Can a separate entity that owns farm equipment, land, or other farm capital qualify as a Louisiana commercial farmer?

Plain-English summary

Louisiana Revenue Ruling 19-003 allowed a farm's separate equipment, land, or other capital-owning entity to qualify as a commercial farmer when it was substantially commonly owned with the operating farm and met its own reporting and industry-code requirements.

The rule addressed farming structures that separate the operating business from entities holding equipment, land, or other capital for liability protection, federal-program eligibility, or succession planning.

A related entity did not qualify merely because it served a farm. It needed:

• substantial common ownership with the operating farm or farmer;
• an operating farm that actually and regularly produced food or agricultural commodities for sale;
• farm income or expense reporting on federal Schedule F or a similar accepted form; and
• an NAICS code beginning with 11.

The entity also had to submit supporting ownership, tax-form, and NAICS documentation with its commercial-farmer application.

The underlying commercial-farmer test

La. R.S. 47:301(30) required a person, partnership, or corporation to satisfy all three elements:

1. be occupationally engaged in producing food or agricultural commodities for sale or for further use in producing food or commodities for consumption or sale;
2. be regularly engaged in commercial production for sale of vegetables, fruit, crops, livestock, or other food or agricultural products; and
3. report farm income or expenses on Schedule F or a similar return, including Forms 1065, 1120, or 1120S, under an NAICS code beginning with 11.

The statute did not expressly address a single farm operation split among several entities. The Department used substantial common ownership to connect a capital-holding entity to the operating farm's production activity.

Three ways to show substantial common ownership

More-than-90% ownership

Substantial common ownership existed when the operating farm entity or an individual farmer owned more than 90% of the equipment or other farming-related entity.

Primarily family ownership

The test was also met when ownership of the related entity and operating farm was shared primarily among:

• siblings;
• spouses;
• lineal ancestors, such as parents, grandparents, and great-grandparents;
• lineal descendants, such as children, grandchildren, and great-grandchildren;
• nieces and nephews;
• cousins; or
• entities owned primarily by those family members.

Other Department-approved arrangements

For a structure outside the two listed categories, the Department could find enough commonality of ownership to grant commercial-farmer status. The ruling did not make those arrangements automatic; they depended on Department determination.

Separate requirements for the related entity

Even with substantial common ownership, the equipment or other related entity had to independently:

• report farm income or expenses on Schedule F or a similar accepted federal form; and
• carry an NAICS code beginning with 11.

The application had to include evidence of common ownership, the relevant farm reporting, and the NAICS code.

What this means for you

Farms using multiple entities

Map the ownership of the operating company and every land, equipment, or capital entity. Common business purpose alone was not enough; the ruling required qualifying common ownership plus the related entity's own reporting and classification.

Family farming operations

The family-ownership route covered a broad group, including spouses, siblings, direct ancestors and descendants, nieces, nephews, and cousins. Document who owns each entity and through which intermediate entities.

Accountants and advisors

Confirm that each entity seeking status has the correct federal farm-income reporting and an NAICS code beginning with 11. Include all supporting documents with the application rather than relying only on the operating farm's records.

Common questions

Q: Does the equipment entity have to grow crops or raise livestock itself?

A: The ruling allowed it to share the operating farm's production status through substantial common ownership, but only if all other requirements were met.

Q: Is 90% ownership enough?

A: The listed bright-line route required more than 90%, not exactly 90%, ownership by the operating entity or individual farmer.

Q: Can a family-owned structure qualify without one owner holding more than 90%?

A: Yes, when both sides were owned primarily among the family relationships listed in the ruling.

Q: Can an unrelated ownership arrangement qualify?

A: Possibly. The Department reserved authority to approve another arrangement with sufficient commonality of ownership.

Q: What documents did the related entity need?

A: Evidence of substantial common ownership, Schedule F or similar farm-income reporting, and an NAICS code beginning with 11.

Citations and references

• La. R.S. 47:301(30) — commercial farmer definition
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 19-003

Original ruling text

Revenue Ruling No. 19-003
June 21, 2019
Qualification as Commercial Farmers for
Farm Equipment and Farming-Related Entities
Purpose
The purpose of this ruling is to provide clarity regarding whether farm equipment and other farmingrelated entities qualify as commercial farmers under LA R.S. 47:301(30).
Law
LA R.S. 47:301(30) defines commercial farmer as a person, partnership, or corporation who meet
each of the following three requirements:

1. Occupationally engaged in producing food or agricultural commodities for sale or for further use
   in producing food or such commodities for consumption or sale;
2. Regularly engaged in the commercial production for sale of vegetables, fruits, crops, livestock and
   other food or agricultural products; and
3. Reports farm income or expenses on Federal Schedule F or similar tax form, including but not
   limited to, Forms 1065, 1120, and 1120S under a North American Industry Classification System
   (NAICS) Code beginning with 11.
   Facts and Analysis
   Farm Equipment and Other Farming-Related Entities
   For liability protections, eligibility in federal agricultural programs, and succession planning
   purposes, some farmers structure their farming operations such that there is a separate entity that
   owns the equipment, land, or other capital used in the actual farming operations. These companies
   are hereinafter referred to as “farm equipment and other farming-related entities”. At issue is
   whether farm equipment and other farming-related entities may qualify as commercial farmers.
   In defining a commercial farmer, LA R.S. 47:301(30) is silent as to whether a single farming operation
   composed of multiple entities or persons may qualify as more than one commercial farmer. In order
   to conform to current farming industries practices, the Department of Revenue may approve
   commercial farmer applications of multiple businesses within a single farming operation if
   substantial common ownership exists within the farming operation in accordance with this ruling.

A Revenue Ruling is issued under the authority of LAC 61III.101 (C). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply
principles of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not
binding on the public. It is a statement of the department's position and is binding on the department until
superseded or modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.

Revenue Ruling No. 19-003
June 21, 2019
Page 2 of 2

If there is substantial common ownership between the farm equipment or other farming-related
entity and the farm operating entity, entities, or person(s) engaged in the actual production of food
or agricultural commodities for sale (or for further use in producing such food or commodities for
sale or consumption), then the farm equipment and other farming-related entity will also be
considered engaged in the same production as the farm operating entity or person.
Substantial common ownership exists when one of the following is satisfied:

1. A farm operating entity or individual owns more than 90 percent of the farm equipment or
   other farming-related entity.
2. If ownership of the farm equipment or other farming-related entities and the farm operating
   company(ies) is shared primarily by and among the following individuals or entities owned
   primarily by such individuals: siblings, spouses, lineal ancestors (e.g., great-grandparent,
   grandparent, parent), lineal descendants (e.g., son, daughter, grandchild or great grandchild),
   nieces, nephews, and cousins.
3. Any other common ownership arrangement among farm equipment or other farming-related
   entity and farm operating entities or individuals not specifically addressed above that the
   Department of Revenue determines has sufficient commonality of ownership to qualify the
   farm equipment or other farming-related entity qualify as commercial farmers under LA R.S.
   47:301(30).
   In addition to this substantial common ownership with the farm operating entity, the farm equipment
   or other farming-related entity must still meet the requirements of reporting farm income or
   expenses on a Federal Schedule F or similar tax form and must have a NAICS code beginning with 11.
   The farm equipment or other farming-related entity is required to submit documentation evidencing
   substantial common ownership, as well as the Schedule F and NAICS code, with its application for
   commercial farmer status.
   Ruling
   Farm equipment and other farming-related entities may qualify as commercial farmers provided
   substantial common ownership exists with an operating farming entity: (1) that engages in
   producing food or agricultural commodities for sale; and (2) is regularly engaged in the commercial
   production for sale of vegetables, fruits, crops, livestock and other food or agricultural products.
   Additionally the farm equipment or other farming-related entity must report its income on a
   Schedule F (or similarly accepted form) and have an NAICS Code beginning with 11.
   Questions concerning this publication may be submitted by email to [email protected].
   Kimberly Lewis Robinson
   Secretary

A Revenue Ruling is issued under the authority of LAC 61III.101 (C). A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply
principles of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not
binding on the public. It is a statement of the department's position and is binding on the department until
superseded or modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.