Were materials for a general-purpose building exempt from Texas sales tax because the building was on a ranch and stored farm products or machinery?

Plain-English summary

The Texas Comptroller said customers had to pay sales tax on materials used to construct general-purpose buildings, even when the building stood on a farm or ranch or stored agricultural products or farm machinery.

The agricultural exemption covered machinery and equipment used exclusively to produce agricultural products. A general-purpose building was neither machinery nor equipment. Sellers could not accept exemption certificates for those materials and would be held responsible for tax if an audit disallowed the certificates.

The letter said the seller had a statutory right to recover the tax from the purchaser and that the timely audit at issue included sales dating to October 1981. STAR now adds an alert that H.B. 268 required a Comptroller registration number for certain agricultural and timber exemptions beginning January 1, 2012.

What this means for you

Farm location and agricultural storage use did not transform a general building into exempt production machinery. Both buyers and sellers needed to classify the property correctly rather than relying on a farm-use certificate.

Common questions

Were general-purpose farm-building materials exempt? No.

Did storing farm products or machinery change the result? No.

Could the seller accept an agricultural exemption certificate? No.

Could the seller recover tax from the purchaser? The letter said yes.

What later requirement does STAR flag? A registration number for certain agricultural and timber exemptions beginning January 1, 2012.

Citations and references

• H.B. 268, 82nd Texas Legislature, Regular Session (2011) — identified in STAR's alert as adding the registration-number requirement.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8701L0791A06

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 23, 1987

Dear ***:

Thank you for your recent letter regarding your purchase of a building
for use on your ranch.

Customers purchasing building materials to construct general purpose
buildings must pay sales tax on the purchase price of these materials.
There is no sales tax exemption available even though the building may
be located on a farm or ranch or will be used to store agricultural
products or farm machinery. Materials purchased to construct general
purpose buildings are taxable, even to farmers.

The exemption available to farmers is for machinery and equipment ex-
clusively used in the production of agricultural products on farms and
ranches. General purpose buildings are not machinery or equipment.
Sellers may not accept exemption certificates from customers purchasing
materials to construct general purpose buildings. When they are audited,
such exemption certificates are disallowed and they are held responsible
for the sales tax.

The sales tax statute gives the seller a legal right to recover the tax
from the purchaser and does not restrict them to a certain length of
time.
Our audit of the seller included sales made in October of 1981 and was
conducted in a timely manner so that the entire audit period was within
the statute of limitations.

Therefore, tax is due on the building and according to the sales tax
statute, the seller has a right to recover it.

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,
Al Van Allen
Tax Policy Section
Tax Administration Division