Is raising dogs and ferrets for labs and pets 'farming,' and is the feed a tax-free purchase for resale as part of the animals?

Plain-English summary

Marshall Research Animals, Inc. (North Rose, New York) commercially raises and feeds dogs and ferrets for sale to laboratories and as pets. It asked whether (1) its operation is "farming," so its feed purchases are exempt under Tax Law § 1115(a)(6), and (2) the feed is a purchase for resale as a "physical component part" of the animals it sells.

The Department rejected both theories — the feed is taxable.

• Not farming. § 1115(a)(6) exempts property used directly and predominantly in producing property for sale by farming. But 20 NYCRR 528.7(b) defines "farming" as raising stock, dairy, poultry or fur-bearing animals and similar agriculture — and Example 2 states plainly that breeding dogs, cats, other pets or laboratory animals is not farming. The petitioner's attempt to parse the difference between "breeding" (Example 2) and "breeding, raising and feeding" (Example 1) was rejected: an example is just one instance of the general rule, not a comprehensive statement.
• Not a purchase for resale. The resale exclusion (Tax Law § 1101(b)(4), which the opinion cites as § 1101(a)(4)) requires that a "physical component part" be present in detectable amounts and retain its physical identity in the product sold (Finch, Pruyn & Co. v. Tully, 69 A.D.2d 192 (1979)). Feed that is metabolized by an animal loses its physical identity, so it isn't resold as a component of the animal.
• Result: receipts from the sale of animal feed to the petitioner are subject to the 4% State sales tax under Article 28, plus any applicable local tax.

What this means for you

Breeding pets or lab animals is not "farming" for the sales-tax exemption. New York's farming exemption is for agricultural production — livestock, dairy, poultry, fur-bearing animals and the like. Raising dogs, cats, other pets or laboratory animals falls outside that definition, so the feed and supplies you buy for them are taxable.

"Physical component part" means it has to still be there. For an input to be bought tax-free for resale as part of a product, detectable amounts must remain in the finished product and keep their physical identity. Feed that the animal digests disappears into metabolism — it isn't a component of the animal you sell, so it doesn't qualify for the resale exclusion.

Regulatory examples illustrate; they don't limit the rule. Don't build an argument on the exact wording of a single regulatory example. The Department reads examples as illustrations of the broader definition, not as loopholes.

Common questions

Q: I raise animals commercially — isn't that farming, so my feed is exempt?
A: Not for dogs, ferrets, other pets or laboratory animals. Under 20 NYCRR 528.7(b), farming means raising stock, dairy, poultry or fur-bearing animals and similar agriculture; pets and lab animals are expressly excluded, so the feed is taxable.

Q: Can I treat the feed as bought for resale because it becomes part of the animal?
A: No. A component bought for resale must remain in detectable amounts and keep its physical identity in the product (Finch, Pruyn & Co. v. Tully). Metabolized feed loses its identity, so it isn't a purchase for resale.

Q: Does any local tax apply too?
A: Yes. The feed is subject to the 4% State tax under Article 28 plus any applicable local sales tax.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — imposes sales tax on receipts from every retail sale of tangible personal property
• Tax Law § 1115(a)(6) — exempts property used directly and predominantly in producing property for sale by farming
• Tax Law § 1101(b)(4) — excludes purchases for resale (as such or as a physical component part); the opinion cites this resale exclusion as § 1101(a)(4)
• 20 NYCRR 528.7(b) — defines "farming" (stock, dairy, poultry, fur-bearing animals, etc.); Example 2 states breeding dogs, cats, other pets or laboratory animals is not farming
• Finch, Pruyn & Co. v. Tully, 69 A.D.2d 192 (1979) — a "physical component part" must be present in detectable amounts and retain its physical identity in the product offered for resale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_262s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(262)S
Sales Tax
January 6, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S800716A

On July 16, 1980, a Petition for Advisory Opinion was received from Marshall Research
Animals, Inc., R.R. Box 91, North Rose, New York 14516.
The issues raised are (1) whether the commercial raising and feeding of dogs and ferrets for
sale to laboratories and as pets constitutes farming for purposes of the exemption from State sales
and use taxes (imposed under Article 28 of the Tax Law) provided for under section 1115 (a)(6) of
the Tax Law and (2) whether the purchase by Petitioner of items which are fed to and consumed by
animals in the course of the raising and feeding of such animals, where such animals are sold either
as pets or laboratory animals, constitutes a purchase for resale so as to exclude it from the class of
sales the receipts from which are subject to tax under Article 28 of the Tax Law.
Section 1105(a) of the Tax Law imposes a tax on the ". . .receipts from every retail sale of
tangible personal property . . . . " Section 1115(a)(6) of the Tax Law exempts from the operation of
such tax the sale of "Tangible personal property... for use or consumption directly and predominantly
in the production for sale of tangible personal property by farming . . . ." Petitioner contends that its
operations constitute farming and that the foregoing exemption is therefore applicable to its
purchases of feed for the dogs and ferrets. This position, however, is not tenable in the face of
section 528.7(b) of the Sales and Use Tax Regulations which provides, in relevant part, as follows:
"(b)

Farming. The term "farming" means raising stock, dairy, poultry, or fur
bearing animals, fruit and truck farming, operating ranches, nurseries,
greenhouses, or other similar structures used primarily for the raising of
agricultural, horticultural or floriculture commodities and operating orchards.

Example 1:

Breeding, raising and feeding livestock, poultry or other animals which
produce a product for sale or are themselves a food product is farming.

Example 2:

The breeding of dogs, cats and other pets or laboratory animals is not
farming." 20NYCRR528.7(b)

It will be seen from the above definition that "farming" does not include the raising and
feeding of pets and laboratory animals, but only of ranch animals and animals used for food or fur.
This principle is elucidated in Examples 1 and 2. Contrary to Petitioner's assertions, the fact that
Example 1 refers to "breeding, raising and feeding" while Example 2 refers merely to "breeding" is
of no consequence with respect to the present question. Petitioner's application of the technical rules
of statutory construction to the Examples, as opposed to the definition itself, is inappropriate and
unpersuasive. An Example contained in the Regulations represents only a single instance of the
application of a general rule; it is not in itself a comprehensive statement of principle.

JAMES H. TULLY., COMMISSIONER

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80(262)S
Sales Tax
January 6, 1981

Petitioner also inquires whether the animal feed purchased by it is purchased for resale.
Section 1101(a)(4) of the Tax Law excludes from the definition of retail sale (viz., the type of sale
the receipts from which are subject to sales tax) sales of tangible personal property ". . .for resale as
such or as a physical component part of tangible personal property. . . ." Petitioner's contention is that
the feed is resold to its customers as a "physical component part" of the animals sold . This position
does not represent a proper interpretation of the Tax Law. For an item of tangible personal property
to constitute a "physical component part" of property sold it is required that detectable amounts of
the item be found in the property sold and that the item ". . .retain a physical identity in products
offered for resale." Finch, Pruyn & Co., Inc. v. Tully, 69 AD2d 192(1979). It is clear that when food
is metabolized by the animal which ingests it, it ceases to retain its physical identity as food. It
follows, therefore, that the items in question are not purchased for resale either". . . as such or as a
physical component part of tangible personal property. . . ."
Accordingly, receipts from the sale of animal feed to Petitioner are subject to the 4% State
sales tax imposed under Article 28 of the Tax Law, as well as any applicable local sales tax.

DATED: December 18, 1980

s/Louis Etlinger
Deputy Director
Technical Services Bureau