Tax Guide for Agricultural Industry
Farming Exemptions

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Farm Equipment and Machinery

In general, the sale of farm equipment and machinery is taxable. However, certain sales and purchases are partially exempt from sales and use tax.

The partial exemption applies only to the state general fund portion of the sales tax, currently 5.00%.

To calculate the tax rate for qualifying transactions, subtract 5.00% from the sales tax rate that would normally apply at the location where the purchase is made. For example, if the current tax rate in your area is 9%, the tax rate for a qualifying transaction would be 4.00%.

Note: The rate for the state general and fiscal recovery funds portion of the sales tax is subject to change. The rates used in this example are for demonstrative purposes only. You must use the rate in effect at the time of the sale, current rates can be found on our California City & County Sales & Use Tax Rates webpage.

Three requirements must be met for the partial exemption to apply. The item must be:

Sold to a qualified person (see A Qualified Person below)
Used exclusively or primarily in producing and harvesting agricultural products. Primarily means 50% or more of the time.
Farm equipment and machinery which includes, but is not limited to, any tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations.

If any of the first three requirements is not met, the partial exemption does not apply and the sale or purchase is fully taxable.

When a lease meets the three requirements above, and the lease payments are taxable, the lease may also qualify for the partial exemption.

Mobile transportation equipment does not qualify for the exemption.

A Qualified Person

A “qualified person” is one whose business falls within the specified Standard Industrial Classification (SIC) Codes listed below:

Ranchers, farmers and other growers who operate businesses described in SIC Codes 0111 to 0291 (generally covers most agricultural businesses but excludes timber production).
A person who assists a qualified rancher, farmer or grower by performing a service described in SIC Codes 0711 to 0783 (includes soil preparation, crop harvesting, crop market preparation, veterinary services and farm and labor management).

For a full list of applicable SIC Codes, please see Appendix C of publication 66, Agricultural Industry. For more information on SIC Codes please select SIC/NAICS Search from the index on the Occupational Safety and Health Administration (OSHA) website.

Exemption Certificates

When you make a sale that qualifies for a partial exemption, you must obtain a valid exemption certificate from your buyer.

To be valid, the buyer or buyer's representative must do all of the following:

Furnish the certificate timely to the seller
Provide all relevant information
- The seller's name and address,
- The type of property being purchased,
- The buyer or company name, title, telephone number, address, and
- The seller's permit number (if applicable), if not applicable, an explanation as to the reason the purchaser is not required to hold a permit.
Date of execution of the document.

A certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.

Listed below are the types of exemption certificates you may need:

Buildings for Raising Livestock and Plants

Certain buildings may qualify for the partial farming exemption. The buildings must be a single-purpose building to house either livestock or plants (horticulture).

To qualify for the partial exemption, a livestock building must be:

Designed for breeding and raising livestock.
Used exclusively for those purposes.
Contain equipment needed to contain, raise, and feed livestock or their young.

Buildings, and materials used for their construction and repair, do not qualify as farm equipment when the buildings are:

Designed for raising and breeding horses, for example, stables and barns.
Used for storing feed or machinery unless that use is only incidental.
Designed for a particular type of livestock, but used for a different type of livestock, for example, a poultry barn converted to a pig barn.
Intended solely for sheltering livestock, for example, shade barns.

To qualify for the partial exemption, a horticulture building must be:

Specifically designed for commercially raising plants or mushrooms, and
Used exclusively for that purpose.

You should obtain a partial farming exemption certificate when you make qualifying sales.

For more detailed information on this exemption see Regulation 1533.1, Farm Equipment and Machinery

Solar Power Facilities

If you otherwise qualify for the partial farming equipment, your solar power facilities may also qualify.

If your solar power facilities are tied to the local power grid, but not directly attached to qualifying farm equipment, it may still qualify for the partial exemption if they are designed to generate power for such equipment and machinery.

How does a system qualify?

Demonstrate that a solar facility is specifically designed to provide power to qualifying machinery.
Use the facility at least 50 percent in the production and harvesting of agricultural products.

What support do I need to claim the partial exemption?

It is important you document the annual amount of electricity consumed by qualifying farm equipment and machinery for the first 12 months after the solar power facility is operating.

For more information see Publication 235-G, Tax Exemption for Farm Solar

Diesel Fuel Used in Farming or Food Processing

Most sales and/or purchases of diesel fuel are taxable. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities or food processing.

The partial exemption applies to the sale or purchase of diesel fuel only if the diesel meets the following two requirements:

Be a type of diesel that qualifies for the exemption
- Diesel fuel means any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle. A liquid meets this requirement if, without further processing or blending, the liquid has practical and commercial fitness for use in the engine of a diesel-powered highway vehicle.
- A liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the engine of a diesel-powered vehicle.
Be used in qualifying farming activities or food processing, or related contract hauling.

You should identify diesel fuel accordingly on your sales invoices. It is important that you obtain a timely exemption certificate from your purchasers and maintain copies for your records to support exempt fuel sales.

Sales of diesel to farmers or ranchers will qualify for the partial sales and use tax exemption when they use the fuel to:

Prepare land for planting
Plant, protect, or grow crops
Harvest crops
Feed, water, or transport livestock
Transport the harvested agricultural or horticultural products from the field or ranch to the buyers.

An example of a use that qualifies for the partial exemption is: A farmer raises lemons and sells the crop to a citrus cooperative in which he holds shares. The cooperative grades and packs the farmer's lemons and sells them to a grocery distributor. In this example, these diesel sales would qualify for the partial exemption:

The sale to the farmer of diesel the farmer uses to transport the lemons to the cooperative,
The sale to the cooperative of diesel it uses to grade or pack the farmer's lemons, and
The sale to the cooperative of diesel it uses to haul the products to the grocery distributor.

Sales of diesel to food processors will qualify for the partial tax exemption when they use the fuel for:

Hauling a raw agricultural product to the processing plant. Raw agricultural product means an unprocessed product such as grain, vegetables, fruit, or livestock.
Processing agricultural products. This includes using diesel to run processing equipment, backup generators, and equipment used to move the product during processing.
Hauling supplies and materials to the processing plant. This includes only items used in producing the processed food product, such as cans, labels, and ingredients.
Hauling partially processed food products between processing plants owned by the same company. For example, one division of a company processes tomatoes into tomato paste. Another division uses the paste to produce spaghetti sauce. Moving the paste between the two plants is a qualifying food processing activity.

Diesel used to move the product after processing is completed, does not qualify for the exemption.

The sale of diesel to persons who contract to haul agricultural products for a rancher, farmer, or food processor may qualify for the partial tax exemption. The contractor must use the diesel to:

Transport to buyers or intermediate points for handling agricultural products produced and owned by a rancher, farmer, or a business wholly or partially owned by a rancher or farmer.
Transport raw products, materials, and supplies for a food processor.

For more detailed information about diesel fuel used in farming, see Regulation 1533.2, Diesel Fuel Used in Farming Activities or Food Processing.

Farm and Garden Supplies

You are responsible for paying tax on many items sold for ranching, farming, and gardening. However, sales of certain ranch, farm, and garden supplies may not be taxable.

Seed

Seed sales are generally taxable. However, tax does not apply when:

The seeds, or the products grown from them, will be used as food for human consumption or as feed for food animals. Examples include vegetable seeds and seeds used to grow grain or pasture grass for cattle.
The buyer will resell the seeds or the products grown from them, in the regular course of the buyer's business.

Fertilizer sales

Tax does not apply to the sale of fertilizer to be applied to land; including foliar application to plants, provided the land is used to produce any of the following:

Food
Feed for food animals, including pasture grasses.
Products to be sold by the purchaser.

All other sales of fertilizer are taxable.

Note: If you sell a combination of insecticide and fertilizer, the portion of the sales price representing the price of the fertilizer is not taxable if the fertilizer otherwise qualifies.

Plants, rootlings, rootings, and root stock

Sales of ornamental and landscaping plants are generally taxable. However, tax does not apply to the sale if the plants will produce either of the following:

Food such as vegetables, fruits (including grapes), grains, edible seeds or berries, olives, or nuts.
Products the purchaser will resell, such as flowers.

If the customer is purchasing a nonfood plant and intends to resell the plant or its products, the customer should give you a resale certificate for the plant. For more information on sales for resale see publication 103, Sales for Resale.

For more information about these exemptions see Regulation 1588, Seeds, Plants, and Fertilizer.

Auto Parts and Accessories

In general, passenger vehicles and pickup trucks do not qualify as farm equipment and machinery. Therefore, your purchases of parts and accessories for use on a passenger vehicle or pickup truck generally do not qualify for the farm equipment and machinery partial exemption.

Purchases of farm equipment and machinery (including repair and replacement parts) for use by a qualified person and primarily used in producing and harvesting agricultural products, are subject to a partial exemption from tax. However, for a vehicle to be considered farm equipment and machinery, it must be designated as an implement of husbandry in the California Vehicle Code and used exclusively in agricultural operations by a qualified person. Examples of implements of husbandry include farm tractors, bale wagons, and fertilizer rigs. For more information, including a list of items that generally do not qualify for the farm equipment and machinery partial exemption, please see our Special Notice, Auto Part Retailers' Sales Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption.

Liquefied Petroleum Gas (LPG) and Agriculture

Sales of LPG for agricultural use are not taxable when purchased by a qualified buyer and used in commercial crop or livestock production or harvesting.

You should obtain a timely LPG exemption certificate from the qualified buyer and maintain a copy in your records.

Nonagricultural use does not qualify for the exemption, even if used on a ranch or farm.

LPG is considered a use fuel; you must have a Vendor Use Fuel Tax Permit to sell this fuel. You can register for this permit online.

Diesel Fuel Tax Exemption for Diesel Fuel used on a Farm for Farming Purposes

For diesel fuel excise tax purposes, a farmer may purchase diesel fuel tax without paying the excise tax by issuing an exemption certificate to his/her vendor, or by purchasing dyed diesel fuel.

Dyed diesel fuel may not be used to operate a vehicle on any public highway in this state. There are severe penalties for using dyed diesel fuel on the highway (Either $10 for every gallon of diesel involved or $1,000, whichever is greater.)

To claim the exemption for the excise fuel tax the diesel fuel must be used:

In carrying on a trade or business of farming,
On a farm in California, and
For farming purposes, by the owner, tenant, or operator of the farm.

Please note that transporting/hauling agriculture products from the farm/ranch to buyers is not an exempt use of diesel fuel for excise tax purposes.

Your diesel fuel vendor may provide you with a CDTFA-608, Certificate of Farming Use, that you must complete to purchase diesel fuel for farming activities without paying the excise tax. The farmer exemption certificate meets criteria established by the Internal Revenue Service. To be valid, all requested information on the certificate must be provided. You will need to note on the certificate if it covers a particular purchase, all purchases, or a percentage of your purchases. You must annually renew your exemption certificate.

For further information, see Diesel Fuel Tax Regulation 1431, Diesel Fuel Used on a Farm for Farming Purposes.

Tax Guide for Agricultural Industry Farming Exemptions