Farmer's Guide to Sales and Use and Estimated Income Taxes
INTRODUCTION: 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. 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.
QUALIFYING FOR THE FARMER TAX EXEMPTION PERMIT:
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. However, effective July 1, 1995, 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. But 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. Gross income from agricultural production is generally reported on federal Form 1040, Schedule F or Schedule C, of the farmer's federal income tax return.
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.
EXAMPLES: Cut flowers or plants purchased by a farmer for resale at a roadside stand are not products produced by the farmer in agricultural production.
Persons who purchase standing timber or who cut timber and resell the logs to a mill are not considered to be engaged in agricultural production.
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.
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 his or her federal income tax return. A breeder who is required for federal income tax purposes to treat his or her income from the sales of horses as capital gains does not qualify.
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 of horses may qualify for a farmer tax exemption permit.
Effective June 14, 1996, purchases of goods used in the boarding or training of horses by a farmer who has been issued a farmer tax exemption permit may be made exempt from the sales and use taxes.
Please request a copy of Ruling 96-5 for further information.
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:
How does a farmer apply for an exemption permit?
The applicant must complete Form 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 federal Form 1040, Schedule F or Schedule C). If the farm is incorporated, the corporation must submit a pro forma federal Form 1040, Schedule F or Schedule C 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.
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. 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. Any new owner, including a corporation established by the original applicant, must apply for its own permit.
If a farmer who has been issued a farmer tax exemption permit 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.
If a farmer who has been issued a farmer tax exemption permit transfers his or her farm to someone other than an immediate family member will a farmer tax exemption permit be issued to the new farmer in the following year?
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.
PURCHASES ELIGIBLE FOR EXEMPTION:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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, if at all, at the time the purchase is made.
SALES MADE BY A FARMER:
Must a farmer who is making sales obtain a seller's permit?
Yes. Any farmer selling goods must register for a seller's permit and must collect sales tax on the sale of taxable goods. Taxable goods include plants, trees, seeds, 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: 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.
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.
How to register for a seller's permit:
To obtain a seller's 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 DRS offices in Hartford, Norwich, Bridgeport, Hamden and Waterbury.
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 1 - June 30||
|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.
ESTIMATED INCOME TAX:
What are the estimated income tax requirements for farmers?
Effective for taxable years beginning on or after January 1, 1996, the Connecticut estimated income tax payment rules for farmers and fishermen have changed. They are as follows:
The required annual payment for farmers and fishermen is the lesser of:
- 75% of your 1996 total Connecticut income tax; or
- 100% of your 1995 total Connecticut income tax, if you filed a 1995 Connecticut income tax return that covered a 12-month period.
There shall be two equal required installments for the taxable year. The due date for the first installment is June 15, of the taxable year. The due date for the second installment is January 15 of the following taxable year.
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 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(1.3) 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(7.5) Farmer Tax Exemption Permit
IP 92(1.3) 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
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.
Replaces IP 93(1.3), issued 7/27/95