Is feed for breeding horses and llamas, and the sale of the animals themselves, exempt from Texas sales tax when the offspring are raised for sale?

Plain-English summary

A rancher wrote in asking about the sales tax treatment of feed and animals on a ranch that raises miniature horses, large horses, and llamas for breeding, with the offspring held for sale. The Comptroller's response covers several distinct scenarios rather than one single yes/no answer.

Feed is broadly exempt: hay, corn, oats, and any other feed normally consumed by farm and ranch animals -- including horses -- can be purchased tax free without needing an exemption certificate. Feed for animals held for breeding whose offspring are also held for sale (like the llamas here) is exempt too, but that exemption requires giving the seller an exemption certificate. Medications, vaccines, worming solutions, and vitamin/mineral supplements for the horses are also tax exempt.

On sales of the animals themselves, the ruling draws a sharper line. Selling a horse is not subject to sales tax. But selling a llama as a pet is taxable -- llamas don't automatically get the animal-sale exemption the way horses do. A llama can still be sold tax free if it qualifies as a "work animal" (professionally trained for a specific purpose, or used exclusively in producing food for human consumption or other agricultural products for sale), or, per Rule 3.296, if its products ordinarily constitute food for human consumption -- the letter notes the office doesn't necessarily agree llamas fit either category by default, but says it will extend the same tax treatment to llamas processed as food as it does to other food animals, and will accept a work-animal exemption certificate if the definition is met.

Finally, the letter distinguishes exempt farm/ranch machinery and equipment (Tex. Tax Code § 151.316) from taxable general-purpose buildings: houses, offices, barns, warehouses, garages, and stores -- along with the materials used to build them -- are subject to sales tax and do not qualify for the agricultural exemption, even on a qualifying farm or ranch.

What this means for you

Ranchers and breeders

Feed for breeding animals and their offspring can be purchased tax free, but for animals other than the "normally consumed by farm and ranch animals" category (like the llamas here), you need to give the seller a properly completed exemption certificate -- don't assume the exemption applies automatically at the register.

Sellers of horses, llamas, and similar livestock

Know your buyer's intended use. A horse sale is tax exempt regardless of purpose, but a llama sold as a pet is taxable. If a llama is sold as a work animal or as breeding/food stock, obtain an exemption certificate from the buyer documenting that use to support the tax-free sale.

Accountants and tax professionals advising agricultural clients

Remember the exemption is scenario-specific, not animal-specific: the same llama can be tax-exempt feed and taxable pet-sale in the same operation. Also flag that farm buildings (barns, warehouses, garages) and their construction materials are taxable even when the farm/ranch itself qualifies for the machinery and equipment exemption under Tex. Tax Code § 151.316.

Common questions

Q: Is feed for llamas being raised for breeding and resale tax exempt?
A: Yes. Under Rule 3.296, food for animals held for breeding whose offspring are also held for sale -- and feed for those offspring -- is exempt, but you must give the seller an exemption certificate.

Q: If I sell a llama as a pet, is that sale taxable?
A: Yes. Sales tax is due on the sale of a llama sold as a pet. Llama sales are only exempt if the llama qualifies as a work animal or fits the food-animal exemption under Rule 3.296.

Q: Are medications and vitamin supplements for my horses taxable?
A: No. Medications, vaccines, worming solutions, and vitamin and mineral supplements for the horses are exempt from tax under this ruling.

Q: Can I buy materials to build a new barn tax free under the farm exemption?
A: No. General-purpose buildings (houses, offices, barns, warehouses, garages, and stores), their structural components, and the materials used to build them are subject to sales tax and do not qualify for the agricultural exemption, even though qualifying farm/ranch machinery and equipment is exempt under Tex. Tax Code § 151.316.

Citations and references

Statutes:

• Tex. Tax Code § 151.316 (farm/ranch machinery and equipment exemption)
• 34 Tex. Admin. Code Rule 3.296 (Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205057L

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.

May 18, 1992

Dear **:

Thank you for your letter and phone call regarding your ranch activities.

You state that you have miniature horses, large horses, and llamas that you are
holding for breeding purposes and whose offspring will be held for sale. Sales
tax is not due on the receipts from sales of, and the storage, use or
consumption of, hay, corn, oats, and any other type feed normally consumed by
farm and ranch animals. Included is feed for horses; such feed may be purchased
tax free without an exemption certificate.

Food for animals used for breeding purposes whose offspring are held for sale
and feed for the offspring is also exempt as indicated in the enclosed Rule
3.296, Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer [see
section (a)(2)(A)]. Therefore, you may purchase tax free the food for the
llamas used for breeding and their offspring you are raising to sell. You must
provide the seller with an exemption certificate for this food.

Medications, vaccines, worming solutions, and vitamin and mineral supplements
for the horses are exempt from tax.

Sales tax is not due on the sale of a horse. However, sales tax is due on the
sale of a llama being sold as a pet.

Rule 3.296 also exempts from tax the sale of any form of animal life of any
kind, the products of which ordinarily constitute food for human consumption.
Although this office does not necessarily agree that llamas ordinarily
constitute food for human consumption, we will extend the same treatment o them
as, we have to other animals when processed as food for human consumption.

"Work animals" are animals that are professionally trained for a specific
purpose (such as seeing-eye dogs) or that are used exclusively in the
production of food for human consumption or other agricultural products held
for sale in the regular course of business (such as plow animals, cow dogs or
sheep dogs). Although this office does not necessarily agree that llamas are
ordinarily "work animals", a llama may be sold tax free as a work animal if it
meets the above definition. The seller should obtain an exemption certificate
from the buyer to document the exemption.

Subject to verification in future audit, if you are in fact breeding llamas
exclusively for use as: (a) work animals; (b) food for human consumption; or
(c) both (a) and (b); then you are a "farm or ranch" as defined in Rule 3.296

TEX. TAX CODE ANN. Subsection 151.316 provides that, among other things,
"machinery and equipment exclusively used or employed on a farm or ranch . . .
. . . . in the production of agricultural products to be sold in the regular
course of business; and machinery and equipment exclusively used in the
processing, packing or marketing of agricultural products by the original
producer . . . . . . . " are exempt from tax.

General purpose buildings (houses, offices, barns, warehouses, garages, and
stores), their structural components, and the materials used, to build,
construct or fabricate them, are subject to sales tax and do NOT qualify for
the agricultural exemption.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion could change.

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free at
1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division