Farmer's Guide to Sales and Use Taxes
INTRODUCTION: The Farmer's Guide To Sales and Use Taxes is intended to answer some of the most frequently asked questions regarding farmer tax exemption permits and to explain the taxation of sales made to and by those engaged in agricultural production.
BACKGROUND: Retail sales of tangible personal property used exclusively in agricultural production are exempt from sales and use taxes provided the purchaser qualifies for and has been issued a Farmer Tax Exemption Permit. The exemption, originally enacted in 1989, was amended effective October 1, 1993 to include fish hatcheries in the definition of "agricultural production" and to allow the applicant to file a Schedule C as well as a Schedule F with REG-8, Application for Farmer Tax Exemption Permit.
QUALIFYING FOR THE FARMER TAX EXEMPTION PERMIT:
1. Who may apply for a farmer tax exemption permit?
Anyone engaged in agricultural production as a trade or business and who had in the preceding taxable year gross income of $2,500 or more from such agricultural production is eligible to be issued a farmer tax exemption permit. Gross income from agricultural production is generally reported on Schedule F or Schedule C (Form 1040) of the farmer's federal income tax return.
2. What farming activities are considered agricultural production?
The raising and harvesting of any agricultural or horticultural commodity, dairy farming, forestry, the raising of livestock and poultry, or the raising and harvesting of fish, oysters, clams, mussels or other molluscan shellfish.
Individuals engaged solely in the purchasing of agricultural products for resale are not engaged in agricultural production.
Example: Cut flowers or plants purchased by a farmer for resale at a roadside stand are not products produced by the farmer in agricultural production.
3. Can sales of cord wood qualify someone for the farmer tax exemption permit?
Sales of cord wood by an individual who is not engaged in forestry management do not qualify as sales of agricultural products raised in agricultural production.
4. Are horse breeders eligible for a farmer tax exemption permit?
In order to qualify for the exemption, the breeder must have properly reported gross receipts of $2,500 or more in the preceding taxable year on Schedule F or Schedule C of his or her federal income tax return. A breeder who is required for federal income tax purposes to treat his or her income from sales of horses as capital gains does not qualify.
5. Is a person engaged in the business of boarding horses, owned by others, eligible for a farmer tax exemption permit?
No. While agricultural production includes the raising of livestock, the livestock that the farmer is engaged in raising, as a trade or business, must be owned by such farmer.
6. Can the sale of hay, grown by a person engaged in boarding horses and consumed by the horses that are being boarded, qualify a farmer for the farm tax exemption permit?
No. The transaction between horse boarder and horse owner is a service transaction, and not a sales transaction. Therefore, these sales of hay will be disregarded in determining whether the horse boarder has gross income from sales of agricultural products of not less than $2500 even if the sales of hay are separately stated from the boarding charge. If the farmer also raises and sells hay to others, the proceeds from those sales may qualify as sales of agricultural products produced in agricultural production.
7. Can a farmer tax exemption permit be issued to the operator of a fish farm or hatchery that engages in breeding fish and confinement raising of fish?
Yes. The operation of a fish farm or hatchery is considered agricultural production; therefore, the operator can apply for a farmer tax exemption permit.
HOW TO APPLY:
8. How does a farmer apply for an exemption permit?
The applicant must complete an REG-8, Application For Farmer Tax Exemption Permit, sign the application before a notary public and submit it with his or her entire federal income tax return for the preceding taxable year (including Schedule F or Schedule C, Form 1040). If the farm is incorporated, the corporation must submit a pro forma Schedule F or Schedule C (Form 1040) with its application for informational purposes even though such a Schedule F or Schedule C is not filed by the corporation with the Internal Revenue Service.
9. Once a farmer obtains a Farmer Tax Exemption Permit does it ever have to be renewed?
Yes. The permit is valid from October 1 or the date of issuance (whichever is later) until the following September 30. A farmer must reapply each year.
10. If a farmer transfers his or her farm to an immediate family member, will a farmer tax exemption permit be issued to the new owner?
A farmer tax exemption permit will be issued to the new owner provided that person is the spouse, parent, child or sibling of the old owner and the activities of the new owner meet the other qualifications for an exemption permit. The new owner must submit the entire federal income tax return of the old owner with his or her application for a farmer tax exemption permit.
11. If a farmer transfers his or her farm to someone other than an immediate family member will a farmer exemption permit be issued to the new farmer in the following year?
No. The old owner's permit only covered sales of tangible personal property made to the individual identified on the permit. The permit may not be transferred or assigned to anyone and is null and void upon the termination of agricultural production by the original applicant. The new owner, including a corporation established by the original applicant, must apply for its own permit.
PURCHASES ELIGIBLE FOR EXEMPTION:
12. What purchases may be made tax free with a farmer tax exemption permit?
A farmer tax exemption permit may be used to purchase goods that will be used exclusively in the agricultural production process. Qualifying purchases may include items such as a farm tractor, truck, or refrigeration equipment as long as the item purchased will be used exclusively in the agricultural production process.
If an item will be used partly in the agricultural production process and partly for other purposes, it is fully taxable.
EXAMPLE: The purchase of a pickup truck that will be used on the weekend to transport farm produce to a regional market and during the week to commute to a job that is unrelated to farming does not qualify for the exemption because it is not used exclusively in agricultural production.
13. Does a lease of farm equipment qualify for the farmer tax exemption as well?
Yes. The lease of equipment used exclusively in agricultural production by a farmer who holds a valid farmer's tax exemption permit is exempt from tax.
14. Does the farmer tax exemption apply to purchases of services such as plowing, planting, harvesting or fertilizer application?
No. The exemption is limited to purchases of goods. A farmer is liable for sales and use taxes on the purchase of any taxable service. Plowing, planting, harvesting, fertilizer application and other services are taxable as services to income-producing real property.
15. If an individual operates a farm and also provides "custom hire work" such as plowing, fertilizer application or harvesting to other farmers, can he or she purchase the machinery and supplies to perform these services without paying sales tax?
No. The farmer tax exemption permit may only be used to purchase equipment that will be used by a farmer for exclusive use in the production of agricultural products grown or raised by that farmer. Purchases of equipment and supplies that will be used both on and off the applicant's farm do not qualify for the exemption.
16. If a farmer is renovating a building for farm animals, are the purchases of materials for this project exempt from sales and use taxes?
Yes. Lumber, hardware and other building materials that are sold directly to a farmer for the construction or renovation of a farm structure used exclusively in agricultural production can be purchased exempt from sales and use taxes. However, if the building materials and supplies are sold to a contractor who is hired to perform the construction services, rather than to the farmer, the sales are fully taxable.
Likewise, tax will apply to the purchase of materials if the structure is not used exclusively in the agricultural production process.
EXAMPLE: If a farmer purchases lumber to build or renovate a home, the lumber is fully taxable.
17. If a contractor is hired to complete the renovation of a farm building, is the charge for his or her service subject to tax?
Because the farmer tax exemption does not apply to purchases of taxable services, a farmer is liable for sales tax on the service charges for the renovation or repair of an existing farm structure. However, if the project involves the construction of a new building or an addition that expands the cubic footage of an existing building, the service charges are exempt from tax as a new construction project.
18. May a farmer who holds a valid farmer tax exemption permit purchase electricity, gas or heating fuel for farm buildings tax free?
Yes, provided 75% or more of the gas, electricity or heating fuel is consumed in a metered building or location that is used for agricultural production. The farmer must complete and provide the utility company with Sales and Use Taxes Exemption For Purchase of Gas and Electricity or the Sales and Use Taxes Exemption Certificate for Purchases of Fuel for Heating Purposes.
19. What documents must I provide a retailer to prove I am a farmer exempt from sales and use taxes?
A copy of your farmer tax exemption permit must be provided to the retailer at the time of each purchase or a blanket certificate may be issued for a continuing line of exempt purchases. A blanket certificate, which is simply a copy of the original permit with the words "blanket certificate" written across the top, is valid from the date of issuance until September 30 of the following year.
If a copy of the exemption permit is not provided to the retailer at the time of purchase, the retailer must collect the applicable sales and use taxes.
20. Can I apply for a refund of sales tax paid on purchases made prior to the date of issuance of my exemption permit?
No. No sales tax will be refunded for purchases made before the permit is issued. A farmer must present the permit at the time the purchase is made.
SALES MADE BY A FARMER:
21. Is the sale of livestock subject to sales and use taxes?
Yes. Sales and use taxes apply to sales of livestock to anyone other than to a farmer who holds a farmer tax exemption permit or to a retailer who is in the business of reselling the livestock being purchased. For example, a slaughter house that intends to use the livestock in the production of beef or other food products or a livestock dealer that intends to resell the livestock can purchase the livestock free of tax by issuing a Connecticut sales and use taxes resale certificate to the farmer.
22. Is the fee charged by an auctioneer to a farmer for the sale of his or her livestock at auction subject to sales and use taxes?
Yes. The services of an auctioneer are sales agent services subject to sales and use taxes. Once again, a farmer is not allowed to issue a farmer exemption permit to purchase services.
23. Must a farmer who is making sales charge sales tax?
Yes. Any farmer selling goods must register for a seller's permit and collect sales tax. Taxable goods commonly sold by farmers include plants, seeds, hay, feed, mulch, fertilizer (including manure), livestock, poultry, rabbits, Christmas trees (living or cut), wreaths, decorated or carved pumpkins and flowers.
NOTE: The exemption from tax for the sale of poultry, rabbits, livestock, feed, seeds, fertilizer, hay and vegetable plants was repealed in 1991. Sales made on or after October 1, 1991 became taxable.
24. What sales commonly made by farmers are exempt from tax?
Food products including maple syrup, honey, eggs, cider, cakes and pies, vegetables and fruits are exempt from tax.
NOTE: Sales of candy and soda are subject to tax because they are not considered food products.
25. How do I register for a seller's permit?
To obtain a seller's permit an applicant must complete and submit REG-1, Application For Tax Registration Number, and pay a $20.00 application fee. The permit is valid for two years and may be renewed without an additional fee. Application can be made by mail or in person at DRS offices in Hartford, Norwich, Bridgeport, Hamden and Waterbury.
26. Once I have registered, how often must I file sales and use taxes returns?
Generally, sales and use taxes returns are filed on a quarterly basis. The quarterly periods and due dates are as follows:
|January 1 - March 31||April 30|
|April 1 - June 30||July 31|
|July 1 - September 30||October 31|
|October 1 - December 31||
If a seller's sales and use taxes liability exceeds $4,000.00 per year, he or she must file monthly. Monthly returns are due on or before the last day of the following month. A seller may request permission to file on an annual basis if his or her sales and use taxes liability is less than $1,000.00 per year.
EFFECT OF THIS DOCUMENT: An Informational Publication is a document that addresses issues frequently raised by taxpayers, usually in a question-and-answer format. It is less technical in nature than a Policy Statement, but may be referred to by individual taxpayers for guidance.
EFFECT ON OTHER DOCUMENTS: IP 93(1.1) (issued 1/29/93) is modified and superseded and may no longer be relied upon after the date of issuance of this publication.
RELATED FORMS AND PUBLICATIONS:
For related publications, please request:
PS 91(7.2) Farmer Tax Exemption Permit
IP 92(1.3) Q & A On Sales and Use Taxes For A New Business
IP 92(6.1) Business Taxes
SN 92(12) Sales and Use Taxes On Sales of Certain Lawn and Garden Items
REG-8 Application For Farmer Tax Exemption Permit
PLEASE NOTE THE FOLLOWING NEW INFORMATION ABOUT DRS.
FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.
Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Web home page at http://www.ct.gov/drs. Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.
Sales and use taxes
Replaces IP 93(1.1), issued 7/12/93