Was bovine somatotropin used to stimulate dairy-cattle milk production exempt from Texas sales tax?

Plain-English summary

Bovine somatotropin was a naturally occurring cattle protein marketed for injection into dairy cattle to stimulate milk production. The Comptroller said it did not qualify as farm machinery or equipment, but did qualify as medication or a tonic under Rule 3.296(e).

The product was exempt when used exclusively on a farm or ranch, including a commercial dairy, to produce agricultural products held for sale in the regular course of business. The customer had to provide an exemption certificate.

STAR carries an official alert that a 2011 Tax Code amendment added registration-number requirements for certain agricultural and timber exemptions effective January 1, 2012. Current requirements should be verified.

Common questions

Was bovine somatotropin exempt? Yes under the stated exclusive agricultural-use facts.

What exemption category applied? Medication or tonic, not machinery or equipment.

Was documentation required? Yes. The customer had to issue an exemption certificate, and STAR flags later registration requirements.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8812L0922B11

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.

December 12, 1988

Dear **:

Thank you for your inquiry regarding the taxability of bovine somatotropin
(BST).

The information you submitted indicates that BST is a naturally occurring
protein produced in cattle. Furthermore, you intend to market BST which will
be injected into dairy cattle to stimulate milk production.

Although BST does not qualify as machinery or equipment (which includes
expendable supplies) under Rule 3.296(g), it would qualify under Rule 3.296(e)
as a medication or tonic. Accordingly, BST would be exempt if it is used
exclusively on a farm or ranch in the production of agricultural products held
for sale in the regular course of business. In particular, a farm or ranch
includes a dairy even if it is a commercial dairy. However, your customer must
issue an exemption certificate in order to purchase BST tax-free.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions, please contact Tax Correspondence. You may call
toll free 1-800-252-5555, or our regular number is 512/463-4600. My extension
is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence