Starting a small farm to raise and breed burros for sale, can I buy fencing and other materials tax-free while I'm still building fences, clearing land, and constructing barns/sheds?

Plain-English summary

(Note: STAR carries an "ALERT" on this letter about a 2011 statutory amendment, H.B. 268, adding an agricultural/timber exemption registration-number requirement effective January 1, 2012 — over a decade after this 1999 letter. That's a STAR-added cross-reference, not part of the original ruling text, flagged here rather than folded into the 1999 analysis.)

A couple who had just purchased a small 6-acre farm planned to raise and breed burros and miniature burros for sale. Because it would take years to build fences, clear land, and construct barns and sheds, they asked whether they could purchase materials tax-free during that build-out period.

The Comptroller confirmed they could purchase materials to build fences that confine the animals held for breeding/sale, since Rule 3.296(a)(5) exempts machinery or equipment used exclusively on farms/ranches in producing agricultural products for sale, and Rule 3.296(g)(8)-(9) specifically classifies fences, pens, gates, cattleguards, and chutes used in connection with raising livestock as exempt equipment (including the materials to build them). But the exemption has real limits: fenceposts, gates, and cattleguards used to enclose private driveways, home lawns, gardens, or pools do not qualify, and materials for general-purpose buildings like an ordinary barn or shed also don't qualify — a structure only qualifies if it's specifically designed for agricultural production and can't economically be used for anything else (the letter cites automated laying houses, farrowing houses, and commercial greenhouses as examples).

The Comptroller's response included the full text of Rule 3.296(g)'s definition of exempt "machinery and equipment," covering categories from hand tools and lubricants to underground irrigation components and qualifying storage facilities for bulk fungible commodities (petroleum tanks, grain bins, silos) — useful for a new farm owner sorting exempt from nonexempt purchases across a multi-year build-out.

What this means for you

New farm and ranch owners

Don't assume every purchase during your farm build-out is tax-exempt just because the end goal is agricultural production. Fencing that confines breeding/production livestock is exempt, but fencing around your house, driveway, or garden isn't — and a general-purpose barn or shed doesn't qualify unless it's built specifically for a use that can't reasonably serve any other purpose. Keep your exemption certificates aligned to the specific qualifying items, not your farm as a whole.

Accountants and tax professionals

Rule 3.296(g)'s multi-part definition of exempt "machinery and equipment" is worth having on hand for any client starting or expanding agricultural operations — this letter is a useful plain-English walkthrough of how narrowly some categories (general buildings, non-livestock fencing) are drawn compared to the broader agricultural-production framing clients often expect.

Common questions

Q: Can I buy fencing materials tax-free while setting up my farm to breed animals for sale?
A: Yes, for fences used to confine the animals held for breeding/sale — but not for fences around your driveway, home lawn, garden, or pool.

Q: Is a barn or shed I'm building for my farm tax-exempt?
A: Only if it's specifically designed for agricultural production and can't be economically used for any other purpose (like an automated laying house) — an ordinary general-purpose barn or shed does not qualify.

Q: What's the process for claiming these exemptions?
A: Issue your supplier a properly completed exemption certificate for the qualifying items, per Rule 3.296(d).

Citations and references

Rule:

• 34 Tex. Admin. Code § 3.296(a)(5) (exempt machinery/equipment used on farms/ranches)
• 34 Tex. Admin. Code § 3.296(g) (definition of exempt machinery and equipment, including fences/gates/cattleguards and building exclusions)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910769L

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.

October 13, 1999

Dear **:

This is in response to your request for a ruling on the following fact
situation and questions:

My wife and I have recently purchased a small farm (6 acres). We plan to raise
burros and miniature burros for sale. It will take several years to build
fence, clear land, build barns and sheds, etc. Can I purchase materials during
this time, and claim exemption from sales tax?

Response: You may purchase materials at this time to build fences to keep your
animals to be held for breeding/sale confined. However, fenceposts, gates and
cattleguards used to enclose private driveways, home lawns, gardens, pools,
etc., and materials for general purpose buildings such as a barn or shed would
not be exempt. I have restated pertinent parts of Rule 3.296 - Agriculture,
Animal Life, Feed, Seed, Plants, and Fertilizer below and am attaching a copy
of this rule to my email response. See also subsection (d) of this rule for
information on the issuance of exemption certificates to your supplies for
qualifying items.

Subsection (a)(5) of Rule 3.296, provides an exemption from sales tax for
machinery or equipment used or employed on farms or ranches exclusively in:

(A) the production of food for human consumption, production of grass,
production of feed for any form of animal life, or other agricultural products
to be sold in the regular course of business; and

(B) the building or maintaining of roads and water facilities.

A farm or ranch is defined as one or more tracts of land used, either wholly or
in part, in the production of crops, livestock, and/or other agricultural
products held for sale in the regular course of business.

Machinery and equipment is defined in subsection (g) of this rule as:

(1) expendable supplies, such as hand tools, baling wire and binders twine;

(2) lubricants for farm machinery and for motor vehicles not licensed for
highway use;

(3) nuts, bolts, washers, and other hardware. It also includes materials used
on or in buildings, structures, or structural components that are classified as
machinery or equipment;

(4) repair or replacement parts used exclusively on farm or ranch machinery or
equipment. This includes tractor tires, tires used on motor vehicles not
licensed for highway use, and tires specifically designated by the manufacturer
for farm use or off-highway use only;

(5) machinery and equipment used exclusively to maintain equipment that
qualifies for exemption under this section;

(6) those items specifically designed to be assembled into a machine, such as
parts of a pumping system or portable irrigation systems;

(7) tangible personal property sold for use as a component of an underground
irrigation system;

(8) fenceposts, cattleguards, gates, and chutes. However, fenceposts, gates
and cattleguards used to enclose private driveways, home lawns, gardens, pools,
etc., do not qualify for exemption from tax. These items purchased by persons
operating commercial nurseries and greenhouses and similar commercial
operations for the purpose of preventing trespassing by the public do not
qualify for exemption from tax; and

(9) the following items and the materials used to build, construct, or
fabricate these items (these items are classified as equipment and are
therefore exempt), provided they meet the qualifications set out in this
section and have not been previously excluded:

(A) fences, pens, gates, cattleguards, and chutes used in connection with
raising livestock or production of agricultural products;

(B) storage facilities specifically designed for and that can be used only to
store bulk fungible commodities regardless of whether the facilities are of a
portable or fixed nature. Typical facilities on farms or ranches include
petroleum products storage tanks, grain storage bins, refrigerated storage
structures for unprocessed fruit, silos, and vehicle-mounted fertilizer
spreaders or feed mills (not licensed for highway use). General purpose
facilities that are used to store bulk fungible commodities, farm produce or
equipment do not qualify for exemption from tax. Only those facilities that
cannot be used for any purpose other than the storage of fungible goods qualify
as farm equipment;

(C) a building or structure that is essentially an item of equipment or
machinery necessary for agricultural production if it is specifically designed
for such use and cannot be economically used for any other purpose. For
example, automated laying houses, farrowing houses, and commercial greenhouses.

The State Tax Automated Research system may be accessed on the Internet at:
http://www.window.state.tx.us/

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: [email protected]

Gilbert Zamora
[email protected]
Tax Policy