Could farmers lease pecan shakers and sweepers under Texas's agricultural sales-tax exemption?

Plain-English summary

Texas treated pecan shakers and sweepers as production equipment. A farmer or rancher could lease them tax-free when they were used exclusively on a farm or ranch to produce and field-harvest pecans held for sale in the regular course of business.

The exemption did not apply when the equipment gathered nuts that were not held for sale, even if the equipment was used on a farm or ranch.

The 1989 letter also described the exemption-certificate procedure then in effect and the seller's good-faith responsibilities. STAR now warns that a 2011 amendment changed the law by requiring an agricultural or timber registration number for certain exemptions beginning January 1, 2012, so the old certificate procedure should not be treated as current without checking later law.

Common questions

Were pecan shakers and sweepers production equipment? Yes.

Did farm use alone make the lease exempt? No. The pecans also had to be held for sale in the regular course of business.

Is the letter's certificate procedure still current? STAR flags a later statutory change effective in 2012, so current requirements must be checked separately.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8906L0948B10

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.

June 26, 1989

Dear *:

Thank you for your letter concerning the agricultural exemption for
harvesting equipment used on farms or ranches.

On June 21, 1989, ***, called you to determine what types of
harvesting equipment will be leased to farmers and ranchers. You told
him that shakers and sweepers would be leased. The shakers knock the
pecans from the trees and the sweepers gather the pecans from the ground.

The shakers and sweepers described above are considered production equipment.
Any entity leasing this equipment for exclusive use on a farm or ranch in
the production (including field harvesting) of pecans (nuts) that are held
for sale in the regular course of business can claim an agricultural
exemption. Anyone leasing the equipment to gather nuts that are not held for
sale in the regular course of business must pay the tax even though the equipment
is used on a farm or ranch.

You also asked about exemption certificates. We have altered our policy
by changing the way farmers and ranchers handle their exemption certificates.
In the past, farmers filed a certificate with a retailer each time they
bought/leased a tax-exempt item. Now they will file a properly completed
and valid certificate with a retailer only for the initial purchase from that
retailer.

Retailers will keep the initial certificate on file and when subsequent
purchases are made, will stamp the current invoice, "Exempt for agricultural
purposes." A farmer or rancher will sign the stamped invoice, thereby
signifying the purchase is exempt from sales tax. These subsequent
purchases should be of the same nature or of the same items listed on the
initial certificate.

Sellers are responsible for knowing the exemptions that are available for
the items they sale or lease (rent). If the entity purchasing the items
issues a properly completed resale/exemption certificate to the seller at
the time of the initial transaction, and the seller is aware that the reason
for exemption is valid, then the seller can accept this certificate in good
faith. The seller is not required to "verify" the purchaser's use in
order to "validate" the exemption. However, if the seller has actual knowledge
at the time of the initial transaction that leads him to question the
validity of the claim to exemption, the seller is not obligated to accept this
certificate and should not because he cannot accept it "in good faith."

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

You may write at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence