Texas Comptroller Publishes New Tax Exemption Rules For Horse Owners

Texas Comptroller Publishes New Tax Exemption Rules For Horse Owners:

AUSTIN, (Texas Comptroller Susan Combs) – Farmers and ranchers are not exempt entities, so

not all purchases that farmers and ranchers make

for their use on a farm or ranch are exempt from

sales tax. Some agricultural items, such as horse

feed, are exempt by law, while other items, such as

a saddle, are taxable unless purchased for exclusive

use on a commercial farm or ranch in the production

of food or other agricultural products for sale.

New Agricultural Registration

Number and Agricultural

Exemption Certificate

Required for Some Items

Beginning in 2012

Beginning Jan. 1, 2012, purchasers

of agricultural items will be

required to provide sellers with a

new exemption certificate (Form

01-924) or their signed confirmation

letter containing their Texas

Agricultural and Timber Registration

Number (Ag/Timber Number)

issued by the Comptroller of

Public Accounts. The exemption

certificate will cover purchases

not already exempted by law. To

qualify for the exemption, items

must be used exclusively on a commercial farm or

ranch in the production of agricultural products for

sale. The purchaser must complete an exemption certificate

to purchase these items tax-free:

• fertilizer, fungicides, insecticides, herbicides,

defoliants and desiccants (drying agents) used

exclusively in agricultural production;

• all medications, tonics, restoratives or other therapeutic

preparations (vaccines and drenches, for

example) for farm and ranch animals; and

• machinery or equipment used exclusively in the

production of food, grass, feed and other agricultural

products or in building or maintaining farm

and ranch roads and water facilities.

Under House Bill 268, passed by the Texas Legislature

in 2011, commercial agriculture or timber producers

will need an Ag/Timber

Number issued by the Comptroller’s

office to make eligible

tax-exempt purchases beginning

Jan. 1, 2012. The agricultural

industry, including retailers and

producers, felt the need to have

a registration process, because

many ineligible purchasers have

falsely claimed an agricultural

sales tax exemption. What’s

more, retailers have had no

effective way of ensuring the

eligible products they sold were

actually used in an exempt agricultural

manner. Retailers and

producers both agreed the registration

process was necessary

to curb abuse and demonstrate

to the Legislature they were willing to address the

problem themselves.

Blanket exemption certificates issued to suppliers

on the old form must be replaced with the new certificate

for purchases made on or after Jan. 1, 2012.

The certificates will be good until the customer

revokes the certificate in writing to the retailer or

the retailer is notified that the registration number

associated with the blanket exemption certificate

has expired, or been canceled or suspended.

You can apply for the Ag/Timber Number online at

www.GetReadyTexas.org. By applying online you

will get an Ag/Timber Number immediately upon

completion. You can also print a paper application,

or have one faxed to you by calling 1-800-531-1441.

Always Exempt:

The items identified below are exempt from Texas

sales tax, regardless of who is buying the item or

how or where it will be used. No exemption certificate

or Ag/Timber Number is needed to purchase

these items tax-free.

Horses. Sales of horses are exempt from Texas sales

and use tax under Tax Code Section 151.316 (a)(1).

Horse feed. Sales of horse feed, including grain, hay

and supplements, are exempt under Tax Code Section

151.316 (a)(3).

Services – the following services are not taxable:

• Horse transport;

• Horse boarding;

• Veterinary medical services;

• Farrier services (shoeing and trimming hoofs);

• Horse training; and

• Stud services.

Tax is due on all taxable items used to provide a

nontaxable service unless the item is otherwise

exempt, such as horse feed.

Exempt When Used in a Qualifying Manner

Many items used with horses, such as saddles, bridles,

troughs and fences, are taxable but can qualify

for exemption if they are used exclusively on a farm

or ranch or to produce horses for sale.

Definition of “Farm or Ranch”

“Farm or ranch” includes 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

See Tax Code Section 151.316(c)(1). Horses are agricultural

products. The following equine businesses

qualify as farms and ranches:

• Horse breeding facilities;

• Stud farms;

• Horse training facilities that train horses that will

be sold; and

• Ranches that use horses in their operation.

The following activities do not produce agricultural

products for sale and do not qualify as

farms and ranches:

• Owning horses for pleasure riding, show or sport;

• Horse boarding;

• Training facilities that train horses used for sport,

pleasure or show;

• Riding stables;

• Racing stables that are not horse breeders;

• Racetracks;

• Veterinary clinics;

• Commercial arena operations; and

• “Dude” ranches, lodges and hunting operations.

Items That Can Qualify for Exemption

The items identified below qualify for exemption

when used exclusively on a farm or ranch to produce

agricultural products, including horses, which

will be sold.

“Exclusively” means the item must be used 100

percent of the time on a commercial farm or ranch

in the production of agricultural products for sale.

An item loses its exemption if it is used off a farm

or ranch, or if it is used for any purpose on a farm

or ranch other than the production of agricultural

products for sale.

An exemption certificate is required in order to buy

or sell these products or services tax free. Purchasers

claiming a sales tax exemption on the items identified

in this section purchased on or after Jan. 1, 2012

must issue a Texas Agricultural Sales and Use Tax

Exemption Certificate, Form 01-924 or signed confirmation

letter showing a valid Ag/Timber number.

• Fertilizers, fungicides, insecticides, herbicides,

defoliants and desiccants

• Electricity used in agriculture or timber operations;

• Services performed on exempt tangible personal

property identified in this list;

• Farm, timber and off-road vehicles; and

• Machinery and equipment.

The term machinery and equipment includes but is

not limited to:

• Fencing material and gates used to contain agricultural

livestock;

• Portable stalls, corral and gate panels;

• Working saddles and tack;

• Lunge lines, lunge whips and lead ropes;

• Stocks;

• Farrier tools;

• Hand tools, hay hooks, twitches and balling guns;

• Feeders, hay racks, water troughs and buckets;

• Tractors, loaders and implements;

• Hot walkers; and

• Manure carts, spreaders and forks.

Note: Materials used to build barns, covered

arenas and general purpose buildings do not

qualify for exemption.

Motor Vehicles

Motor vehicles are taxed under a different tax code

than the items above. As a result, motor vehicles

have different standards and qualifications for

exemption. The motor vehicle tax code provides

exemptions for farm machines and farm trailers.

Section 152.001(12) of the Tax Code defines a “farm

machine” as ‘a self-propelled motor vehicle’ specially

adapted for use in the production of crops or

rearing of livestock, including poultry, and use in

feedlots and includes a self-propelled motor vehicle

specially adapted for applying plant food materials,

agricultural chemicals or feed for livestock. “Farm

machine” does not include any self-propelled motor

vehicle specifically designed or specially adapted for

the sole purpose of transporting agricultural products,

plant food materials, agricultural chemicals or

feed for livestock.

Farm vehicles and trailers used primarily for farming

or ranching are exempt from motor vehicle sales

and use tax. An owner must use a farm or ranch

trailer primarily in the production of food for human

consumption; grass; feed for any form of animal

life; or other livestock or agricultural products to

be sold. Primarily means at least 80 percent of the

operating time. If the trailer is not used primarily in

an exempt manner, motor vehicle tax is due.

A standard pick-up truck is not exempt as a farm

motor vehicle, even though it may have a farm registration

and may be operated with farm plates. The

type of cab does not determine the pick-up truck’s

eligibility. For tax purposes, a farm trailer means a

trailer or semitrailer (including a gooseneck trailer)

designed and used primarily as a farm or ranch

vehicle.

A horse trailer with sleeping quarters is not exempt,

nor is any trailer used for transporting horses to and

from competitions or shows.