Is a ranch's two-way radio repeater system and handheld radios, used to keep in contact with employees working the ranch, exempt from Texas sales tax as farm/ranch equipment?

Plain-English summary

A ranch owner erected a 100-foot tower with a two-way radio repeater system, planning to buy fourteen to sixteen handheld portable radios plus a base station so employees working different parts of the ranch could stay in contact, and asked whether this equipment qualifies for Texas's agricultural sales tax exemption. The Comptroller said no. The agricultural exemption requires equipment to be directly involved in the physical production of food for human consumption -- and while radios are useful for running a ranch, communication equipment doesn't meet that direct-production test. The Comptroller referenced its own published alphabetical list of exempt and taxable farm/ranch items (which specifically addresses radio equipment) and enclosed a prior letter ruling reaching the same conclusion for radios sold to farmers.

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 for exemption CLAIMS generally, not a change to this letter's holding that radio equipment doesn't qualify for the exemption in the first place.

What this means for you

Farmers and ranchers buying communication equipment

Two-way radios, repeater towers, and base stations used to communicate with workers are taxable -- they don't qualify for the agricultural exemption because they aren't directly involved in producing food for human consumption, even though they're genuinely useful to running the operation.

Accountants and tax professionals

This is a clean, general reference for the "directly involved in physical production" line the agricultural exemption draws -- support/communication/management equipment on a farm or ranch generally falls on the taxable side of that line, distinct from equipment that directly touches the production process.

Common questions

Q: Are two-way radios and a repeater system used on a ranch exempt as agricultural equipment?
A: No, per this letter -- they aren't directly involved in the physical production of food for human consumption.

Q: Does it matter that the radios are genuinely useful to running the ranch?
A: No, per this letter -- usefulness to the operation isn't the test; direct involvement in food production is.

Q: Has the Comptroller ruled on radios for farmers before?
A: Yes, per this letter -- it references a prior letter ruling reaching the same nontaxable-for-exemption-purposes conclusion for radios sold to farmers.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9704359L

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.

April 30, 1997

Dear ***:

This is in response to your request for a ruling on the taxability of two-way
radios used on your ranch to
keep in contact with your employees while they are out working in various areas
of the ranch.

You are erecting a 100-foot tower and placing a two-way radio repeater system
on it. You are planning to
purchase fourteen to sixteen handheld portable radios for your employees and
one base station. You have
applied for your own frequency from the FCC and are awaiting approval.

Response: The radio equipment while useful to your ranching operations is not
considered to be directly
involved in the physical production of food for human consumption and is
therefore not exempted. We
have previously sent out an alphabetical listing of exempt and taxable items
used on a farm or ranch, in
which radio equipment is addressed. I have also enclosed a prior letter ruling
that addressed radios sold to
farmers.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also
write to Tax Policy Division, Comptroller of Public Accounts. My Internet
address is:
[email protected].

Sincerely,
Gilbert Zamora
Tax Policy Division