Is the lease of aerial-application tracking equipment to a crop duster exempt from Texas sales tax when the equipment is used for aerial spraying of insecticide and fertilizer on farms and ranches?

Plain-English summary

A third-party leasing company of tangible personal property wrote to the Comptroller asking about sales tax on a new piece of equipment it planned to lease out. The equipment goes into an airplane and tracks the land being sprayed for farmers. The leasing company's customers would be crop dusters/chemical agencies that spray chemicals on farmers' land; those customers claimed they should be exempt from sales tax because the equipment is agricultural equipment used to spray for farmers. Notably, the farmers themselves would not own the plane — the crop duster/chemical agency would lease the tracking equipment from this company.

The Comptroller's Tax Administration Division responded to two questions. First, on whether the lease of the equipment would be exempt from sales tax: if the aircraft is licensed by the Federal Aviation Administration for aerial application of fertilizers and insecticides, and the aircraft is used exclusively for aerial spraying on farms and ranches in the production of agricultural products sold in the regular course of business, then the lease of this equipment would be exempt. The exemption is not valid, however, unless the customer (the crop duster/chemical agency) issues a properly completed exemption certificate to the leasing company. Second, on whether the exemption — if it applies — would cover all lease options or only financed leases: the Comptroller stated that whether the arrangement is an operating lease or a financing lease does not affect the taxability.

The letter also notes that a copy of Rule 3.296, Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer, was enclosed for the taxpayer's review, and that the opinion is based on the facts presented — if the facts are different, the opinion could change.

What this means for you

Leasing companies that lease equipment to crop dusters or chemical agencies

If you lease equipment used in aerial spraying — such as tracking equipment installed in an aircraft — the lease can be exempt from Texas sales tax, but only if the aircraft is FAA-licensed for aerial application of fertilizers and insecticides and is used exclusively for aerial spraying on farms and ranches in producing agricultural products sold in the regular course of business. You must also obtain a properly completed exemption certificate from your customer before the exemption is valid; without that certificate, the exemption does not apply.

Crop dusters and chemical spraying agencies

Whether you lease your aircraft equipment through an operating lease or a financing lease, the letter states this distinction does not affect whether the lease qualifies for the agricultural exemption. What matters is the FAA licensing of the aircraft and the exclusive use of the aircraft for aerial spraying on farms and ranches in producing agricultural products sold in the regular course of business.

Note on this letter's currency

This document carries a Comptroller alert that it may be affected by changes to the Tax Code made by H.B. 268 (82nd Regular Legislative Session, 2011), which 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 January 1, 2012. Businesses relying on this 1995 letter today should confirm current registration requirements before claiming the exemption.

Common questions

Q: Does the exemption apply automatically just because the aircraft is used for crop dusting?
A: No. Per the letter, the aircraft must be FAA-licensed for aerial application of fertilizers and insecticides and used exclusively for aerial spraying on farms and ranches in the production of agricultural products sold in the regular course of business. In addition, the customer must issue a properly completed exemption certificate to the leasing company — the exemption is not valid without it.

Q: Does it matter whether the lease is structured as an operating lease or a financing lease?
A: No. The letter states that whether the lease is an operating lease or a financing lease does not affect the taxability.

Q: Who has to own the airplane for the exemption to apply?
A: The letter does not require the farmer to own the plane. In the facts presented, the farmers did not own the plane — the crop duster/chemical agency leased the tracking equipment from the third-party leasing company, and the Comptroller still addressed the availability of the exemption on that basis.

Citations and references

• Rule 3.296, Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer (enclosed with the letter for the taxpayer's review; not quoted in the letter text itself)
• H.B. 268, 82nd Reg. Legislative Session, 2011 (referenced in the Comptroller's currency alert regarding registration numbers for agricultural and timber exemptions, effective 01/01/2012)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9503L1343C12

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.

March 14, 1995

Dear**:

I have received your letter requesting sales tax information.
Facts: Your company is a 3rd party leasing company of tangible
personal property. Your company will be leasing a new piece of
equipment called "*****". This equipment will be leased to
crop dusters/chemical agency for the use of spraying chemicals on
farmers' land. The equipment goes into the airplane and tracks the
land that is being sprayed for farmers. The crop dusters/chemical
agency claim they should be exempt from sales tax because it is
agricultural equipment and they spray for farmers.

Question 1: Since the farmers would not own the plane, you ask if
the lease of this equipment would be exempt from sales tax.

Response: If the aircraft is licensed by the Federal Aviation
Administration for aerial application of fertilizers and insecticides
and the aircraft is used exclusively for aerial spraying on farms and
ranches in the production of agricultural products sold in the regular
course of business, the lease of this equipment would be exempt. The
exemption is not valid unless the customer issues a properly completed
exemption certificate to you.

Question 2: If this equipment is viewed as exempt, would the exemption
apply for all lease options, or just financed leases?

Response: Whether this is an operating lease or a financing lease does
not affect the taxability.

I am enclosing a copy of Rule 3.296, Agriculture, Animal Life, Feed,
Seed, Plants, and Fertilizer, for your review.

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

You may call me toll free at 1-800-531-5441, Ext. 34663. My direct line
is 512/463-4663. You may also write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Administration Division

NOTE: Previous Accession Number 9503034L