Is boarding and training other people's horses 'agricultural production,' so that the operator can get a Farmer Tax Exemption Permit even though it sells no animals or produce?

Plain-English summary

Connecticut lets qualifying farmers buy tangible personal property (feed, hay, bedding, equipment) tax-free when it's used exclusively in agricultural production — but they need a Farmer Tax Exemption Permit, and to get one, their gross income from agricultural production in the prior calendar year must have been at least $2,500 (Conn. Gen. Stat. § 12-412(63)).

The taxpayer breeds and raises horses and boards and trains other people's horses — daily feeding and care, pasture turnout, and stall cleaning. The question: does boarding/training someone else's horses count as "agricultural production," so the operator can get the permit even if it sells no animals of its own?

DRS said yes. The statute defines "agricultural production" to include "the raising, feeding, caring for, shearing, training or management of livestock, including horses." Crucially, nothing in the definition requires the livestock to belong to the farmer. So a person who boards or trains others' horses is engaged in agricultural production and is a "farmer."

DRS also explained an important 1993 change. As originally enacted in 1989, § 12-412(63) only let income from sales of agricultural products (reported on Schedule F) count toward the $2,500 threshold — so income from boarding/training services didn't qualify a person for the permit. 1993 Conn. Pub. Acts 122 (effective October 1, 1993) repealed that requirement and allowed income reported on Schedule C (business income, including sales of services) to count too. After that change, you no longer have to sell your own animals or produce to reach the threshold. So a horse boarder/trainer whose service income was at least $2,500 in the prior year can qualify for the permit and make exempt purchases — including property used to provide the boarding/training service itself.

What this means for you

Horse boarding and training operations

If you board or train horses as a trade or business — even horses you don't own and even if you never sell an animal — you're engaged in "agricultural production" and can qualify for a Farmer Tax Exemption Permit, provided your prior-year gross income from the activity was at least $2,500. With the permit, feed, hay, bedding, and other property used exclusively in the boarding/training count as exempt purchases.

Service income now counts toward the threshold

Since the 1993 amendment, income from services (reported on Schedule C), not just product sales on Schedule F, counts toward the $2,500. That's what opens the permit to boarding/training businesses. Keep your federal Schedule C or F to substantiate the income.

Keep the "exclusive use" line

The exemption is for property used exclusively in agricultural production. Items that do double duty (personal use, or non-farm business use) fall outside it. And because dollar thresholds and permit mechanics can change over time, confirm the current Farmer Tax Exemption Permit rules before relying on the $2,500 figure.

Common questions

Q: Is boarding someone else's horses "agricultural production"?
A: Yes. The definition in § 12-412(63) covers raising, feeding, caring for, training, or managing livestock including horses, and doesn't require the animals to belong to the farmer — so boarding/training others' horses qualifies.

Q: Do I have to sell horses or produce to get the permit?
A: No. Since 1993 Conn. Pub. Acts 122, income from services (Schedule C) counts toward the $2,500 threshold, so a boarder/trainer that sells no animals can still qualify.

Q: What can I buy tax-free with the permit?
A: Tangible personal property used exclusively in the agricultural production — for example feed, hay, and bedding, including property used to provide the boarding or training service.

Q: How much income do I need?
A: At least $2,500 of gross income from the agricultural production in the preceding calendar year, as reported (or reportable) on federal Schedule C or Schedule F. Verify the current threshold, as it can change.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-412(63) (exemption for tangible personal property used exclusively in agricultural production by a permitted farmer; definitions of "agricultural production" (including training/management of livestock such as horses) and "farmer"; $2,500 prior-year gross-income threshold)

Session law:

• 1993 Conn. Pub. Acts 122 (effective Oct. 1, 1993; repealed the product-sales requirement and allowed Schedule C services income to count toward the $2,500 threshold)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 96-5

Original ruling text

Ruling 96-5, Sales and Use Taxes / Agricultural Production

FACTS:

An individual conducting a business of breeding and raising horses also boards and trains horses belonging to others. Such boarding includes the daily feeding and care of the horses, turning the horses out to pasture and cleaning and maintaining their stalls.

ISSUE:

Whether boarding and training horses belonging to others is considered to be agricultural production under Conn. Gen. Stat. §12-412(63), so that a person engaged in boarding horses may apply for a Farmer Tax Exemption Permit entitling such person to make exempt purchases of tangible personal property exclusively for use in such agricultural production.

DISCUSSION:

Purchases of tangible personal property for use exclusively in agricultural production by a farmer engaged in such production as a trade or business, and who has been issued a Farmer Tax Exemption Permit, are exempt under Conn. Gen. Stat. §12-412(63), provided that in the preceding calendar year the farmer's gross income from such production was at least $2,500, as reported for federal income tax purposes on Schedule C or Schedule F attached to Form 1040, 1041 or 1065, or would be reportable on such schedule but for the fact that the business is conducted by a corporation. The statute defines "agricultural production" as engaging, as a trade or business, in (A) the raising and harvesting of any agricultural or horticultural commodity, (B) dairy farming, (C) forestry, (D) the raising, feeding, caring for, shearing, training or management of livestock, including horses, bees, poultry, fur-bearing animals or wildlife, or (E) the raising and harvesting of fish, oysters, clams, mussels or other molluscan shellfish. A "farmer" is defined in the statute as any person engaged in agricultural production as a trade or business. Since the definitions of "agricultural production" and "farmer" do not require that the livestock being raised, fed, cared for, sheared, trained or managed belong to the farmer seeking exemption under Conn. Gen. Stat. 12-412(63), it follows that persons who board or train livestock belonging to others may also be considered to be farmers engaged in agricultural production.

As originally enacted in 1989, Conn. Gen. Stat. §12-412(63) only allowed gross income from sales of agricultural products that was reported on Schedule F (Profit or Loss From Farming), which is used to report income from sales of animals or produce, to be counted towards the statutory $2,500 threshold before the farmer could be considered eligible for the agricultural production exemption. Income from boarding or training horses owned by others could not be used to qualify for a Farmer Tax Exemption Permit under Conn. Gen. Stat. §12-412(63) since such income is from sales of services and is not from sales of agricultural products. The statute was amended by 1993 Conn. Pub. Acts 122, effective October 1, 1993, to repeal the requirement that the gross income counted towards the $2,500 threshold be derived from the sale of agricultural products, and also to allow gross income reported on Schedule C (Profit or Loss From Business, which is used to report income from all sources, including sales of services), in addition to gross income reported on Schedule F, to be counted towards the $2,500 threshold. Therefore, with this statutory change, it ceased to be a prerequisite to be eligible for a Farmer Tax Exemption Permit that a farmer be engaged in selling animals or produce that are owned and raised by the farmer.

Under Conn. Gen. Stat. §12-412(63), a person engaged in boarding or training horses belonging to others who has qualified for and been issued a Farmer Tax Exemption Permit may make tax exempt purchases of tangible personal property, such as feed, hay and bedding, for exclusive use in agricultural production, including tangible personal property used in providing the service of boarding or training horses.

RULING:

A person deriving income as a trade or business from boarding or training horses belonging to others, even if such person makes no sales of horses or other agricultural products, is a "farmer" engaged in "agricultural production," as such terms are defined in Conn. Gen. Stat. §12-412(63), and may qualify for a Farmer Tax Exemption Permit as long as the person's gross income during the preceding calendar year from boarding or training horses, as reported on Schedule C or Schedule F attached to federal Form 1040, 1041 or 1065, was at least $2,500.

LEGAL DIVISION

Issued June 14, 1996