Which farm and ranch software programs qualified for Texas's agricultural sales-tax exemption?

Plain-English summary

Rule 3.296(h) exempted software designed specifically to help an original producer produce, process, pack, or market that producer's own agricultural products. Software for budgeting, payroll, bookkeeping, education, recreation, or similar nonagricultural functions was taxable.

Based on the seller's brochure, the Comptroller approved five programs when bought by an original producer for qualifying use:

• Master-Med Hospital Treatment Program
• Breeder Cow/Calf Programs
• Bull Performance Testing Program
• Range Cow/Calf Program
• Meat Manager Program

The same programs were taxable when bought by anyone other than an original producer. All remaining brochure programs were taxable because they served recordkeeping, bookkeeping, or accounting functions. Software combining exempt and nonexempt functions was taxable because it was not used exclusively for an exempt purpose.

The seller could accept a properly completed and signed exemption certificate in good faith only for qualifying programs. STAR warns that a 2011 law change added a Comptroller registration-number requirement for certain agricultural and timber exemptions beginning January 1, 2012.

What this means for you

Agricultural software sellers

Product function and buyer status both mattered. A qualifying program still became taxable when sold to a nonproducer.

Farmers, ranchers, and tax professionals

Mixed-use and general accounting software did not qualify. Preserve evidence that the software is designed specifically and used exclusively for the producer's own agricultural products, plus any current registration documentation.

Common questions

Were all farm-business programs exempt? No.

Who had to buy the approved programs? The original producer of the agricultural products.

Was combined agricultural and bookkeeping software exempt? No.

Could the seller accept an exemption certificate? Yes, in good faith for the qualifying programs.

Citations and references

• 34 Tex. Admin. Code Rule 3.296(h) (agricultural computer software)
• H.B. 268, 82nd Reg. Leg., R.S. (2011) (later agricultural registration requirement noted by STAR)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1157G01

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.

February 3, 1992

Dear ***:

I apologize for the delay in responding to your letter. As I
understand it, your company sells software for desktop computers.
You asked which of the programs you sell qualify for the
following exemption, set out in Rule 3.296 (h):

. . . Computer software which is designed specifically to aid in
the production, processing, packing, or marketing of agricultural
products of the original producer qualifies for a sales tax
exemption. Computer software used for, but not limited to,
household budgeting, payrolls, bookkeeping, educational, or
recreational purposes is taxable.

Relying on the software descriptions in your brochure, we have
concluded that the following programs are exempt when purchased
by the original producer to aid in the production, processing,
packing, or marketing of his or her own products:

1. Master-Med Hospital Treatment Program

2. Breeder Cow/Calf Programs

3. Bull Performance Testing Program

4. Range Cow/Calf Program

5. Meat Manager Program

These programs are taxable when purchased by someone other than
an original producer.

The remaining programs described in your brochure are taxable even
when purchased by an original producer. These other programs are
used for non-exempt record-keeping, bookkeeping, or accounting
functions. Also, software that combines exempt and non-exempt
functions is taxable because it is not used exclusively in an
exempt manner.

You may accept, in good faith, a properly completed and signed
exemption certificate instead of collecting tax on qualifying
software described above. You may not accept an exemption
certificate instead of collecting tax on sales of the remaining,
non-exempt programs.

As we discussed on the telephone, you may work through the auditor
and his or her supervisor regarding issues that arise in your
current audit. If you choose to pursue an administrative hearing
to redetermine your audit liability, you will have the opportunity
to work with a hearings attorney to resolve any issues in dispute.
The written notices that you receive regarding the audit
will set out the procedures to follow to appeal the assessment.
The issues we discussed (detrimental reliance on a prior audit,
for example) should properly be addressed by the auditor, the
audit supervisor, or the hearings attorney (if you pursue an
administrative hearing).

This opinion is based on the facts presented. Different facts,
though similar, might lead to different answers. If you have
further questions, feel free to write or call me at
1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration Division