Were a pressure washer and air compressor exempt farm-maintenance equipment when they were also used on highway vehicles and well casing?

Plain-English summary

Sales tax was due on both the high-pressure washer and air compressor because neither was used exclusively to maintain exempt farm equipment.

Rule 3.296 exempted machinery and equipment used exclusively in agricultural production for sale. Section (g)(5) also exempted equipment used exclusively to maintain machinery that qualified under the rule. The washer and compressor could have fit that maintenance exemption if their use had stayed within those limits.

But the pressure washer was also used to clean engines and drivetrains on vehicles licensed for highway use, which did not qualify as exclusively farm or ranch machinery. The compressor was also used to clean casing in a well bore, and the Comptroller treated the casing as an improvement to realty rather than farm machinery. Those additional uses made both purchases taxable.

STAR now warns that H.B. 268 added a Comptroller-issued registration-number requirement for certain agricultural and timber exemptions effective January 1, 2012.

What this means for you

The maintenance-equipment exemption in this letter required exclusive qualifying use. A tool that maintained exempt tractors, drills, planters, combines, or cotton pickers could still become taxable if it was also used on highway vehicles or real-property improvements.

Common questions

Could equipment used to maintain exempt farm machinery qualify? Yes, if used exclusively for that purpose.

Why was the pressure washer taxable? It was also used on highway-licensed vehicles.

Why was the air compressor taxable? It was also used to clean well casing, which the letter treated as an improvement to realty.

Does STAR identify a later-law issue? Yes. Its alert describes a registration-number requirement effective in 2012.

Citations and references

• 34 Tex. Admin. Code Rule 3.296(a)(5) and (g)(5)
• H.B. 268, 82nd Texas Legislature, Regular Session (2011), as described in STAR's alert

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9204L1169A12

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.

April 21, 1992

Dear ***:

Thank you for your recent letter regarding the taxability of equipment
purchased for the purpose of maintaining farm equipment.

Your letter states that you purchased a high pressure washer and an air
compressor at an auction. You offered the auctioneer an agriculture exemption
certificate, but it was refused.

You stated that the equipment is to be used to maintain farm equipment (e.g.
tractors, drills, planters, combines, cotton pickers, etc.), and question
whether tax is due on this purchase.

Machinery or equipment used or employed on farms or ranches exclusively in the
production of food, feed, or other agriculture production for sale in the
regular course of business is exempt from sales tax. Please refer to Section
(a)(5) of Rule 3.296, Agriculture, Animal Life, Feed, Seed, Plants, and
Fertilizer. Section (g)(5) of Rule 3.296, provides an exemption for machinery
or equipment used exclusively to maintain equipment which qualifies for
exemption under this rule. The equipment you purchased would qualify for
exemption provided it is used exclusively to maintain farm equipment. However,
your letter states that the pressure washer is also used to clean the engine
and drive train on your vehicles. Vehicles licensed for highway use do not
qualify as machinery or equipment exclusively used on a farm or ranch. You also
state in your letter that the air compressor is used to clean the casing in a
well bore. The casing is considered to be an improvement to realty and does
not qualify as farm machinery or equipment. Therefore, tax is due on the
purchase of both pieces of equipment.

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

If you have any questions or need additional information, you may call toll
free 1-800-252-5555 or the regular Austin number is 512-463-4600. You may also
write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division