Friday, June 22, 2012

# 291 - Tax Points - Overview and Registration Number Requirement

This blogpost is going to be for more serious farmers and ranchers who are looking for tax credits. I'm giving you the Texas version, but you can find similar information for your own state that will probably closely mirror those in Texas and this will likely give you a good start.

If you are farming and ranching, you had to get started with that lifestyle at some point in your life. I've seen some novice ranchers and farmers who were clearly born to do what they're doing. Then, some of us have met the kaput rancher who has been "on the job" for generations, but appears to have stepped out of the loop at some point. Giving each other support is one aspect of this type of life that is beautiful. I've found that many friends and family we know who are farmers and ranchers are eager to help the next person as they try to learn the ropes, literally.

Regardless, some people never learn to take advantage of the benefits that are offered to them as farmers and ranchers. That's plain silly. Deputy Dave and I plan on becoming very aware of any benefits and exemptions that we might be eligible to employ.

As for farming, I never take it forgranted that my ancestors were farmers. My grandmother could wring the neck of a chicken and have it plucked for dinner with no trouble. My mother grew up eating chicken from their farm, prepared by her grandmother. I have abundant beautiful memories of sitting on the porch shucking corn and popping peas out of their pods with my Nanny. This kind of work never got old to me; I loved it. After my Nanny died, all of those front porch moments with the veggies disappeared, at least until I began to grow my own vegetable garden as a teenager. So, I guess I'm a little bit country and a little bit of rock-n-roll and a little bit classical.

A lot of us came from farming families. My husband grew up in a country setting, playing in a trough during the hot summer. He grew up with large gardens on acreage that grew home-grown goodness to be served on the table. He enjoyed being in FFA; he raised pigs and cattle and rabbits. far as my IMMEDIATE family went, yes, I grew up with significant parts of my life spent in the country and then on the water, surrounded by fisherman. We'd go from the woods to the water, from the water to the woods. Our family fish camp was tucked into the woods of the Big Thicket in Texas, on a property that is only a few short miles from our acreage. Someone else now owns that piece of woods that I grew up playing in, but my childhood handprints and initials are still impressed into the concrete patio.

So, a life of farming and ranching is something rather new for me because my country land moments involved more of a wilderness type of lifestyle instead of farming. Needless to say, I am completely at ease in the midst of a dense forest with wild animals. I felt completely at home in the woods. Not even Big Foot can scare me away.


Back on track...part of my Farm Life Lessons is to learn about the tax benefits for farmers and ranchers. I am NOT a tax expert, but I am going to pass along information I come across because I know it will be helpful for several of my blog buddies, if they aren't already knowledgeable about these things.

A wonderful website with valuable information that I will try to condense into this blog is: and it also provides other links to more valuable sites. Of course, your state will have similar websites.

If you grow plants to sell to others, if you sell eggs, raise chickens or rabbits to sell to others, or do a multitude of other agricultural or timber related activities, you might be eligible for making a lot of purchases TAX-FREE. All of the tax free benefits described below can really add up within a year's time.

According to House Bill 268, a new rule took effect as of January 1, 2012, which states that you will be REQUIRED to get registered for your agriculture exemption. Here in Texas, you go to to register for your agricultural exemption REGISTRATION NUMBER which will allow you to make purchases for qualifying items to be used only on a farm or ranch in the production of agricultural products for sale. You go online, do the paperwork right there and get your registration number by the end of your online session. Easy as pie.

The number renews every four years --- it's not a number that expires four years from the date of issue, it's a number that is set to renew after a set period of four years across the board, no matter when you register. It's set to renew in 2015. So, if you get your registration number for agricultural exemption in 2013, it will still need to be renewed in 2015.

Who is eligible for this tax exemption? You qualify if you are farming and ranching and:
- engage in the production of agriculture or timber products for sale
- raise agricuture products to sell to others
- are a custom harvester
- are engaged in agricultural aircraft operations (crop dusting)
- have commercial nurseries to grow plants for sale, stock from seed, cuttings, replanting seedlings  
  into larger containers, etc.,
- are involved with timber products, including contract lumberjacks

You don't qualify if you only have a home garden; are into horses for racing purposes; are a florist or a store that only holds plants temporarily; if you are into wildlife or land conservation and/or maintenance; are into fishing/hunting leases; horse riding, boarding. or trails; involved with commercial fishing; are engaged with pet breeding or boarding or training; and you get the idea.

Inch by inch, I plug along to learn my
Farm Life Lessons.

These purchases would include machinery and equipment used exclusively for farming and ranching operations that result in the production of agricultural products for sale, to include ATV's. Ya for ATV's!!!! However, you technically can't use the ATV for off-site fishing or recreational use or it disqualifies the ATV from being free of taxes. You can use an ATV to get around the farm to feed livestock, for a modern way of herding livestock or to run fences. Most farms these days have an ATV to get around quickly instead of having to saddle the horse to get around tight spots and to do regular checks along fencelines that run for several acres.

An ATV is fun horse-power on four wheels!!!

Of course, I discovered that the gravel we will purchase for our country roads that will give access to our farm operations will be tax-free, as long as the roads are not connected to residential areas.
Delivery would be tax-free and installation should be tax-free, as long as it is new construction for farm activity.

A barn does not seem to be tax exempt because it is a general purpose structure, it can be used for many things. However, structures used for specific purposes in farming and ranching, such as a laying house, a commercial greenhouse, farrowing houses, sprinkler systems, portable irrigation systems are TAX-FREE. Get the picture now?

Qualified herding dogs are eligible to have their dog food purchased tax-free. Regular pet food is not tax-free. All herding animals, farm and ranch WORKING animals are eligible to have tax-free feed purchased for them.

Feed purchased for animals destined to be sold for human consumption or for animals that will be sold to others should be tax-free. Rabbits and chickens, even if kept without the desire to process them for food can be raised to be sold to others and this would enable you to buy their feed tax-free as it is an agricultural activity to produce items for sale.

Fences, cattle guards, gates and chutes used to contain livestock, or to enclose fields or pastures do qualify as exempt machinery and equipment, that means it's all TAX-FREE. Well, except if any of it is used to enclose a residential yard, then you must pay taxes. Remember, everything must be designated for NEW CONSTRUCTION ITEMS and not for patches, renovations or repairs ---- that kind of use comes with taxes. However, if purchasing these items for new construction, then the materials and labor to install all of it is tax-free.

Rule of thumb: repair or renovation materials are taxable, but new construction for ag/timber purposes involved with producing products IS tax-exemptable. This means, the chicken house for the laying hens, to keep the eggs you will be selling is tax-exempt, but repairs to the hen house are taxable. Don't quote me, but this is how it appears to be with how the code is written.

Finally, the definition of a ranch or farm is as follows: (cut and pasted directly)

A farm or ranch is defined in Tax Code Section 151.316(c)(1) as “one or more tracts of land used, in whole or in part, in the production of crops, livestock or other agricultural products held for sale in the regular course of business.” This definition includes feed lots, dairy farms, poultry farms, commercial orchards, commercial nurseries, and similar commercial agricultural operations. The term “farm or ranch” does not include home or community gardens, kennels, zoos, parks, horse racing stables, horse boarding and training facilities, timber operations, or similar operations that are not engaged in the production of agricultural products for sale. Open or undeveloped areas; land used for hunting or fishing leases; and wildlife preserves are not farms or ranches for sales tax purposes, even if the land has received an agricultural appraisal for property tax purposes.
While timber operations are not farms or ranches, they do qualify for exemption under Tax Code Section 151.3162 when purchasing qualifying items used exclusively in the production of timber for sale. See Rule 3.367 for more information.

I will be studying all of this and keeping up with it. Hopefully it will help others find their own benefits so more people can save their hard-earned money and increase their profit margin, even if they are a small-time farmer.

Heck, being tax-exempt of many items might take the sting out of the bill-bee.


LindaG said...

Good luck with this, Lana. :o) said...

Linda - I'm so happy that we are digging in and doing our research BEFORE we start doing things that are eligible for tax savings...savings that could add up to thousands of dollars.

There are so many benefits for farmers and ranchers, I'm trying to learn the ins and outs of this lifestyle, so we can also pass it along.