Can a farm or ranch buyer use an agricultural exemption certificate to buy an ATV in Texas without paying sales tax upfront?

Subject

Off — Road/All Terrain Vehicles (Atv'S, Bikes, Trykes) — Used On Farm Or Ranch

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9401674L

Plain-English Summary

This is a general policy notice, not a ruling on one taxpayer's specific facts. The Comptroller's Tax Administration Division wrote to a motorcycle/ATV dealers' trade association to announce a change in how dealers should handle sales tax on farm-use all-terrain vehicles (ATVs).

Previously, motorcycle dealers collected sales tax on every ATV sale and referred customers to the Comptroller's office to prove they qualified for the agricultural exemption. If the Comptroller agreed the customer was exempt, it issued an exemption letter, and the customer took that letter back to the dealer to get a refund of the tax already paid.

After a recent audit, the Comptroller reexamined that procedure and decided dealers should instead be able to accept an agricultural exemption certificate directly from the customer at the time of sale — the same way dealers already handle other farm purchases. Under this approach, the dealer is only liable for the tax if it did not accept the certificate in good faith — meaning the dealer knew as a fact that the ATV would not be used exclusively on a farm or ranch.

The letter states this change was proposed with substantial support from the association's members, and that starting February 1, 1994, dealers could stop the old "collect-tax-then-refund" process and start accepting agricultural exemption certificates on ATV sales.

The letter also addresses a related, unresolved question: the association's president asked whether the same treatment should apply to off-road motorcycles (non-street-legal dirt bikes) bought by farmers and ranchers. The Comptroller states it was "very hesitant" to extend exemption-certificate treatment to those vehicles at that time, and asked the association to submit more information (types of off-road motorcycles sold to farmers, how they're used agriculturally, and sales volume) before making a decision. The letter does not resolve the off-road-motorcycle question — it only addresses ATVs.

Note: a currency alert on the STAR posting flags that a later 2011 amendment (H.B. 268, 82nd Legislative Session) added a requirement that persons claiming this type of agricultural exemption apply for and provide a Comptroller-issued registration number, effective January 1, 2012. That registration-number requirement is not part of this 1994 letter's own text — it is a later change noted by STAR, and this 1994 letter should be read in that light.

What This Means For You

If you are (or were) an ATV/motorcycle dealer in Texas: As of February 1, 1994, this notice told you that you could accept an agricultural exemption certificate from a farm or ranch customer buying an ATV, instead of collecting tax and sending them to seek a refund letter from the Comptroller. You remain liable for the tax only if you accepted the certificate in bad faith — i.e., you actually knew the ATV would not be used exclusively on a farm or ranch.

If you are a farmer or rancher buying an ATV: This notice describes the process dealers were told to follow starting February 1, 1994 — presenting an agricultural exemption certificate at the time of sale rather than paying tax and later applying for a refund letter. Because later law (per the STAR alert) added a registration-number requirement effective 2012, confirm current documentation requirements with a Texas tax professional before relying on this 1994 letter's process today.

If you sell off-road (non-street-legal) motorcycles to farmers and ranchers: This letter does not extend exemption-certificate treatment to those vehicles. As of this letter, the Comptroller was still evaluating whether to do so and had requested more information from the dealers' association; the letter itself reaches no conclusion on that question.

Q&A

Q: As of this 1994 letter, could a Texas ATV dealer accept a farm exemption certificate instead of collecting sales tax?
A: Yes. Starting February 1, 1994, the Comptroller told dealers they could accept an agricultural exemption certificate for a farm-use ATV sale in lieu of collecting tax and requiring the customer to later obtain a refund letter.

Q: When would the dealer still owe the tax after accepting an exemption certificate?
A: Only if the dealer did not accept the certificate in good faith — meaning the dealer knew as a fact that the ATV would not be used exclusively on a farm or ranch.

Q: Does this letter say off-road (non-street-legal) motorcycles get the same exemption-certificate treatment as ATVs?
A: No. The Comptroller said it was "very hesitant" to extend this treatment to off-road motorcycles and asked the dealers' association for more information before deciding — the letter does not resolve that question.

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.

January 31, 1994

Dear **:

Before Christmas, Wade Anderson spoke with you concerning the proposed
treatment of sales of farm-use ATVs. Up until now, motorcycle dealers have
been collecting tax on these sales and referring the customers to our office.
We would decide whether the customer was exempt. If we issued a letter of
exemption, the customer would return to your dealer, present the letter, and
receive a refund.

Because of a recent audit, we have reexamined this procedure and concluded
dealers should be able to accept an exemption certificate for farm use. This
follows the regular practice for other purchases by farmers. The dealer would
only be liable for the tax if the exemption certificate was not accepted in
good faith. (The dealer knew as a fact that the ATV would not be used
exclusively on a farm or ranch.)

This proposed change was proposed and received substantial support from your
members according to PERSON A, President ASSOCIATION.

Therefore, this is to advise you that starting February 1, 1994, your dealers
may discontinue the present policy and start accepting agricultural exemption
certificates in lieu of collecting tax on ATVs.

PERSON A also suggested we consider the same treatment for off-road motorcycles
(non-street legal dirt bikes) purchased by farmers and ranchers for use in
their farm and ranch operations. At this time, we are very hesitant to allow
exemption certificates for off-road motorcycles. If you would send me
information as to the types of off-road motorcycles sold to farmers, how they
use them for agricultural purposes, and some idea as to the amount of sales of
these bikes to farmers, we will be able to make a more informed decision.

If the association wishes to present further information on off-road
motorcycles or you have further questions, please write me at 111 E. 17th
Street, Austin, Texas 78774 or call me at 475-0220.

Sincerely,

Glen Hunt
Director
Tax Administration

cc: PERSON A
President
ASSOCIATION