Is electricity used to irrigate fields where cattle graze exempt from Texas sales tax, and does it matter if some of that electricity might also be used for a home garden?

Plain-English summary

A landowner whose cattle graze on Texas farm property asked whether the electricity used at that location -- flagged by her electric cooperative as potentially exemption-eligible -- actually qualifies for a sales tax exemption.

Tax Code Section 151.316 exempts items exclusively used or employed on a farm or ranch to produce food for human consumption, feed for animal life, grass, or other agricultural products sold in the regular course of business. Applied to irrigation electricity specifically: electricity used to irrigate land growing food, feed, grass, or other agricultural products destined for sale is exempt. The Comptroller confirmed that grazing cattle counts -- irrigating the fields where cattle graze to keep the grass/feed growing qualifies as agricultural use.

But the exemption has a hard limit: electricity used to irrigate a home garden where the products are NOT grown for sale, or for other non-agricultural use, is taxable. So the same irrigation system, if it also waters a personal garden or non-commercial use, would need that portion treated as taxable rather than exempt.

Bottom line for this taxpayer: since the electricity irrigates fields where cattle graze (not a home garden or residence), it qualifies for exemption -- she should state the exempt reason on the exemption certificate given to her electric cooperative.

Housekeeping note: STAR flags this document with an ALERT that H.B. 268 (2011) later required agricultural/timber exemption claimants to obtain a Comptroller-issued registration number, effective 2012 -- a subsequent registration-procedure requirement layered on top of the exemption, not a change to this letter's 1999 substantive holding about what irrigation use qualifies.

What this means for you

Farmers and ranchers using electricity for irrigation

Irrigation electricity for land producing agricultural products for sale (including grazing land for livestock) qualifies for the Section 151.316 exemption -- but irrigation for a home garden or other non-agricultural, non-for-sale use does not, even on the same property.

Landowners with mixed agricultural and personal-use irrigation

If your irrigation system serves both a commercial agricultural use and a personal garden or residence, be prepared to distinguish between the two uses for exemption purposes rather than treating the whole electricity bill as exempt.

Accountants and tax professionals

Worth flagging the post-2011 H.B. 268 registration-number requirement (noted in STAR's own alert) for any client relying on this or similar pre-2012 agricultural exemption letters -- it adds a registration step without altering the underlying for-sale-vs-personal-use exemption analysis here.

Common questions

Q: Is electricity used to irrigate grazing land for cattle exempt from Texas sales tax?
A: Yes, since the cattle and the grass they graze on qualify as agricultural products/feed under Section 151.316.

Q: Is electricity used to irrigate a home garden exempt?
A: No, unless the garden's products are grown for sale in the regular course of business.

Q: Does the 2011 H.B. 268 registration requirement change this letter's holding?
A: No, it's a later procedural add-on (a Comptroller-issued registration number needed from 2012 forward) layered on top of, not a change to, the 1999 exemption analysis here.

Q: Can I rely on this letter for my own farm or ranch?
A: No. It is based on the specific facts presented and can only be relied on by the taxpayer to whom it was issued.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.316 (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/9903291L

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 30, 1999

Subject: Electricity used on a farm or ranch

Dear Mrs. **:

This is in response to your request for a ruling on the taxability of
electricity used on farm property that you own in **, Texas.
** County Electric Co-operative Association advised you that your
electrical account for this location may qualify for exemption. You stated
your cattle graze at this location.

Response: Texas Tax Code Section 151.316 outlines the items that are exempt
from sales tax and those items that qualify for exemption if exclusively used
or employed on a farm or ranch in the production of food for human consumption,
feed for animal life, grass, or other agricultural products to be sold in the
regular course of business. Electricity used on a farm or ranch for irrigation
of food, feed, grass, or other agricultural products to be sold in the regular
course of business is exempt use. However, electricity used on a farm or ranch
for irrigation of a garden when the products are not grown for sale or other
non-agriculture use is a taxable use.

Therefore, if this electricity is used to irrigate the fields where your cattle
graze, rather than for a home garden or residence, it will qualify for
exemption as agricultural use. You should state the exempt reason on the
exemption certificate provided to you by ** County Electric
Co-operative Association.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
[email protected]
Tax Policy Division