Are bacterial/microbial products used by feedlots, poultry farms, swine farms and dairies to digest livestock waste in catch ponds exempt from Texas sales tax as a farm/ranch exemption item?

Plain-English summary

A taxpayer asked the Comptroller whether two bacterial (microbial) products used by feedlots, poultry farms, swine farms and dairies to treat livestock waste could qualify for a sales tax exemption. The products digest, or biodegrade, manure and other waste that accumulates in catch ponds — ponds that collect run-off water from holding pens and manure pits. Inoculating a pond with the products speeds up digestion of the organic mass, which extends the pond's useful life, and the products may also be used where odor from waste is a problem.

The Comptroller ruled that these microbial products do not qualify for the sales tax exemption available to farms and ranches. Farmers and ranchers are allowed sales tax exemptions on certain machinery and equipment, but the only materials exempt to farmers and ranchers are fertilizers, fungicides, insecticides, herbicides, defoliants and desiccants. Because the bacterial waste-treatment products don't fall into any of those specific categories, they remain taxable.

What this means for you

Feedlot, poultry, swine and dairy operators

If you buy bacterial or microbial products to treat manure in catch ponds or to control waste-related odor, don't assume the farm/ranch sales tax exemption applies just because the product is used in an agricultural setting. The exemption for farm/ranch materials is narrow — it only reaches fertilizers, fungicides, insecticides, herbicides, defoliants and desiccants — and a waste-digesting bacterial product isn't any of those, so sales tax applies to the purchase.

Sellers and distributors of agricultural bacterial/microbial products

When selling these livestock waste-treatment products to Texas farm and ranch customers, be aware the Comptroller has taken the position that such products don't qualify for farm/ranch exemption certificates, unlike more familiar exempt inputs such as fertilizer or pesticides.

Accountants and tax professionals

This letter is a useful illustration of how narrowly the Comptroller reads the farm/ranch materials exemption: even a product used entirely for an agricultural, waste-management purpose is taxable unless it specifically fits one of the enumerated categories (fertilizers, fungicides, insecticides, herbicides, defoliants, desiccants).

Common questions

Q: Are bacterial products used to treat livestock waste ponds exempt from Texas sales tax as farm supplies?
A: No. The Comptroller ruled these microbial products do not qualify for the farm/ranch sales tax exemption.

Q: What materials ARE exempt to farmers and ranchers under this letter?
A: Only fertilizers, fungicides, insecticides, herbicides, defoliants and desiccants are listed as exempt materials for farmers and ranchers.

Q: Why don't the bacterial waste-treatment products qualify, even though they're used on a farm?
A: Because they don't fall into any of the exempt material categories — they're microbial products that digest/biodegrade waste, not a fertilizer, fungicide, insecticide, herbicide, defoliant, or desiccant.

Q: What do these products actually do?
A: They are microbial products that digest (biodegrade) waste; when used to inoculate a catch pond that collects manure-laden run-off, they rapidly digest the organic mass, extending the pond's useful life, and can also help with odor problems.

Q: Can I rely on this letter for my own purchases of similar products?
A: No. This opinion is based on the facts presented to the Comptroller, and if the facts are different, the opinion may change; letters like this can only be relied on by the taxpayer to whom they were issued.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1183C12

Original ruling text

July 17, 1992

Dear **:

Thank you for your recent letter asking for a sales tax exemption for two
bacterial products used by feedlots, poultry farms, swine farms and dairies in
livestock waste treatment.

The two products in question are ** and **, which are
microbial products that digest (biodegrade) various kinds of wastes.

In typical livestock operations there are catch ponds that collect run-off
water from holding pens and manure pits. This run-off carries large quantities
of manure, which eventually fills the pond. When such a pond is inoculated with
** products, the organic mass is digested rapidly; extending the
useful life of the pond.

The products may also be used in areas where odor is a problem.

Response: The products do not qualify for sales tax exemption when used on
farms and ranches. Farmers are allowed sales tax exemptions when purchasing
certain machinery and equipment. The only materials exempt to farmers and
ranchers are fertilizers, fungicides, insecticides, herbicides, defoliants and
desiccants. The microbial products do not fall into any of these exempt
categories.

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. You
may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division