Farmer's Guide to Sales and Use and
Estimated Income Taxes
This Informational Publication has been superseded by IP 97(8.1)
INTRODUCTION: Retail sales of tangible personal property used exclusively in agricultural production are exempt from sales and use taxes under Conn. Gen. Stat. §12-412(63) provided the purchaser qualifies for and has been issued a Form OR-248, Farmer Tax Exemption Permit, by the Department of Revenue Services. This publication 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. In addition, this publication describes the rules for farmers to make estimated personal income tax payments.
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, as reported on Schedule C or Schedule F of federal Form 1040, 1041 or 1065, is eligible to be issued a Farmer Tax Exemption Permit. To be engaged in agricultural production as a trade or business, a person must both engage in such production with a profit motive and materially participate in such production. Applicants whose gross income from agricultural production in the preceding taxable year was less than $2500 may still qualify for a Farmer Tax Exemption Permit, provided in the current or immediately preceding taxable year such farmer purchased an agricultural trade or business from a seller who was issued a Farmer Tax Exemption Permit at the time of such purchase. However, if such agricultural trade or business is not carried on by such purchaser during the period commencing upon the date of purchase and ending five years after the date of purchase, the applicant will be liable for the sales or use tax otherwise due.
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 timber qualify someone for the Farmer Tax Exemption Permit?
Sales of timber by a person who is not engaged in farming or forestry management do not qualify as sales of agricultural products raised in agricultural production.
4. Are breeders of livestock 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 C or F to federal Form 1040, 1041 or 1065. If a federal Form 1120 or 1120S is filed the breeder must submit a pro forma copy of Schedule F. A breeder who is required for federal income tax purposes to treat his or her income from the sales of livestock 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?
Yes. Agricultural production includes the raising, feeding, caring for, shearing, training or management of livestock, including horses.
A farmer who has reported on his or her previous year's federal income tax return at least $2,500 of gross income from the boarding or training of horses may qualify for a Farmer Tax Exemption Permit. For further information request a copy of Ruling No. 96-5.
6. 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 may apply for a Farmer Tax Exemption Permit.
HOW TO APPLY:
7. How does a farmer apply for an exemption permit?
To obtain a Farmer Tax Exemption Permit you must complete and submit Form REG-8, Application for Farmer Tax Exemption. Farmers with a current Farmer Tax Exemption Permit will receive a renewal package each year. New applicants must request Form REG-8 from the Department's Forms Unit (see "For Further Information"). Submit your completed application as soon as possible and allow at least four weeks for the Department to process your application and mail your permit. To avoid delays in processing your application, follow these recommendations:
Check that you are using the current Form REG-8. A current Form REG-8 will state at the top of Page 1 that permits will be valid until September 30 of the following year. If you need a current Form REG-8, contact the Department's Forms Unit.
Be sure to complete the Form REG-8 in full. The name that appears on the Form REG-8 must be the same as the name that is on the federal return. (See also question 8.)
Have the Form REG-8 witnessed by a notary, justice of the peace or commissioner of the superior court when you sign it.
Be sure to attach copies of Schedule C or Schedule F and copies of the federal return pages, as specified in the instructions to the Form REG-8. Any applicant submitting a copy of Schedule C must include a list of the agricultural products raised by the applicant and the amount of sales from each product.
8. May the names of both spouses appear on the permit?
Yes. As long as a joint federal income tax return was filed, both spouses' names are entered on Form REG-8, and both spouses sign the Form REG-8. The permit will be issued in both spouses' names.
9. May a farmer apply for a refund of sales tax paid on purchases made prior to the date of issuance of his or her 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 in order to be able to claim the exemption.
10. Once a farmer obtains a Farmer Tax Exemption Permit does it ever have to be renewed?
Yes. A farmer must reapply each year. The permit is valid from October 1 or the date of issuance (whichever is later) until the following September 30.
11. May a Farmer Tax Exemption Permit be transferred?
No. 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. When a farmer ceases agricultural production, the permit must be returned to the Department.
12. What if the farmer's address changes or the location of the farm changes?
If a farmer changes his or her address or changes the location of the farm, the farmer must apply for a new Farmer Tax Exemption Permit by submitting a new Form REG-8 with the correct information and attaching the old permit.
13. If a farmer who has been issued a Farmer Tax Exemption Permit transfers his or her farm to an immediate family member for no consideration, will a Farmer Tax Exemption Permit be issued to the new farmer?
Yes. Provided that person is the spouse, parent, child or sibling of the former owner and the activities of the new owner meet the other qualifications for an exemption permit. The new owner must submit the specified pages of the federal income tax return of the former owner with his or her application for a Farmer Tax Exemption Permit. Enter the former owner's name and Farmer Tax Exemption Number on Form REG-8, Question 10.
EXAMPLE: A farmer whose farm is operated as a sole proprietorship and who holds a Farmer Tax Exemption Permit forms a partnership or corporation to which the farm will be transferred. The partnership or corporation may apply for a Farmer Exemption Tax Permit under this provision. The applicant should also attach a written explanation of his or her relationship to the former permit holder.
14. If a farmer who has been issued a Farmer Tax Exemption Permit sells his or her farm will a Farmer Tax Exemption Permit be issued to the new farmer?
Yes. But if the agricultural business is not carried on by the purchaser for at least five years from the date of purchase, the purchaser will be liable for the sales or use tax otherwise due on purchases that were made during the period. The transfer of the assets of the farm as part of the formation of a new entity also qualifies as a sale for the purposes of this provision. The purchaser of the farm, however, must reapply in his or her own name.
PURCHASES ELIGIBLE FOR EXEMPTION:
15. 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.
16. What documents must a farmer provide to a retailer to establish eligibility for the exemption from sales and use taxes?
A copy of the 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.
17. 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 Tax Exemption Permit is exempt from tax.
18. 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.
19. 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. The applicant's farm does not qualify for the exemption if purchases of equipment and supplies will be used for uses other than for agricultural production.
20. 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. If a farmer purchases lumber to build or renovate a home, the lumber is fully taxable.
21. If a contractor is hired to renovate a farm building, is the charge for his or her services 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.
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?
No. Effective July 1, 1997, auctioneer services are no longer subject to sales and use taxes.
23. 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 a CERT 115, Certificate For Gas, Electricity and Heating Fuel Purchased For Residential Use or For Use in Agricultural Production, in the Fabrication of Finished Products to be Sold, or in an Industrial Manufacturing Plant.
SALES MADE BY A FARMER:
24. Must a farmer who is making sales obtain a Sales and Use Tax Permit?
Yes. Any farmer selling goods must register for a Sales and Use Tax Permit and must collect sales tax on the sale of taxable goods. Taxable goods include plants, trees, hay, feed, mulch, fertilizer (including manure), livestock, poultry, rabbits, Christmas trees (living or cut), wreaths, decorated or carved pumpkins and flowers.
Tax must be collected on all such sales, unless they are otherwise exempt.
NOTE: Effective July 1, 1997, vegetable seeds suitable for planting to produce food for human consumption are exempt.
25. What sales commonly made by farmers are exempt from tax?
Exempt sales include:
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.
Sales made for resale to a person who is engaged in the business of reselling goods of the type being purchased. The purchaser must provide the farmer with a properly completed Connecticut Sales and Use Tax Resale Certificate.
Sales made to purchasers who have been issued a Connecticut Farmer Tax Exemption Permit and will use the merchandise being purchased exclusively in the agricultural production process. A copy of the current Farmer Tax Exemption Permit must be issued to the seller at the time of purchase.
26. How to register for a Sales and Use Tax Permit:
To obtain a Sales and Use Tax Permit an applicant must complete and submit Form 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 Department offices in Hartford, Norwich, Bridgeport, Hamden and Waterbury.
27. What are the sales and use taxes filing requirements?
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||January 31|
If a seller's sales and use taxes liability exceeds $4,000.00 per year, the seller 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.
ESTIMATED INCOME TAX:
28. What are the estimated income tax requirements for farmers?
Effective for taxable years beginning on or after January 1, 1997, the Connecticut estimated income tax payment rules for farmers have changed. They are as follows:
The required annual payment for farmers is the lesser of:
66 2/3% of the income tax shown on your current year's Connecticut income tax return; or
100% of the income tax shown on your prior year's Connecticut income tax return, if you filed a Connecticut income tax return for the prior year that covered a 12-month period.
Effective January 1, 1997, the estimated tax provisions for farmers have changed to conform with federal estimated tax provisions, requiring one estimated payment due on January 15 of the following taxable year. If, on or before March 1 following the end of the taxable year, the taxpayer files a Connecticut income tax return and pays the full amount of tax computed thereon, the taxpayer will not be subject to interest for not paying estimated tax. The individual is a farmer for any taxable year if such individual is a farmer as defined in §6654(i)(2) of the Internal Revenue Code for the taxable year.
EFFECT OF THIS DOCUMENT: An Informational Publication (IP) is a document that addresses frequently-asked questions about a current Department position, policy or practice, usually in a less technical, question-and-answer format.
EFFECT ON OTHER DOCUMENTS: IP 93(1.4) and PS 91(7.5) are modified and superseded, and neither publication may be relied upon after the date of issuance of this publication.
RELATED FORMS AND PUBLICATIONS:
For related publications, please request:
IP 92(1.4) Q & A On Sales and Use Taxes For A New Business
IP 92(6.2) Business Taxes
SN 92(12) Sales and Use Taxes On Sales of Certain Lawn and Garden Items
Form REG-8 Application For Farmer Tax Exemption Permit
Form REG-1 Application For Tax Registration Number
FOR FURTHER INFORMATION: If you have questions about Connecticut taxes, please call the Department of Revenue Services during business hours, Monday through Friday:
- 860-297-5962 (Hartford calling area or from out-of-state); or
- 1-800-382-9463 (toll-free from within Connecticut)
FORMS AND PUBLICATIONS:
You may obtain forms and publications at any hour, seven days a week:
- Telephone: use the phone numbers listed above and select Option 3 from a touch-tone phone;
- Internet: preview and download forms from the DRS web site: http://www.ct.gov/drs
Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.
Replaces IP 93(1.4), issued 7/11/96