A company that wants to sell a concentrated garlic-juice product to cotton farmers as an insect repellent/pesticide asked whether those sales are exempt from Texas sales tax and what it needs to do to comply.

Plain-English summary

A company planned to sell a concentrated garlic-juice product (marketed under a name redacted in the letter as "Garlic Barrier") to be used as an insect repellent for agricultural use. It had already contacted cotton gins in Texas, and cotton farmers were interested in applying the product to their cotton crops as a pesticide. The company asked the Comptroller two things: whether these sales would be tax-exempt, and what it needed to do to comply with Texas tax law.

The Comptroller's Tax Policy Division answered that if the company is "engaged in business" in Texas (as defined in Rule 3.286(a)(1)), it must first obtain its own Texas sales and use tax permit. Once that's done, sales of the garlic-juice product to cotton farmers as a pesticide are exempt from sales tax under the agricultural exemption in Rule 3.296 (Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer). To document these exempt sales, the company needs to collect exemption certificates from the farmers buying the product.

The letter notes it is based only on the facts presented, and different facts could change the answer.

An editorial ALERT attached to this letter on STAR flags that the underlying law has since changed: H.B. 268 (82nd Regular Legislative Session, effective January 1, 2012) added a requirement that anyone claiming this agricultural exemption must also provide a registration number issued by the Comptroller. That requirement postdates this 1996 letter and is not discussed in the original text.

What this means for you

Sellers of agricultural pesticides, repellents, or similar products

If you sell a product to farmers for genuine agricultural use as a pesticide or insect repellent, that sale can qualify for the Texas agricultural sales tax exemption under Rule 3.296. But you still need your own sales and use tax permit if you're engaged in business in Texas, and you need to collect a proper exemption certificate from each farmer-customer to support the exempt sale in case of audit.

Businesses relying on this specific 1996 letter today

Read the ALERT carefully. Since 2012, farmers and timber operators claiming this kind of exemption must also have an agricultural/timber registration number issued by the Comptroller, and sellers should be verifying that number as part of the exemption certificate process. This letter, being from 1996, does not reflect that requirement — treat it as historical background on the underlying exemption concept, not as current compliance guidance.

New sellers unsure if they're "engaged in business" in Texas

Rule 3.286 defines what activities count as engaging in business in Texas and trigger the permit requirement. If you're soliciting sales to Texas customers (as this company was, by contacting Texas cotton gins and farmers), you likely need to register for a permit even though your ultimate sales may end up being tax-exempt.

Common questions

Q: Is a garlic-juice pesticide/insect-repellent product exempt from Texas sales tax when sold to farmers?
A: Yes, when sold to farmers for use as a pesticide on their crops, it qualifies for the agricultural exemption under Rule 3.296.

Q: Does the seller still need a sales tax permit even if the sales end up being exempt?
A: Yes, if the seller is engaged in business in Texas under Rule 3.286, it must obtain a sales and use tax permit regardless of whether its sales to farmers are ultimately exempt.

Q: What paperwork does the seller need to document an exempt sale to a farmer?
A: An exemption certificate from the farmer, to be kept on file to support the exempt treatment of the sale.

Q: Is this 1996 letter still fully reliable today?
A: Not entirely as written. The STAR system flags it with an ALERT: H.B. 268 (2011, effective 2012) added a requirement that persons claiming this agricultural exemption also provide a Comptroller-issued registration number — a requirement this letter predates and does not mention.

Q: Can another business rely on this letter for its own product or situation?
A: No. The letter is based on the specific facts presented by the requester; different facts could lead to a different result, and STAR letters bind the Comptroller only as to the taxpayer who received them.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.286 (Seller's and Purchaser's Responsibilities — engaging in business in Texas, permit requirement)
• 34 Tex. Admin. Code Rule 3.296 (Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer — agricultural exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9603016L

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.

March 4, 1996

Dear **:

I have received your letter requesting sales tax information.

Facts: You plan to sell ** to be used as an insect repellent for
agricultural use. You have contacted a few cotton gins in Texas and their
cotton farmers interested in applying your product to cotton as a pesticide.
You want to know if this will be tax exempt and what you need to do to comply
with the tax laws.

Response: I am enclosing a sales tax packet. If you are engaged in business
in Texas (see enclosed Rule 3.286, Seller's and Purchaser's Responsibilities,
section (a)(1)) you will need to secure a sales and use tax permit; an
application is enclosed. The sale of your product to cotton farmers as a
pesticide is exempt from sales tax under the agricultural exemption; also
enclosed is Rule 3.296, Agriculture, Animal Life, Feed, Seed, Plants, and
Fertilizer. If you are engaged in business in Texas, you will need to secure
exemption certificates for exempt sales of your product to the farmers.

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

If you have any questions, please don't hesitate to call one of our tax
specialists toll free at 1-800-252-5555. The direct number is 512/463-4600.
You may also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Policy Division