Is acid used to clean out a farm/ranch irrigation well, or the well-bailing service itself, exempt from Texas sales tax as agricultural machinery repair?

Plain-English summary

A taxpayer asked whether bailing sand out of farm/ranch irrigation wells, and the acid used to clean out those wells, are subject to Texas sales tax. The Comptroller ruled both are exempt: the well-bailing service is nontaxable because it's a repair of agricultural machinery or equipment, and the acid is exempt because it's sold for use in repairing that same farm/ranch machinery or equipment (the irrigation wells).

Currency alert: STAR flags this letter as potentially affected by H.B. 268 (2011). Since January 1, 2012, anyone claiming this kind of agricultural/timber sales tax exemption must first apply for and hold a Comptroller-issued agricultural/timber registration number -- a paperwork requirement that simply did not exist in 1997 when this letter was issued. The underlying exemption for repairing farm/ranch machinery still applies; today's claimant just needs the registration number to use it.

What this means for you

Farmers, ranchers, and irrigation-well service providers

Historically, both the labor to bail sand from an irrigation well and the acid used in that process have been treated as exempt agricultural-machinery-repair items. If you're claiming this exemption today, you'll also need a current agricultural/timber registration number from the Comptroller -- this letter predates that requirement.

Accountants and tax professionals

Note the distinction the letter draws between the service (bailing, nontaxable as agricultural equipment repair) and the tangible item (acid, exempt because sold for use in that repair) -- both land on the same exempt outcome here, but for related, not identical, reasons.

Common questions

Q: Is the labor to bail sand out of a farm irrigation well taxable?
A: No, per this letter -- it's nontaxable as repair of agricultural machinery or equipment.

Q: Is the acid used to clean the well taxed?
A: No, per this letter -- it's exempt when sold to repair farm/ranch machinery or equipment such as irrigation wells.

Q: Does this exemption still work exactly the same way today?
A: Not quite the same paperwork -- since 2012, H.B. 268 requires claimants to hold a Comptroller-issued agricultural/timber registration number, a requirement that postdates this 1997 letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9708667L

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.

August 19, 1997

Dear ***:

Thank you for your letter dated July 10, 1997, concerning the taxability of
bailing out farm/ranch irrigation wells and the acid used to clean out the
irrigation wells.

The bailing of sand from farm/ranch irrigation wells is nontaxable as the
repair of agricultural machinery or equipment. The sale of the acid is exempt
when sold to repair farm/ranch machinery or equipment such as the irrigation
wells.

Sales tax rules are available on the Internet
.

This opinion is based on the facts presented. Different facts though similar,
may result in different answers.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, ext. 34675. The direct line is 512/463-4675. You may also
write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Tom Soto
Tax Policy Division