Could commercial nurseries buy pots, bowls, flats, hangers, boxes, and other plant packaging tax free?

Plain-English summary

The Comptroller said commercial nurseries that grew plants from seed or cuttings or otherwise fostered plant growth were engaged in agriculture. Those growers could buy plastic pots, bowls, flats, hangers, boxes, and other supplies used to package their agricultural products tax free by providing exemption documentation.

A seller that merely bought potted plants and held them for resale did not qualify for the agricultural exemption and had to pay sales tax on packaging transferred with the plants.

STAR now warns that House Bill 268 changed the Tax Code in 2011: beginning January 1, 2012, people claiming certain agricultural and timber exemptions had to apply for and provide a Comptroller-issued registration number.

What this means for you

The historical distinction was between growing or fostering plants and merely reselling finished potted plants. The first activity qualified as agriculture; the second did not. Current use of this guidance must account for the later registration requirement flagged on STAR.

Common questions

Could a nursery growing its own plants buy pots and flats tax free? Yes, on the facts presented and with the required exemption documentation.

What if the seller only bought finished potted plants for resale? It had to pay tax on the wrapping and packaging supplies.

Is the 1991 documentation rule still complete? No. STAR expressly warns of the registration-number requirement effective in 2012.

Citations and references

• House Bill 268, 82nd Regular Session (2011) — later agricultural and timber exemption registration 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/9109L1137D11

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.

September 26, 1991

Dear **:

Thank you for your recent letter regarding your client's manufacturing of
certain packaging supplies and the sale of these supplies to commercial
nurseries.

Commercial nurseries that grow plants from seeds or cuttings or otherwise
foster the plant's growth are, for tax purposes, engaged in agricultural
activities.

Commercial nurseries fostering plant growth prior to the sale of the plants,
may purchase the plastic pots, bowls, flats, hangers and other supplies to
package agricultural products tax free by issuing your client an exemption
certificate in lieu of tax.

Persons who purchased potted plants and just hold them for sale are not
entitled to an agricultural exemption and must pay sales tax on any wrapping
and packaging supplies they purchase and transfer to their customers with the
plants when the plants are sold.

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

If you have any questions, or need more information, you may call me toll free
at 1-800-252-5555, extension 3-4633. The regular number is 512/463-4633.

Sincerely,

Wanda Hutcheson
Tax Administration Division

September 12, 1991

Mr. Al Van Allen
Tax Correspondence Section
Comptroller of Public Accounts
P.O. Box 13528
Austin, TX 78774

Dear Mr. Van Allen:

We have two state taxability problems that we need help with:

1. (A) Client is a manufacturer of plastic pots, bowls, hangers and other
   products used by commercial nurseries for potting their products for sale. Will
   our client have to charge tax to the nurseries for these items under the law
   changes effective October 1, 1991?

(B) Client also manufactures "flats" these are plastic trays which hold the
aforementioned products and are used by the nurseries for shipping their
agricultural products. Some of these "flats" are compartmental and items such
as flowers are grown in them. The plants are then sold in the "flats". Will our
client have to charge tax on either of these "flats" when they sell to
commercial nurseries?

2. Client is a commercial nursery. They buy supplies to package certain
   seasonal agricultural products, i.e. poinsettias, which they have grown. Will
   the nursery have to pay tax on the boxes and other packaging materials used for
   these products?

Sincerely,

By:

Certified Public Accountant