Does a general-purpose farm building, like a hog barn, qualify for the Texas agricultural sales tax exemption?

Subject

General Purpose Farm Buildings — When Does A Barn Qualify As Farm Machinery Or Equipment?

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1272G09

Plain-English Summary

A taxpayer wrote in about the taxability of concrete purchased for a hog barn, without specifying how the barn would be used. Because the letter couldn't address the specific use, the Comptroller instead laid out the general qualifications a building must meet to be treated as agricultural equipment or machinery for sales tax purposes.

The letter stresses that the Texas Sales and Use Tax Law is very specific about farm and ranch exemptions: a farmer or rancher is not an exempt entity, and not everything purchased for the farm or ranch qualifies for exemption. For a building or structure to qualify, it must be specifically designed so that it becomes a piece of farm machinery or equipment — meaning the equipment is so integrated into the structure, and makes up so substantial a part of it, that the building could not be used for any other purpose. Any divergent use from the design purpose would make the component parts taxable.

The letter gives examples of buildings that do qualify because they house specialized machinery incorporated into the structure: automated laying houses, farrowing houses, greenhouses, and silos. These cannot economically be used for anything else, and an exemption certificate may be issued in lieu of tax for their component parts, citing Section (g)(8) and Section (i) of Rule 3.296.

By contrast, buildings used for shelter, housing, storage, or work space do not qualify — the letter lists general storage barns, hay barns, sheds, or shelters as examples. Tax is due on the component parts of these buildings, and the letter specifically notes that adding a concrete floor does not transform such a building into a piece of farm machinery or equipment.

What This Means For You

If you're building or improving a farm/ranch structure: Don't assume "it's on the farm" is enough to get the sales tax exemption. The test in this letter is whether the building itself functions as a piece of integrated farm machinery or equipment — not merely whether it's used in connection with farming.

If your building houses specialized equipment: Structures like automated laying houses, farrowing houses, greenhouses, and silos — where machinery is built into the structure and the building can't realistically be repurposed — may qualify for an exemption certificate on component parts under Rule 3.296(g)(8) and (i).

If your building is a general storage or shelter structure: A general storage barn, hay barn, shed, or general-purpose barn (like the hog barn described in the letter) does not qualify, and tax applies to its component parts — including a concrete floor, which by itself does not change the building's classification.

Q&A

Q: Is a farmer or rancher automatically exempt from sales tax on farm purchases?
A: No. The letter states plainly that "a farmer or rancher is not an exempt entity and not all purchases for the farm or ranch qualify for exemption."

Q: What must be true for a farm building to qualify for the agricultural exemption?
A: Per the letter, the building or structure must be specifically designed such that it becomes a piece of farm machinery or equipment — the equipment must be so integrated into the structure, and comprise so substantial a part of it, that the building may not be used for any other purpose.

Q: What kinds of buildings does the letter say qualify?
A: The letter lists automated laying houses, farrowing houses, greenhouses, and silos as examples of buildings specifically designed such that they are considered a piece of farm machinery or equipment, noting they house specialized machinery incorporated into the building and may not be used economically for any other purpose.

Q: Does putting in a concrete floor make a general storage barn tax-exempt?
A: No. The letter specifically states that "the addition of a concrete floor to these buildings does not transform the building into a piece of farm machinery or equipment."

Q: Does a general storage barn or hay barn qualify for the agricultural exemption?
A: No. The letter lists general storage barns, hay barns, sheds, or shelters as buildings used for shelter, housing, storage, or work space that do not qualify as farm machinery or equipment, meaning tax is due on the component parts for these facilities.

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.

October 26, 1993

Dear *****:

Thank you for your recent letter concerning the taxability of concrete

purchased for a hog barn. Your letter does not specifically address the barns

use. I will provide you with the general qualifications that a building must

meet in order to qualify as agricultural equipment or machinery.

The Texas Sales and Use Tax Law is very specific on the exemptions granted

for items used on a farm or ranch. A farmer or rancher is not an exempt

entity and not all purchases for the farm or ranch qualify for exemption.

In order for a building or structure to qualify for an agricultural exemption,

the building or structure must be specifically designed such that it becomes

a piece of farm machinery or equipment. The building must be designed

in such a way that the equipment is so integrated into the structure and

comprises so substantial a part of the structure that the building may not be

used for any other purpose. Any divergent use of the building other than that

for which it was designed would cause the component parts to become taxable.

Buildings such as automated laying houses, farrowing houses, greenhouses,

and silos are examples of buildings specifically designed such that they are

considered a piece of farm machinery or equipment. These buildings may not be

used economically for any other purpose. Please note that these buildings

house specialized machinery that is incorporated into the building. An

exemption certificate may be issued, in lieu of tax, for the component parts of

these types of buildings. Please refer to Section (g)(8) and Section (i) of

Rule 3.296.

Buildings used for shelter, housing, storage or work space do not qualify

for exemption. Examples include general storage barns, hay barns, sheds, or

shelters. These buildings do not qualify as farm machinery or equipment and tax

is due on the component parts for these facilities. Please note that the

addition of a concrete floor to these buildings does not transform the building

into a piece of farm machinery or equipment.

This opinion is based on the facts presented. If there are any additional or

different facts, the opinion may change.

If you have any questions or need additional information, you may call

toll free 1-800-531-5441, ext. 50037. The regular Austin number is

512-475-0037. You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne

Tax Administration Division

NOTE: Previous Accession Number 9311177L.3 and/or 9311177L