Are sales of native grass, forbs, and legume seeds exempt from Texas sales tax, and does a seed seller need an exemption certificate from customers or its own sales tax permit?

Plain-English summary

The Texas Comptroller ruled that a company selling native grass, forb, and legume seeds doesn't have to charge sales tax on those seeds — and, notably, doesn't need to collect an exemption certificate from customers to sell them tax-free.

The seller's seeds are used for land reclamation and restoration, conservation, ranch grazing, and wildlife habitat enhancement (not for lawns or turf), and all of them can be eaten by wildlife or livestock. Texas exempts seeds and annual plants under Tax Code § 151.316(a)(5) when their products either ordinarily serve as human food, are sold in the regular course of business, or are used to produce feed for farm and ranch animals — the seller's products fit that test.

Normally, claiming an agricultural exemption on items like tractors, fertilizer, or pesticides requires the buyer to give the seller an Ag/Timber exemption certificate with a registration number. But seeds and annual plants are on a shorter list of items (along with horses and work animals) that are always exempt regardless of use, so Texas Administrative Code Rule 3.296(a)(3) doesn't require a certificate for them — and the Comptroller expressly said this ruling supersedes older guidance (a 2011 STAR letter and a 2004 Comptroller decision) that had said otherwise.

One catch: even though the seeds themselves are exempt, the seller still has to register for a Texas sales tax permit, because the permitting requirement applies to anyone selling taxable items — regardless of whether an exemption ultimately wipes out the tax.

What this means for you

Seed producers and agricultural suppliers

If you sell seeds or annual plants whose products are food, sold commercially, or used for livestock/farm-animal feed, those sales are automatically exempt under § 151.316(a)(5) — you don't need to chase down an exemption certificate from every customer. But you still need your own Texas sales tax permit, even if 100% of what you sell ends up tax-exempt.

Businesses relying on older exemption-certificate guidance

If you've been requiring customers to provide Ag/Timber exemption certificates for seed or annual-plant sales based on a 2011 STAR letter or a 2004 Comptroller decision, this ruling supersedes that guidance — those items are always exempt and don't need a certificate.

Accountants and tax professionals

Watch the distinction Texas draws within § 151.316(a): most agricultural items need a registration number under § 151.1551, but a specific carve-out list (seeds, annual plants, horses, work animals) is always exempt with no certificate required. Getting a client's seed sales on the wrong side of that line means either uncollected exemption paperwork that isn't actually needed, or a missed permit requirement.

Common questions

Q: Do I need to collect an exemption certificate to sell seeds tax-free in Texas?
A: Not if the seeds qualify for the always-exempt category under § 151.316(a)(5) (their products are food, sold commercially, or used for farm/ranch animal feed) — Rule 3.296(a)(3) doesn't require a certificate for those.

Q: If everything I sell is tax-exempt, do I still need a sales tax permit?
A: Yes. Texas requires anyone selling taxable items — tangible personal property, even if a specific exemption applies — to register as a retailer under § 151.106. Exemption from tax isn't the same as exemption from permitting.

Q: Does this ruling change older Comptroller guidance?
A: Yes, on the exemption-certificate point specifically. The Comptroller said guidance requiring a certificate for these seed sales — a 2011 STAR letter (201105108L) and a 2004 Comptroller decision (39,193) — is superseded.

Q: Can I rely on this ruling for my own seed business?
A: Only if you're the taxpayer it was issued to. It's binding on the Comptroller solely for that taxpayer's facts and can't be relied on by others, though it signals how the Comptroller currently reads § 151.316(a)(5) and Rule 3.296(a)(3).

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed)
• Tex. Tax Code § 151.010 (Taxable Item)
• Tex. Tax Code § 151.009 (Tangible Personal Property)
• Tex. Tax Code § 151.316(a)(5) (Agricultural Items)
• Tex. Tax Code § 151.1551 (Registration Number Required for Timber and Certain Agricultural Items)
• Tex. Tax Code § 151.008 (Seller or Retailer)
• Tex. Tax Code § 151.106 (Registration of Retailers)
• 34 Tex. Admin. Code § 3.296(a)(3) (Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer)
• STAR Accession No. 201105108L (May 1, 2011) and Comptroller's Decision No. 39,193 (2004) — superseded by this ruling on the exemption-certificate question

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202307012L

Original ruling text

July 21, 2023

RE: Private Letter Ruling No. 20221021134159

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. We are responding to your request dated June 28, 2022. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of native grass, forbs, and legume seeds sold by ** (Taxpayer), the requirement for customers to provide an exemption certificate or Agricultural/Timber registration number, and Taxpayer’s requirement for obtaining a Texas sales and use tax permit.

Facts Presented

Taxpayer produces and sells seeds for “native” grasses, forbs, and legumes. Taxpayer defines “native” as a plant species that occurs naturally within North America. The species and variety of seeds Taxpayer produces are selected to match the soil and climatic conditions of the Southern Great Plains, making them adaptable to most areas in the southern United States.

Taxpayer offers individual species and seed blends. Taxpayer’s seeds and blends are used for applications including land reclamation and restoration, conservation, ranch grazing, and wildlife habitat enhancements. All of the seed species sold can be used as food for wildlife and livestock. They are not used for turf or lawn purposes.

Taxpayer does not hold a sales tax permit. Taxpayer is not currently collecting or billing customers for sales tax on items sold.

Questions, Rulings, and Analyses

Our restatements of your questions are shown below, followed by our responses and analyses.

Question One: Are Taxpayer’s sales of seeds subject to Texas sales and use tax?

Ruling One: Taxpayer’s sales of seeds are exempt from Texas sales and use tax.

Analysis: Texas imposes sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term taxable item includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Seeds are tangible personal property. See Section 151.009 (Tangible Personal Property).

Section 151.316(a)(5) (Agricultural Items) and Rule 3.296(a)(3) (Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer) provide an exemption for the sale of seeds and annual plants the products of which:

• ordinarily constitute food for human consumption;

• are sold in the regular course of business; or

• are used to produce feed for farm and ranch animals.

The products of Taxpayer’s seeds may be sold in the regular course of business or may be used for feed for exempt farm and ranch animals. Taxpayer’s seeds qualify for exemption under Section 151.316(a)(5) and Rule 3.296(a)(3).

Question Two: Is Taxpayer required to obtain an agricultural exemption certificate from its customers when selling its seeds?

Ruling Two: No, Taxpayer is not required to obtain an agricultural exemption certificate when selling its seeds to customers.

Analysis: Section 151.316(a) provides sales tax exemptions for certain agricultural items. To claim an agricultural exemption, Section 151.1551 (Registration Number Required for Timber and Certain Agricultural Items) requires purchasers to provide an agricultural exemption certificate for many items including tractors, fertilizer, and pesticides.

Certain items under Section 151.316(a), including horses, work animals, seeds, and annual plants are always exempt regardless of the purchaser or the item’s use. These items are not included under Section 151.1551 and do not require an exemption certificate to be purchased tax free.

Additionally, Rule 3.296(a)(3) states that an exemption certificate is not required when purchasing exempt seeds and annual plants. Taxpayer’s sales of its seeds are always exempt from sales and use tax under Section 151.316(a)(5) and Rule 3.296(a)(3) and purchasers are not required to provide Taxpayer an exemption certificate.

Guidance stating that an exemption certificate or other documentation is required when purchasing seeds exempt under Section 151.316(a)(5), including STAR Accession No. 201105108L (May 1, 2011) and Comptroller’s Decision 39,193 (2004), will be superseded.

Question Three: Is Taxpayer required to obtain a sales tax permit?

Ruling Three: Yes, Taxpayer is required to obtain a sales tax permit.

Analysis: Although exempt, Taxpayer sells seeds which are taxable items. See Ruling One.

Section 151.008 (Seller or Retailer) defines a seller or retailer as a person engaged in the business of making sales of taxable items. Section 151.106 (Registration of Retailers) states that retailers who sell a taxable item for storage, use, or consumption in Texas must register with the comptroller. The statute does not provide an exemption from the permitting requirement if the taxable items sold are exempt from sales and use tax. Therefore, Taxpayer is required to obtain a sales tax permit.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20221021134159.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts