Could a Texas dairy farmer buy paper towels tax-free under the agricultural exemption?

Plain-English summary

The 1990 letter treated a dairy farm producing milk for sale as a qualifying farm or ranch and said the agricultural exemption extended to expendable supplies.

Paper towels used directly in production—for example, to cleanse udders—could be bought tax-free with a properly completed exemption certificate. Towels used to wash or dry the farmer's hands or to wash or dry the cow generally were taxable.

STAR places an alert above the letter: H.B. 268 later amended the Tax Code and, effective January 1, 2012, required people claiming exemptions for certain agricultural and timber products to obtain and provide a Comptroller-issued registration number. The 1990 procedure should therefore not be assumed current.

Common questions

Were paper towels automatically exempt because a dairy farm bought them? No. Their use had to be directly in producing milk for sale.

What use qualified in the letter? Cleansing the udders as part of milk production.

What uses were taxable? Washing or drying the farmer's hands or cleaning the cow generally.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L1022G12

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

April 20, 1990

Dear **:

I am responding to your letter questioning whether paper towels
may be purchased tax free by a dairy farmer. I apologize to you
for the delay to this response.

A dairy farm which produces milk qualifies as a farm or ranch.
Machinery and equipment purchased for exclusive use on a farm or
ranch in the production of an agricultural product held for sale
in the regular course of business qualifies for THE agricultural
exemption. This exemption has been extended to include expendable
supplies.

If the paper towels are used directly in the production (cleansing
the udders) of the milk which is held for sale in the regular
course of business, you may accept a properly completed exemption
certificate in lieu of tax. However, towels that are used to wash
or dry the farmer's hands or the cow in general are taxable. I am
enclosing rules relating to agricultural exemptions and exemption
certificates.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

If you have questions or need more information, please call our
toll free 1-800-252-5555 extension 34934. The regular number is
512/463-4600. You may also write to Tax Correspondence, Comptroller
of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence