Are sales of uninstalled clay field-drainage tile to farmers, for draining their fields, exempt from New York sales tax?

Plain-English summary

Ralph B. Humphreys asked whether receipts from selling clay field-drainage tile to farmers, on an uninstalled basis, for use in draining their fields are subject to Article 28 sales tax.

The Department held the sales are exempt — provided the farmer supplies an exemption certificate.

• The general rule taxes tangible personal property. Section 1105(a) imposes sales tax on receipts from every retail sale of tangible personal property, "except as otherwise provided."
• The farm-production exemption applies. Section 1115(a)(6) exempts tangible personal property — except property incorporated in a building or structure — used or consumed directly and predominantly in the production for sale of tangible personal property by farming. Farming includes stock, dairy, poultry, fruit, fur-bearing-animal, grape and truck farming, as well as ranching, nurseries, greenhouses, vineyard trellises and similar structures, and orchards.
• Drainage tile qualifies. Because draining a field aids the production of farm crops for sale, the uninstalled clay drainage tile is property used directly and predominantly in farm production and is exempt from the Article 28 sales tax.
• A certificate is required. The exemption applies only where the purchaser gives the vendor a properly completed Farmer's Exemption Certificate (ST-125).

What this means for you

Farm inputs that go directly into producing crops for sale are generally exempt. Drainage tile bought uninstalled for a farmer's own fields falls within the § 1115(a)(6) production exemption because it aids the growing of crops that will be sold.

Get the certificate, or the sale is taxable. The exemption is document-driven: the vendor must receive a properly completed Farmer's Exemption Certificate (ST-125) from the farmer. Without it, the vendor should treat the sale as taxable.

Mind the "incorporated in a building or structure" limit. The exemption excludes property incorporated into a building or structure. Here the tile was sold uninstalled for field drainage; different facts — for example, materials built into a farm building — could fall outside the exemption.

Common questions

Q: Is clay field-drainage tile sold to a farmer taxable?
A: No, if it's used directly and predominantly to produce crops for sale by farming, it's exempt under § 1115(a)(6) — but only when the farmer gives the vendor a completed Farmer's Exemption Certificate (ST-125).

Q: What does the farmer have to do to buy exempt?
A: Provide the vendor with a properly completed Farmer's Exemption Certificate (ST-125). That documentation is what allows the vendor to make the sale without collecting tax.

Q: Does it matter that the tile is sold uninstalled?
A: The opinion addresses uninstalled tile used for field drainage, which qualifies. Note the exemption excludes property incorporated into a building or structure, so installation into a structure could change the analysis.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property, except as otherwise provided
• Tax Law § 1115(a)(6) — exempts tangible personal property (except property incorporated in a building or structure) used directly and predominantly in the production for sale of tangible personal property by farming
• Farmer's Exemption Certificate (ST-125) — required documentation for the exempt sale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_127s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(127)S
Sales Tax
July 13, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S801229A

On December 29, 1980 a Petition for Advisory Opinion was received from
Ralph B. Humphreys, Tibbitts Road, New Hartford, New York 13413.
The issue raised is whether receipts from the sale of clay field drainage
tile to farmers, on an uninstalled basis, for use in draining their fields, is
subject to the sales tax imposed under Article 28 of the Tax Law.
Section 1105(a) of the Tax Law, contained in Article 28, imposes a tax on
the "...receipts from every retail sale of tangible personal property, except as
otherwise provided in this article."
Section 1115(a)(6) of the Tax Law, also contained in Article 28, exempts
from such sales tax "Tangible personal property, except property incorporated in
a building or structure ... for use or consumption directly and predominantly in
the production for sale of tangible personal property by farming, including
stock, dairy, poultry, fruit, fur bearing animal, graping and truck farming. The
term farming shall also include ranching, operating nurseries, greenhouses,
vineyard trellisis or other similar structures used primarily for the raising of
agricultural, horticultural, viticultural, vinicultural or floricultural
commodities, and operating orchards."
Accordingly, receipts from the retail sale of clay field drainage tile
purchased for the purpose of aiding in the production of tangible personal
property for sale by farming is exempt from the sales tax imposed under Article
28 of the Tax Law. This exemption is applicable only where the purchaser supplies
the vendor with a properly completed Farmer's Exemption Certificate (ST-125).

DATED: June 24, 1981

TP-8 (4/80)

s/ LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR