If my business buys produce from farmers on consignment and then cleans, sorts, packages, and stores it for sale to retail stores, do my equipment and utility purchases qualify for New York's farm production sales tax exemption?

Plain-English summary

A company takes fruit from small farmers on consignment (paying the farmer once the fruit sells, after deducting its own handling costs) and then cleans, sorts, packages, and stores the fruit before selling it under its own name and label to retail food stores. It asked whether its purchases of equipment and utilities used in this process qualify for New York's sales tax exemption for farm production. The Department said no.

New York exempts equipment and utilities used predominantly in the production for sale of tangible personal property by farming. But farm production, for sales tax purposes, ends once the farmer has the product in the form the farmer will offer it for sale — and here, that happened when the farmers turned their fruit over to the distributor on consignment. The distributor's own activities — cleaning, sorting, packaging, and storing — don't create a new product or change the fruit's nature, shape, or form; they're distribution and handling functions that come after farm production is already complete, not farm production themselves.

The Department also noted the distributor wasn't acting as the farmers' sales agent in a way that would extend the farmers' own exempt production status: the fruit was labeled and invoiced under the distributor's own name as the seller, not the farmers'. Since the distributor itself wasn't engaged in farm production (or any other form of manufacturing/processing that changes the product), none of the general production exemptions — for farming or otherwise — applied to its equipment or utility purchases.

What this means for you

Produce packers, distributors, and consolidators who buy from farmers

Buying raw agricultural product and simply cleaning, sorting, storing, and repackaging it for resale doesn't make you a "farmer" for sales tax purposes, even if you're providing services farmers rely on to get their crop to market. The farm production exemption belongs to the actual growing/production process; once a farmer's product reaches its finished, sale-ready form, later handling by someone else is treated as distribution, not production.

Farmers who sell through a distributor or packer on consignment

Your own farm production exemption ends once your product is in the form you're offering it for sale — handing it to a distributor or packer on consignment typically marks that endpoint, even if the distributor does further cleaning or packaging before the final sale.

Accountants and tax professionals

The relevant test is whether the taxpayer's own activities change the "nature, shape, or form" of the product — mere cleaning, sorting, storing, and packaging fail that test, per a consistent line of State Tax Commission authority cited here. Note the opinion separately forecloses the general production exemptions (not just farming) since the distributor wasn't manufacturing or processing anything into a new product either.

Common questions

Q: We buy raw farm products and just clean/sort/package/store them before reselling — does that count as farm production?
A: No, according to this opinion. Those activities don't change the product's nature, shape, or form, and farm production is treated as complete once the farmer's product is already in its finished, sale-ready condition.

Q: Does it matter that we take the fruit on consignment rather than buying it outright?
A: The consignment structure didn't help here because the distributor sold the fruit under its own name and invoiced as the seller, rather than acting purely as the farmer's sales agent.

Q: Could any part of our operation still qualify for a production exemption?
A: Only if you're genuinely manufacturing, processing, or otherwise changing the product's nature, shape, or form — mere handling, cleaning, sorting, storage, and packaging for resale don't qualify under either the farm-specific exemption or the general production exemptions.

Q: Does this ruling apply to any produce distributor's operations?
A: Not automatically. An advisory opinion binds the Department only as to the taxpayer who requested it and only on the facts described; a distributor whose processing actually transforms the product could be analyzed differently.

Citations and references

Statutes and regulations:

• Tax Law §1115(a)(6) (farm production exemption, tangible personal property)
• Tax Law §1115(c)(2) (farm production exemption, utilities)
• Tax Law §1115(a)(12), §1115(c) (general production exemptions)
• 20 NYCRR §528.7(c)(1)(ii), (2) (end of farm production)

Cited cases:

• Matter of Dobbins & Ramage, Inc., State Tax Commission, July 20, 1987
• Matter of Hudson Cold Storage & Freezer Corp., State Tax Commission, September 9, 1983
• Matter of J.H. Wattles, Inc., State Tax Commission, October 30, 1981
• General Produce Co. v Kosydar, 297 NE2d 532 (Ohio, 1973)

Source

• Landing page: NY Sales Tax Advisory Opinions, 2009
• Original opinion: TSB-A-09(30)S

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(30)S
Sales Tax
July 21, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090317A

On March 17, 2009, the Department received a Petition for Advisory Opinion from Name and
Address redacted. Petitioner asks whether its purchases of tangible personal property and utilities are exempt
from sales and use tax under sections 1115(a)(6) and 1115(c)(2) of the Tax Law. We conclude that
Petitioner is not engaged in the production for sale of tangible personal property by farming and,
accordingly, Petitioner’s purchases of tangible personal property and utilities are not exempt.
Facts
Petitioner is in the business of storing, cleaning, sorting, and packaging whole fruit that is then sold.
Petitioner obtains fruit from various farmers, and then cleans, sorts, packages, and stores the fruit for sale and
delivery to retail food stores.
Petitioner states that it obtains the fruit from farmers on consignment. Petitioner pays the farmers
what the fruit is sold for after deducting an amount that reflects Petitioner’s expenses in preparing the fruit
for sale. A sample contract between Petitioner and a grower provides that Petitioner “will pay growers
within 120 days of the date the farm products I sell for you are delivered to the purchaser or to any other
person the purchaser may designate.” Upon request, Petitioner will advance money to a farmer for the fruit.
The label and packaging for the fruit when it is sold to retail food stores indicate Petitioner’s name. The
sales invoices for the fruit identify Petitioner as the seller. Petitioner generally sells all the fruit obtained
from a farmer. On rare occasions poor quality fruit will be returned to a farmer if the farmer wants the fruit
back.
According to Petitioner, the typical farmers that it represents do not have big enough farming
operations to successfully go to market on their own. Petitioner provides packaging and shipping services
that are necessary for these farmers to profitably market their crop.
Analysis
Section 1115(a)(6) of the Tax Law provides an exemption from sales and use tax for tangible
personal property “for use or consumption predominantly . . . in the production for sale of tangible personal
property by farming.” Section 1115(c)(2) of the Tax Law provides a similar exemption from tax for utilities
used in farm production.
Petitioner’s purchases of tangible personal property and utilities may qualify for exemption from
sales and use tax if the property and utilities are used in the farm production process. For purposes of the
sales and use tax, farm production begins with the preparation of the soil or other growing medium and ends
when the product is ready for sale in its natural state. Farm production ends for a specific farmer or producer
when the product is in the form in which the farmer or producer will offer it for sale. See 20 NYCRR
528.7(c)(1)(ii), (2). In the present case, farm production ends for the farmers that supply Petitioner with
fruit when Petitioner obtains the fruit from them on consignment. It does not appear from the facts in this
case that Petitioner sells the fruit as the farmers’ agent or representative. The fruit is labeled as Petitioner’s

TSB-A-09(30)S
Sales Tax
July 21, 2009

-2-

product and the sales invoices identify Petitioner as the seller. Accordingly, unless Petitioner itself is
engaged in farm production, tangible personal property and utilities used or consumed in Petitioner’s
business operations cannot qualify for the farm production exemption. Petitioner’s activities of storing,
cleaning, sorting, and packaging fruit for sale are not farm production. These activities do not result in new
products or effect a change in the nature, shape, or form of the fruit that Petitioner receives. See Matter of
Dobbins & Ramage, Inc., State Tax Commission, July 20, 1987; Matter of Hudson Cold Storage & Freezer
Corp., State Tax Commission, September 9, 1983; Matter of J.H. Wattles, Inc., State Tax Commission,
October 30, 1981; General Produce Co. v Kosydar, 297 NE2d 532 (Ohio, 1973). Accordingly, Petitioner’s
purchases of tangible personal property and utilities for use in its business activities as described in this
Opinion are not exempt from sales and use tax under Tax Law, §1115(a)(6) or §1115(c)(2). It should be
noted that because Petitioner is not engaged in the production of tangible personal property for sale, the
production exemptions under Tax Law, §§1115(a)(12) and 1115(c) would also not apply to Petitioner’s
purchases.

DATED: July 21, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion.