For a new Christmas tree farm, are fencing materials, a farm-use ATV, private road construction, and the eventual tree sales subject to Texas sales tax?
Apply this to your situation
This page answers the general question as of 1999. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
A new farm owner planning a Christmas tree operation (with a 15-acre section leased out for hay and 60-ish acres to be planted with 500-2,000 trees per year, gradually increasing) asked the Comptroller several practical sales-tax questions while getting the farm set up.
Fencing materials: Whether repairing a fence to keep out a neighbor's stray cattle, or to keep out wild boar/deer, the farmer can buy fencing materials tax-free using an exemption certificate under the agricultural exemption (Tex. Tax Code § 151.316, Rule 3.296) -- fencing counts as equipment used on a farm or ranch.
Farm-use ATV: An ATV purchased and used exclusively for farm activities (spraying, hauling debris, checking fence lines) is exempt from sales tax when the buyer issues an exemption certificate for the agricultural exemption -- and repairs to keep that ATV running are exempt too.
Private road construction: This one splits. Sales tax IS due on "processed" materials used to build a road onto the property (caliche taken directly from a pit is NOT considered processed, so it stays exempt). The LABOR to construct the road itself is not taxable. But labor to later repair or maintain that road, once built, IS taxable as nonresidential real property repair, remodeling, or maintenance under Rule 3.357.
Selling the trees: Once the Christmas trees are ready for sale years later, the farmer must collect sales tax on those sales -- growing agricultural products for sale doesn't exempt the retail sale itself.
What this means for you
New farmers and ranchers setting up agricultural operations
Fencing materials and an ATV used exclusively for farm/ranch production are both exempt with a properly issued exemption certificate -- but track "exclusively for farm use" carefully for the ATV, since mixed personal/farm use could jeopardize the exemption.
Anyone building a private farm/ranch road
Road-building materials that are "processed" (i.e., most materials other than raw caliche straight from a pit) are taxable even though the construction labor itself is not -- but once built, MAINTENANCE labor on that same road is taxable. Track these separately.
Christmas tree and other agricultural product growers
Growing your product under an agricultural exemption doesn't make selling it tax-free -- you still must collect sales tax when you sell your trees or crops to customers.
Common questions
Q: Can I buy fencing materials tax-free for my farm or ranch?
A: Yes, per this letter, under the agricultural exemption (§ 151.316, Rule 3.296) with a properly issued exemption certificate -- whether the fence is for livestock or wildlife control.
Q: Is an ATV used only for farm work exempt from sales tax?
A: Yes, per this letter, when used exclusively in agricultural production, along with its repairs -- issue an exemption certificate to your supplier.
Q: Is building a private farm road tax-free?
A: Partly -- processed construction materials are taxable (raw caliche from a pit is not), the construction labor itself is not taxable, but later road maintenance labor is taxable under Rule 3.357.
Q: Do I have to collect sales tax when I sell my Christmas trees?
A: Yes, per this letter.
Citations and references
Statutes and rules:
- Tex. Tax Code § 151.316 (agricultural exemption)
- 34 Tex. Admin. Code Rule 3.296 (Agriculture, Timber, and Wildlife Management)
- 34 Tex. Admin. Code Rule 3.357 (Nonresidential Real Property Repair, Remodeling, Restoration, Maintenance, New Construction, and Residential Property)
Related STAR authority referenced in the letter (not independently verified here):
- Accession # 8101T0476A03 (fencing materials as agricultural equipment)
- Accession # 9405L1299B13 (ATV used exclusively for farm/ranch production)
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/9911879L
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.
11-10-99
** <**>
Subject: several questions
Dear **:
This is in response to your request for a ruling on the following fact
situation and questions:
I have searched your web site and have tried to locate the answers on my own,
without bothering you. Unfortunately, I was not successful. Please provide me
with some direction on the following questions I have:
Background
I have just purchased a farm. I plan on leasing out a 15 acre section to
another farmer to grow hay. On the remaining 60ish acres, I plan to clear the
land and prepare it - so I can plant Christmas trees. I will be planting
between 500-2000 per year. Gradually increasing the number of trees each year.
From what I have read, I think a Christmas tree farm receives special tax
treatments (meaning some farm supplies are exempt from sales tax) - is that
true and could you tell me what the "rules" are for the tax treatment of items
purchased for the farm?
Questions
- I have neighbors on two sides of me who lease their land to cattle ranchers.
In several areas the fence is down. The individuals who lease the property
don't feel they should repair the fence, and are not worried about their cattle
coming onto my property. I only care if they eat my trees or crush them with
their feet. My question is, If I repair the fence - are the materials taxable
when I purchase them? Part II, There are also wild boar and deer in this area
that can walk through the sections of fence that are missing. If the answer was
not favorable to me on my first question, would I qualify here?
Response: As a Christmas tree farmer, you may claim exemptions available to
farmers and ranchers under Texas Tax Code section 151.316 and Rule 3.296. As
such you may purchase fencing materials tax free by issuing your supplier an
exemption certificate claiming the agricultural exemption for fencing materials
(treated as equipment) purchased for use on a farm or ranch. See accession #
8101T0476A03, on our .
- Tractors are about 18,000, but I see I could purchase a ATV and mount a
sprayer on it. If I purchase a ATV and mount the sprayer on it and the ATV is
used only for farm activity (spraying, hauling away debris as I clean up the
land, reviewing my boarders to check my fence) would I have to pay sales tax on
this vehicle? What about for work done on this vehicle to keep it operating?
Response: The purchase of an ATV, to be used exclusively on a farm or ranch in
the production of food for human consumption or other agricultural products
held for sale in the regular course of business, is exempted. The repairs to
the ATV would also be exempted. You will need to issue your supplier an
exemption certificate claiming the exemption. See also accession number
9405L1299B13.
- While I have 6 years or so until my first crop would be ready to sell, my
question is - if I need to put in a road onto my property so people can get to
the trees, would I have to pay sales tax on the construction of that road?
Response: Sales tax would be due on the purchase of "processed" materials used
to construct the road. Caliche taken directly from a pit is not considered
processed. The labor to construct the road would not be taxable. Labor to
repair or maintain the road after it is built will be taxable as real property
repair, remodeling or maintenance under Rule 3.357 Labor Relating to
Nonresidential Real Property Repair, Remodeling, Restoration, Maintenance, New
Construction, and Residential Property.
- Finally, as people purchase my trees - will I have to collect sales tax on
the trees?
Response: Yes.
Sales tax rules can be accessed on the Internet at:
http://www.window.state.tx.us/taxinfo/rulendx/ruleindex.html
You may download an application for a sales tax permit, which allows you to
issue resale certificates for taxable items that you will resell, at :
The State Tax Automated Research (STAR) system may be accessed on the Internet
at:
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:
Gilbert Zamora
Tax Policy
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