong> “Exclusively”<br />

100 % <strong>of</strong> use is in a qualifying manner<br />

43


“Farm or Ranch” Definition<br />

One or more tracts <strong>of</strong> land used, in whole or in<br />

part, in <strong>the</strong> production <strong>of</strong> crops, livestock, or<br />

o<strong>the</strong>r agricultural products held <strong>for</strong> sale in <strong>the</strong><br />

regular course <strong>of</strong> business.<br />

Tax Code Sec. 151.316(c)(1)<br />

44


Farm or Ranch includes....<br />

• Feedlots,<br />

• Dairy farms,<br />

• Poultry farms,<br />

• Fish farms,<br />

• Commercial orchards,<br />

• Commercial nurseries, and<br />

• Similar commercial agricultural<br />

operations<br />

45


Items Subject to New<br />

Requirement Include:<br />

46


fertilizers, fungicides, insecticides,<br />

herbicides, defoliants and desiccants<br />

47


Perennial Plants and Fruit/Nut Trees<br />

• Perennial plants,<br />

including fruit and nut<br />

trees and berry bushes<br />

48


Electricity and Irrigation Systems<br />

• Electricity used in<br />

agricultural operations.<br />

• Components <strong>of</strong><br />

irrigation systems used<br />

in <strong>the</strong> production <strong>of</strong><br />

agricultural products <strong>for</strong><br />

sale.<br />

49


Machinery and equipment,<br />

(including component parts)<br />

used exclusively:<br />

50


on a commercial farm or ranch in <strong>the</strong><br />

production <strong>of</strong> agricultural products <strong>for</strong><br />

sale or in <strong>the</strong> building or maintaining<br />

<strong>of</strong> roads and water facilities,<br />

51


Over <strong>the</strong> Counter Medications<br />

• Over‐ <strong>the</strong>‐ counter<br />

medications, tonics,<br />

restoratives or o<strong>the</strong>r<br />

<strong>the</strong>rapeutic preparations<br />

such as vaccines and<br />

drenches are exempt when<br />

purchased <strong>for</strong> exclusive use<br />

on a farm or ranch <strong>for</strong><br />

livestock held <strong>for</strong> sale or<br />

work animals. .<br />

Tax Code Sec. 151.313(a)(3)<br />

52


in an agricultural aircraft<br />

operation, as defined by 14 C.F.R.<br />

Section 137.3 (crop dusting); or<br />

53


• or by an<br />

original<br />

producer <strong>for</strong><br />

packing and<br />

processing<br />

agricultural<br />

products.<br />

An “original producer” is a person<br />

who:<br />

• brings an agricultural product into<br />

being and is <strong>the</strong> owner <strong>of</strong> <strong>the</strong><br />

agricultural product from <strong>the</strong> time<br />

it is brought into being until it is<br />

processed, packed, or marketed;<br />

or<br />

• is <strong>the</strong> grower <strong>of</strong> an agricultural<br />

product, exercises predominant<br />

operational control over <strong>the</strong><br />

raising <strong>of</strong> <strong>the</strong> agricultural product,<br />

and bears a risk <strong>of</strong> loss <strong>of</strong><br />

investment in <strong>the</strong> agricultural<br />

product.


Off‐Road Vehicles<br />

• ATVs and utility vehicles used exclusively on a<br />

farm or ranch in <strong>the</strong> production <strong>of</strong> agricultural<br />

products <strong>for</strong> sale qualify <strong>for</strong> <strong>exemption</strong>.<br />

• Does not apply to golf carts, dirt bikes or<br />

similar <strong>of</strong>f‐road vehicles intended <strong>for</strong><br />

recreational use.<br />

55


Farm Vehicles, Trailers and Semi‐<br />

Trailers – Motor Vehicle Tax<br />

Farm machines, trailers and semitrailers used<br />

primarily <strong>for</strong> farming and ranching, including<br />

machines and trailers used primarily in<br />

poultry operations and on feedlots, qualify <strong>for</strong><br />

<strong>exemption</strong> from <strong>Texas</strong> motor vehicle <strong>tax</strong>.<br />

56


Motor Vehicle Parts<br />

• Parts <strong>for</strong> farm/ranch vehicles that are not<br />

licensed <strong>for</strong> highway use qualify <strong>for</strong><br />

<strong>exemption</strong>.<br />

57


Computers and Computer Equipment<br />

Qualify <strong>for</strong> <strong>exemption</strong> if:<br />

• Specifically designed to aid in <strong>the</strong> operation <strong>of</strong><br />

production machinery on farms or ranches to<br />

plant, cultivate, process or harvest plants,<br />

animals or food, and that are used exclusively<br />

on a commercial farm and ranch <strong>for</strong> such<br />

purposes; or,<br />

• Used by original producers exclusively in<br />

processing, packing or marketing agricultural<br />

products.<br />

58


Buildings and Structures<br />

• Most buildings and structures<br />

used on a farm or ranch, and<br />

<strong>the</strong> materials used to construct<br />

<strong>the</strong>m are <strong>tax</strong>able.<br />

• General purpose and storage<br />

buildings such as hay barns,<br />

machine shops, bunkhouses,<br />

sheds, kennels, <strong>of</strong>fices and<br />

livestock barns are NOT exempt.<br />

59


Exempt Buildings and Structures<br />

• Structures designed <strong>for</strong> specific agricultural<br />

purpose qualify <strong>for</strong> <strong>exemption</strong> if cannot be<br />

economically used <strong>for</strong> any o<strong>the</strong>r purpose.<br />

Examples include pens,<br />

commercial greenhouses,<br />

automated laying houses,<br />

farrowing houses and<br />

feedlots.<br />

60


Fences<br />

Fence wire, fence posts, pens,<br />

gates, cattle guards and chutes<br />

used EXCLUSIVELY to contain<br />

crops or livestock being<br />

produced <strong>for</strong> sale also qualify.<br />

Fence Repairs:<br />

Labor is Taxable Non‐<br />

Residential Real Property<br />

Repair .<br />

Materials exempt if separately stated.<br />

61


Structures Used <strong>for</strong> Poultry Carcass<br />

Disposal<br />

• Commercial poultry operations can claim<br />

an <strong>exemption</strong> on <strong>the</strong> purchase <strong>of</strong> tangible<br />

personal property such as lumber and<br />

incinerators that will be incorporated into a<br />

structure that is used exclusively <strong>for</strong> <strong>the</strong><br />

disposal <strong>of</strong> poultry carcasses in accordance<br />

with Water Code Section 26.303.<br />

62


Certain Commercial Dairy Farm<br />

Buildings<br />

• Building materials and o<strong>the</strong>r tangible personal<br />

property that after purchase will be<br />

incorporated into or attached to a free‐stall<br />

dairy barn or a dairy structure used solely <strong>for</strong><br />

maternity purposes that is located on a<br />

commercial dairy farm and is used or<br />

employed exclusively <strong>for</strong> <strong>the</strong> production <strong>of</strong><br />

milk qualifies <strong>for</strong> <strong>exemption</strong>.<br />

• New –Effective Sept. 1 2011<br />

63


Services<br />

• Services generally <strong>tax</strong>able<br />

• Repairs per<strong>for</strong>med on qualifying exempt<br />

equipment qualify <strong>for</strong> <strong>exemption</strong>.<br />

• Labor and materials are exempt if equipment<br />

has not been incorporated into realty.<br />

• Only materials exempt if equipment has been<br />

incorporated; and only under separated<br />

contract.<br />

64


Mixed Transactions<br />

• Retailers should be able to determine on an<br />

item by item basis which items sold during a<br />

transaction are exempt and which are <strong>tax</strong>able.<br />

• Not all items sold to <strong>the</strong> holder <strong>of</strong> an<br />

AgTimber number are exempt so retailers<br />

must collect <strong>tax</strong> on <strong>tax</strong>able items.<br />

• May require separate invoices if retailer’s<br />

system will not calculate <strong>tax</strong> or <strong>exemption</strong> on<br />

per item basis.<br />

65


Need More In<strong>for</strong>mation<br />

• Complete in<strong>for</strong>mation about <strong>Texas</strong> <strong>tax</strong> <strong>exemption</strong>s <strong>for</strong> <strong>the</strong><br />

agricultural and timber industries is available online at:<br />

www.window.state.tx.us/<strong>tax</strong>info/<strong>agriculture</strong>/<br />

• Review publication 94‐101, <strong>Texas</strong> Agricultural Exemptions<br />

available online at:<br />

http://window.state.tx.us/<strong>tax</strong>info/<strong>tax</strong>pubs/tx94_101.pdf<br />

• Call a Tax Specialist at (800) 252‐5555<br />

• Email us at <strong>tax</strong>.help@cpa.state.tx.us (please note that <strong>the</strong>re may<br />

be a significant delay in response due to volume <strong>of</strong><br />

correspondence we receive).<br />

• Download a copy <strong>of</strong> this presentation from our website at:<br />

http://window.state.tx.us/<strong>tax</strong>info/<strong>sales</strong>/st_webinars_2011.html<br />

66

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