Did Texas's agricultural sales-tax exemption cover equipment used in a commercial crab-fishing operation?

Plain-English summary

Equipment used in commercial crab fishing did not qualify for Texas's agricultural-equipment sales-and-use-tax exemption.

The exemption covered machinery and equipment used on a farm or ranch to produce agricultural products for sale. Rule 3.296 defined a farm or ranch through crop and livestock production. The Comptroller distinguished catfish farms and captive livestock from commercial fishing or crabbing, where the fish or crabs were not "animals in captivity."

The letter therefore treated the crab operation as commercial fishing rather than agriculture. Its equipment remained taxable unless some other exemption applied.

Common questions

Why did crab equipment fail the agricultural exemption? The crabs were not captive livestock, and commercial crabbing was classified as fishing rather than farming or ranching.

Did processing the crab for food make the operation agricultural? No. The Comptroller rejected the comparison to cattle production.

Did the letter say all farm or ranch equipment was exempt? No. It described the exemption for machinery and equipment used on a farm or ranch to produce agricultural products sold in the regular course of business.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L1020B01

Original ruling text

April 25, 1990

Dear **:

Mr. Bullock assigned your letter concerning taxability of equipment
used in your commercial crab operations and in farming and
ranching operations to me for response.

The Texas sales tax law imposes a sales tax on the sale of taxable
items (equipment) in this state and a use tax on equipment brought
into this state for use. The sales and use tax applies to all
equipment unless the law specifically exempts the equipment or use
of the equipment.

The sales and use tax law exempts machinery and equipment used
on a farm or ranch in the production of agricultural products sold
in the regular course of business. A farm or ranch is defined in
section (f) of Rule 3.296 (concerning agricultural equipment and
animal life) as "one or more tracts of land used...in the production
of crops, livestock...held for sale in the regular course of
business." This definition is essentially the same definition
found in Webster's Ninth New Collegiate Dictionary.

The Standard Industrial Classification Manual, 1972, prepared by
the president of the United States' office on management and
budget classifies crop production under Major Group 01 and live
stock production under Major Group 02. Fishing operations are
classified under Major Group 09.

You likened your commercial crab operation to cattle production in
that parts of the carcass of both animals are processed into food
for human consumption. Major Group 02 includes only those activities
or operations engaged in keeping, grazing, or feeding livestock for
the purpose of selling the livestock or livestock products. Catfish
farms are included under Major Group 02, but not fish hatcheries.
Livestock is limited to animals in captivity. Major Group 09 includes
activities engaged in commercial fishing or the taking or gathering
of fish, including crabbing.

The clear distinction here is that the fish or crab are not
"animals in captivity." The equipment used in commercial fishing
operations is not used in agricultural operations.

The question that you raised concerning the difference between the
tax treatment of ranching operations and fishing operations is
very similar to the earlier contention raised by timber operators
who felt that they were entitled to the same exemptions as farmers.
The Texas courts have ruled that timber operations are not
farming operations. The definition of a farm or ranch in Rule
3.296 excludes timber operations.

The sales tax law as enacted by the legislature clearly exempts
equipment used in agricultural operations which do not include
equipment used in commercial fishing operations. Our responsibility
is to administer the sales tax law enacted by the legislature.

I hope this explains the reason why your equipment doesn't qualify
for exemption as agricultural equipment.

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

Sincerely,

Tax Policy Division
Tax Correspondence