Is a nursery 'farming' for the sales-tax exemption, and is its equipment exempt -- even for plants already ready to sell?

Plain-English summary

The Petitioner is a wholesale nursery that grows and sells trees and shrubs (perennials, flowering/shade trees, evergreens, etc.) to landscapers, contractors, municipalities, schools -- not retail customers. It doesn't grow from seed; it brings in plants and grows them for two months to three years (irrigating, pruning, fertilizing, repotting, balling-and-burlapping) until they reach saleable size. About 95% of its plants are grown this way; 5% arrive ready to sell and need no growing. It uses tractors and other equipment, mostly in the growing areas, and buys parts to repair them. It asked whether it's farming and whether its equipment purchases/uses are exempt.

The Office of Counsel concluded the answer depends on the plant and is largely factual:

• Farming -- but only the growing. The farming exemption (Tax Law 1115(a)(6); "farming" defined in 1101(b)(19) to include nurseries/horticulture) applies only to the production phase. Farm production begins with preparing the growing medium and ends when the product is in the form the seller will offer it for sale (20 NYCRR 528.7).
• Already-saleable plants = administration, not production. For plants that arrive ready to sell (or are already in saleable form), the Petitioner is not in production -- caring for, watering, storing, or displaying them is administration. Equipment (even hoop houses, irrigation piping, tractors) used on those plants is not exempt.
• Still-growing plants = production. For plants not yet in saleable form, raising them is farm production up to the point they're ready for sale. Equipment used predominantly (>50%) on those plants is exempt under 1115(a)(6). Dual-use equipment requires detailed records to prove the >50% production use.
• Repair/maintenance services follow the same test. Services of maintaining/servicing/repairing the equipment are taxable (1105(c)(3)) unless the equipment is used predominantly in farm production (the 1105(c)(3)(vi) exclusion) -- which the records must show.
• Sales to contractors are taxable retail sales. Even though the nursery sells "wholesale," sales to landscapers/contractors who use the plants to improve real property are retail sales (1101(b)(4)(i)). The nursery must collect tax unless the contractor is buying for an exempt organization and provides Form ST-120.1 (Contractor Exempt Purchase Certificate).

What this means for you

Nurseries and growers

You're "farming" -- but the exemption only covers the growing. Once a plant is in the form you'll sell it in, further care is administration, and equipment used on it isn't exempt. If you buy-in finished plants and just hold/resell them, that activity isn't production.

The >50% test is a records problem

Equipment used on both still-growing and finished plants is exempt only if more than 50% of its use is on plants still in production. Keep detailed usage records -- the Department treats this as a factual question it won't resolve in the abstract, and the same condition governs whether repair services to the equipment are tax-excluded.

"Wholesale" doesn't make contractor sales exempt

Selling to landscapers and contractors who install your plants into real property is a taxable retail sale. Collect tax unless you receive a proper ST-120.1 (e.g., contractor buying for an exempt government/nonprofit job).

Common questions

Q: Is my nursery "farming" for sales-tax purposes?
A: Yes, but only while you're growing plants toward saleable size. Caring for plants already in the form you'll sell is administration, not exempt production.

Q: Is my equipment exempt?
A: Only if used predominantly (more than 50%) on plants still being grown. Dual-use equipment requires detailed records, and the same test controls whether repair services to it are tax-excluded.

Q: I sell wholesale to landscapers -- do I charge tax?
A: Yes. Sales to contractors/landscapers who install the plants into real property are taxable retail sales unless you get a Form ST-120.1 for an exempt-organization job.

Citations and references

• Tax Law section 1115(a)(6) (farming production exemption)
• Tax Law section 1101(b)(19) (definition of farming)
• 20 NYCRR section 528.7 (farming; production phase; predominantly)
• Tax Law section 1105(c)(3) (services to property; farm-production exclusion)
• Tax Law section 1101(b)(4)(i) (sales to contractors are retail sales)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-14(10)S
Sales Tax
July 2, 2014

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S101202A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTED REDACTED REDACTED REDACTED REDACTED. Petitioner asks whether it
is engaged in farming at its facility in New York and whether its purchases and uses of
machinery, equipment, and other property for use at its New York facility qualify for exemption
from State and local sales and compensating use taxes.
We conclude that Petitioner is engaged in farming production with regard to particular
plants, shrubs and trees until those products are ready for sale by Petitioner. As this
determination may vary for particular products, we cannot conclude definitively whether the
machinery, equipment and other tangible personal property Petitioner uses at its site in this State
are used predominantly in the production of tangible personal property for sale by farming. This
is a factual issue not susceptible to determination in an Advisory Opinion.
Facts
Petitioner grows and sells perennials, woody shrubs, deciduous flowering trees,
deciduous shade trees, flowering shrubs, fruit trees, and evergreen trees and shrubs. Petitioner
does not grow its products from seeds. Plants are brought to the nursery and grown for varying
periods, depending on the plant material. The growing time can vary from two months to up to
three years. During this time, the plants are irrigated, spaced, weeded, pruned, fertilized,
mulched, reburlapped, and repotted as they grow. These plants are nurtured and cared for to
maintain their value and ensure that they are healthy and free of disease. All trees are “balled
and burlapped” in a process where the root ball is enclosed in burlap for protection and ease of
movement. The trees are placed in trenches in the ground and mulched and irrigated for periods
of up to three years depending on the size of the tree being grown. Petitioner fertilizes the trees
three times a year with granular fertilizer. For the flowering and shade trees, the selling price is
based upon the diameter of the trunk, known as the caliper. Container shrubs are grown and sold
when they reach a saleable size. The determination of when to sell trees and shrubs is based
upon the market price at a specific time and what size tree will provide Petitioner with the best
value for its investment.
Petitioner must have inventory on hand every month of the year. Landscapers plant trees
and shrubs until the ground freezes in early winter and start planting again immediately upon the
ground thawing. The trees and shrubs planted outside at Petitioner’s facility stay planted in the
ground for the winter. They are winter pruned for strength and shape, fertilized, and irrigated
during thaws. Container plants are placed into “houses” made of metal hoops covered with

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Sales Tax
July 2, 2014

plastic. Some houses are heated and some are not. Irrigation takes place during the winter
months during every thaw and teams do winter pruning on those plants that require it. All plants
are fertilized and checked for rodent and deer activity and action taken if necessary.
Ninety-five percent of the plants at Petitioner’s facility are grown in this fashion, with
five percent being sold directly to customers from other growers and requiring no growing time
at Petitioner’s facility. In most cases, Petitioner’s sales are of products that have been grown and
repotted over a period of time running from two months to three years.
In addition to selling plants, shrubs, and trees, Petitioner also sells a small amount of
stone and block materials for landscaping, as well as a few water gardens.
Petitioner grows nursery stock only for wholesale sales to garden centers, landscapers,
general contractors, municipalities, schools, and other non-retail customers.
Petitioner uses tractors and similar equipment at its New York facility. These machines
are used in the growing areas exclusively, with the exception of one machine that is used 30% of
the time to load and unload. Petitioner employs its own mechanics to maintain and repair its
tractors, loaders, and other equipment. Petitioner purchases the parts it needs for this
maintenance and repair from third parties.
Analysis
As relevant here, § 1115(a)(6) of the Tax Law exempts from State and local sales and
compensating use taxes tangible personal property, whether or not incorporated in a building or
structure, for use or consumption predominantly in the production for sale of tangible personal
property by farming. With respect to the exemption of motor vehicles under § 1115(a)(6)(B),
use of a motor vehicle in the production phase of farming is defined as any use of the motor
vehicle on property farmed by the motor vehicle purchaser or user or in direct and uninterrupted
trips between properties farmed by the motor vehicle purchaser or user. “Predominantly” means
that the tangible personal property must be used or consumed, the real property or land must be
used or consumed, or the building, structure, or real property into which the tangible personal
property has been incorporated must be used, more than 50 percent of the time in the production
for sale of tangible personal property by farming. See 20 NYCRR § 528.7(d).
"Farming," as relevant here, includes agriculture, floriculture, horticulture, and
silviculture; truck and tree farming; operating nurseries, greenhouses, vineyard trellises or other
similar structures used primarily for the raising of agricultural, horticultural, floricultural or
silvicultural commodities; raising, growing and harvesting crops, as defined in Agriculture and
Markets Law § 301(2). See Tax Law § 1101(b)(19).
Farming activities are classified as administration, production, or distribution, but only
farming activities that qualify as production are eligible for exemption under Section 1115(a)(6).
Administration includes activities such as sales promotion; general office work; credit and

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collection; purchasing; maintenance; transporting, receiving, and testing of raw materials; and
clerical work in production such as preparation of work production and time records.
Distribution includes all operations subsequent to production, such as storing, displaying, selling,
loading, and shipping products that are ready for sale. See 20 NYCRR § 528.7(c)(1)(i) and (iii).
Farm production begins with preparation of the soil or other growing medium.
Production ceases when the product is ready for sale in its natural state. Production ends for a
specific producer (farmer or other person) when the product is in the form in which the person
will offer it for sale. However, production may again start for a specific purchaser when the
person gains ownership of the product, and production will continue until the product is in a
form in which it, in turn, will be offered for sale. See 20 NYCRR § 528.7(c)(1)(ii) and (2).
If the plants Petitioner purchases from its suppliers are ready to be sold by Petitioner
when Petitioner receives them, Petitioner is not engaged in the production phase of farming with
regard to those plants because farm production ceases when the plants are in the form in which
they will be offered for sale. Even when Petitioner maintains, waters, fertilizes, stores, or
displays plants that are in the form that Petitioner will offer them for sale, Petitioner is engaged
in the administration phase of farming and not production. As a result, any equipment including,
without limitation, hoop houses and irrigation piping that is used with respect to plants that are in
the form that Petitioner will offer them for sale, does not constitute property used the production
phase of farming and is therefore not exempt from State or local sales or use taxes. See TSB-M00(8)S, Farmers and Commercial Horse Boarding Operations.
Likewise, when Petitioner’s tractors, loaders, and other equipment, and the parts it
purchases to maintain and repair them, are used with respect to plants that are in the form in
which they will be offered for sale, such equipment is not being used in the production phase of
farming. Therefore, if this use is the predominant use, this equipment and the parts used to
maintain and repair it would not be exempt from State or local sales or use taxes.
On the other hand, if Petitioner purchases plants for resale but the plants are not in the
form that Petitioner will offer them for sale, then Petitioner’s activities of raising such plants
would qualify as farm production, but only to the point that the plants are ready for sale by
Petitioner. In that case, tangible personal property used or consumed predominantly by
Petitioner in the production phase of farming would be exempt from State and local sales and use
taxes. Thus, if Petitioner does purchase some plants that are not in the form that Petitioner will
offer them for sale, and Petitioner uses machinery, equipment, and other property (including
parts to maintain and repair such property) to care for those plants, then property used
predominantly with respect to those plants would qualify for the § 1115(a)(6) exemption. If
Petitioner uses machinery, equipment and other property for such dual uses – i.e. if the same
equipment is used with some plants that are in the form in which Petitioner will offer them for
sale and some plants that are not in the form that Petitioner will offer them for sale – Petitioner
must keep detailed records of its use of such machinery, equipment, and other property in order
to establish whether or not more than 50% of its use is in farm production.

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July 2, 2014

As relevant here, §§ 1105(c)(3) and 1110(a)(D) of the Tax Law impose sales and use
taxes on the services of installing, maintaining, servicing, or repairing tangible personal property,
not held for sale in the regular course of business. However, § 1105(c)(3)(vi) provides that such
services are not subject to tax when rendered with respect to tangible personal property for use or
consumption predominantly in the production for sale of tangible personal property by farming,
as such property is described in § 1115(a)(6) of the Tax Law. Therefore, the exclusion from tax
in § 1105(c)(3)(vi) for services to Petitioner’s machinery, equipment, and other property will not
apply unless such property is used or consumed predominantly in farm production and
Petitioner’s records demonstrate such use.
Petitioner states that it sells only to wholesale customers. However, its sales to
landscapers and other contractors for use to improve real property are treated as retail sales under
§1101(b)(4)(i), regardless of whether the tangible personal property is to be resold as such before
it is so used or consumed. Petitioner, therefore, must collect State and local tax on all sales to
contractors, unless the contractor is purchasing plants or other property for an exempt
organization under Tax Law § 1116(a) and the contractor gives Petitioner a properly executed
Form ST-120.1, Contractor Exempt Purchase Certificate.

DATED: July 2, 2014

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person
or entity to whom it is issued and only if the person or entity fully and accurately
describes all relevant facts. An Advisory Opinion is based on the law, regulations, and
Department policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion. The information provided in this document does
not cover every situation and is not intended to replace the law or change its meaning.