When a strip-mining company is legally required to reclaim mined land by planting it with grass for future livestock grazing, does the grass seed -- and the fertilizer and heavy equipment used in reclamation -- qualify for the Texas agricultural exemption?

Plain-English summary

A strip-mining company is required, as a condition of its mining permit, to reclaim the land after mining ends -- stripping topsoil, backfilling and grading it back into place, and revegetating the area, ultimately planting grasses for livestock grazing so the former mine site becomes pastureland. The company asked whether it could issue an exemption certificate instead of paying tax on the grass seed used in this reclamation. The Comptroller said yes: Tax Code § 151.316 exempts seeds and annual plants used to produce feed for exempt animals (livestock such as cattle and horses), and since the reclaimed land becomes grazing pastureland, the grass seed qualifies -- the company may issue an exemption certificate to its seed suppliers. But the Comptroller drew a firm line around the rest of the reclamation process: fertilizer and heavy equipment used in reclaiming the land remain taxable. The agricultural exemption only reaches items used EXCLUSIVELY on a farm or ranch to produce food for human consumption, animal feed, or other agricultural products for sale -- and the overall mining reclamation operation isn't considered exclusive farm or ranch use, even though its end result is pastureland.

Housekeeping note: STAR flags this document with an ALERT that H.B. 268 (2011) later required agricultural/timber exemption claimants to obtain a Comptroller-issued registration number, effective 2012 -- a subsequent registration-procedure requirement layered on top of the exemption, not a change to this letter's 1997 substantive holding about which reclamation items qualify.

What this means for you

Mining companies performing legally required land reclamation

Grass seed used to revegetate reclaimed land for eventual livestock grazing qualifies for the agricultural exemption under § 151.316 -- you can issue an exemption certificate to your seed supplier. But don't extend that exemption to fertilizer or heavy equipment used in the broader reclamation process; those remain taxable because the reclamation operation as a whole isn't exclusive farm/ranch use, even though the finished land becomes pastureland.

Accountants and tax professionals advising mining/reclamation clients

Break the reclamation process into its component purchases when applying the agricultural exemption -- seed used to produce animal feed can qualify item-by-item under § 151.316 even when the surrounding activity (industrial land reclamation) as a whole doesn't meet the "exclusive farm or ranch use" test that would otherwise cover fertilizer and equipment. Also flag the 2012 H.B. 268 agricultural/timber registration-number requirement for any current-day reliance on this letter.

Common questions

Q: Does grass seed used to reclaim strip-mined land for future grazing qualify for the agricultural exemption?
A: Yes, per this letter, under Tax Code § 151.316 -- since it's used to produce feed (grazing grass) for exempt animals like livestock.

Q: Do fertilizer and heavy equipment used in the reclamation process also qualify?
A: No, per this letter -- the agricultural exemption requires exclusive farm or ranch use, and the mining reclamation process isn't considered exclusive farm or ranch use.

Q: Does the 2011 H.B. 268 registration-number requirement change this letter's holding?
A: No, it's a subsequent procedural add-on (a Comptroller-issued registration number needed from 2012 forward to claim certain agricultural/timber exemptions) layered on top of, not a change to, the 1997 exemption analysis here.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.316 (agricultural exemption for seeds/annual plants producing animal feed)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9703286L

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 7, 1997

Dear**:

Thank you for your letter of February 28, 1997. You asked if grass seed used
in the reclamation of strip mining qualified for the agricultural exemption.

As I understand it, your company operates strip mines. A requirement of
obtaining a permit to mine the land is reclaiming the land after mining
operations cease. The reclamation process includes stripping topsoil,
backfilling and grading topsoil, and revegetating. The mined areas will be
planted with grasses used for livestock grazing and become pastureland
thereafter. You question whether you may issue an exemption certificate in
lieu of paying tax on the grass seed used in the reclamation process.

Section 151.316 of the Texas Tax Code exempts seeds and annual plants that are
used to produce feed for animals exempted in Section 151.316. The animals
include livestock such as cattle and horses. Therefore, you may issue an
exemption certificate to your suppliers of the grass seed and claim the
agricultural exemption.

The agricultural exemption will not apply to all materials or machinery and
equipment you may use in the reclamation process. For example, you owe tax on
fertilizers and heavy equipment used to reclaim the land. The agricultural
exemption only applies to these items when exclusively used or employed on a
farm or ranch in the production of food for human consumption, feed for animal
life, other agricultural products to be sold in the regular course of business.
The mining reclamation process is not considered exclusive farm or ranch use.

Section 151.316 is included for your review.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,
Lindey Osborne
Sales Tax Policy Division