Does breeding horses for resale qualify for Kansas agricultural sales-tax exemptions, and must the breeder collect tax on horse sales?

Plain-English summary

A horse breeder asked whether breeding horses for resale qualifies for Kansas agricultural status (as described in Publication KS-1550) and what sales tax duties apply.

The Department confirmed that breeding horses for resale generally qualifies as agricultural for Kansas sales-tax purposes. That has several consequences:

• Purchases of breeding stock, and all feed and supplements for that breeding stock, are exempt. But feed and supplements for horses used for recreational riding, racing, or competition do not qualify as agricultural use and are taxable.
• The breeder must collect Kansas retailers' sales tax on the sale of any offspring — unless the horse is sold exclusively for breeding stock, or the buyer provides a valid Kansas exemption certificate. Sales of horses to be used for racing, competition, show, or pleasure are taxable. So the breeder should register to collect, report, and remit Kansas sales tax.
• A second exemption — for farm machinery and equipment — is also available in a horse-raising business, but only certain equipment qualifies.

What this means for you

Horse breeders raising horses for resale

Your breeding stock and its feed and supplements can be bought exempt as agricultural. But you become a retailer for the offspring you sell: collect sales tax unless the sale is for breeding stock or the buyer hands you an exemption certificate. Horses sold for pleasure, show, racing, or competition are taxable sales.

Owners of riding, racing, or show horses

Feed and supplements for horses used recreationally or competitively are taxable — that use is not agricultural.

Common questions

Q: Are breeding horses and their feed exempt in Kansas?
A: Yes, when the horses are bred for resale — that qualifies as agricultural, so the breeding stock and its feed and supplements are exempt.

Q: Does the breeder charge sales tax when selling a horse?
A: Yes, on offspring sold for racing, competition, show, or pleasure, unless the horse is sold exclusively for breeding stock or the buyer provides a valid exemption certificate.

Q: Is feed for a racing or pleasure horse exempt?
A: No. Those uses are not agricultural, so the feed and supplements are taxable.

Citations and references

• Kansas agricultural exemption for breeding livestock (Publication KS-1550) — the Department stated that breeding horses for resale "generally falls under the qualifications of agricultural status," exempting purchases of breeding stock and its feed and supplements, while feed for recreational, racing, or competition horses is taxable and sales of non-breeding horses are taxable. A separate farm machinery and equipment exemption applies to certain equipment. The ruling cites no specific statute section.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2007-001

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 16, 2007

XXXXXXXX
XXXXXXXX
XXXXXXXX

Dear XXXX:

We wish to acknowledge receipt of your letter of January 29, 2007 regarding the application of Kansas Retailers’ Sales tax. You inquired regarding whether breeding horses for resale falls within the qualification of agricultural status as indicated in the Sales and Use Tax for Agricultural Industry - Publication KS-1550.

The breeding of horses for resale generally falls under the qualifications of agricultural status for Kansas sales tax purposes. Thus, your purchase of breeding horses and all feed & supplements for said breeding stock are exempt from Kansas sales tax. Horses you use for activities such as recreational riding, racing or competition are not considered as qualifying for agricultural usage. Thus, the food and supplements feed to these horses would be subject to sales tax.

While your purchase of the breeding stock is exempt from sales tax, you must collect Kansas retailers’ sales tax on the sale of any offspring – unless sold exclusively for breeding stock or, sold to a purchase that provides you with a valid Kansas sales tax exemption certificate. Sales of horses to be used for racing, competition, show or pleasure are subject to sales tax. Thus, you should register to collect, report and remit Kansas sales tax.

A second sales tax exemption is available to you in your business of raising horses – that of farm machinery and equipment. Since your letter makes reference to the Agriculture Information Guide, Pub KS-1550, I assume that you have a copy. Please note that only certain equipment is exempt from sales tax as farm machinery and equipment.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Ron Grant

Date Composed: 03/09/2007 Date Modified: 03/16/2007

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