Is building, equipping, and repairing an agricultural greenhouse exempt from Texas sales tax, and does an agricultural exemption certificate cover the repair labor too?
Apply this to your situation
This page answers the general question as of 1998. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
A farmer planned to purchase and/or construct a 30 ft. by 96 ft. greenhouse to grow an edible vegetable product for human and/or animal consumption, and asked the Comptroller a series of questions about the tax treatment of construction, equipment, utilities, and future repairs.
Building the greenhouse (new construction):
- The greenhouse is an improvement to realty once built, and labor for new construction is never taxable.
- Who pays sales tax on materials depends on the billing method: under a turnkey/lump-sum contract, the contractor is the consumer of the materials and pays tax on them at purchase — the overall charge to the farmer is not taxable. Under a separated contract, the contractor is the seller of the materials, and the farmer can give the contractor an exemption certificate instead of paying tax on the materials, since the finished greenhouse qualifies as agricultural equipment when used to produce agricultural products for sale.
- Atmospheric control equipment (heating, cooling, humidity control) and utility hookups (electrical, plumbing) follow the same new-construction rules — exempt, subject to the same lump-sum vs. separated distinction above.
- Utilities: electricity and natural gas used for agricultural purposes are exempt; water is exempt regardless of use; liquefied petroleum gas is taxable only if used as fuel in a motor vehicle on public roadways.
Repairing the greenhouse (after construction):
- Once built, the greenhouse is real property, and repairing it is a taxable nonresidential real property repair service — Texas sales tax law provides no agricultural exemption for repair labor.
- Under a turnkey/lump-sum repair contract, the entire charge (materials and labor together) is taxable.
- Under a separated repair contract, the separately stated materials/component-equipment charge CAN be purchased tax-free with an agricultural exemption certificate — but the separately stated labor charge remains taxable regardless.
Currency note: This STAR record carries its own attached alert that agricultural/timber exemptions were later changed by House Bill 268 (2011), requiring anyone claiming this exemption to apply for and hold a Comptroller-issued registration number, effective January 1, 2012. The 1998 procedure described above (using an exemption certificate with no registration number) is outdated for current transactions — confirm you hold a valid registration number before relying on this letter today.
What this means for you
Farmers and agricultural producers building greenhouses
New construction of a qualifying greenhouse (and its atmospheric control/utility systems) is exempt from sales tax, whether through a nontaxable lump-sum turnkey charge or an exemption certificate on separated materials. But once built, repair labor is always taxable — there's no agricultural exemption for repair labor, only for the separately billed repair materials under a separated contract. If you're claiming this exemption today, you'll need a current Comptroller registration number per the 2012 HB 268 change.
Greenhouse/agricultural equipment contractors
Structure your contracts carefully: for new construction, lump-sum vs. separated billing determines who pays tax on materials, but for repairs, labor is taxable either way — only a separated contract lets you pass along a tax-free materials charge to an agriculturally-exempt customer.
Common questions
Q: Is a new agricultural greenhouse exempt from Texas sales tax?
A: Yes for new construction, per this letter — labor is never taxable, and materials can be tax-free via lump-sum billing or an exemption certificate on a separated contract.
Q: Is repairing an existing greenhouse exempt too?
A: No, per this letter — repair labor is always taxable as nonresidential real property repair; only the separately stated materials charge under a separated contract can be exempted.
Q: Do I still just need an exemption certificate to claim this exemption today?
A: Not necessarily — per the currency alert on this record, since 2012 (HB 268, 2011) claimants must also hold a Comptroller-issued registration number.
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/9805524L
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.
May 20, 1998
Subject: Ruling Request
Dear Mr. **:
Information Provided:
You have a client who is going to purchase and/or construct a 30 ft. x 96 ft.
greenhouse on his land in COUNTY A, Texas. He is going to use this greenhouse
exclusively for the production of an edible vegetable product. The vegetable
product will be sold for consumption by humans and/or animals.
RULING REQUESTS:
- Is the purchase of the greenhouse (as a "turnkey" construction project), or
the separate purchase of materials and labor to construct the greenhouse,
exempt from Texas Limited Sales and Use Tax?
Answer: The greenhouse will be an improvement to realty (new construction) once
it is constructed. The labor to perform new construction is not taxable. The
terms of the contract or the method of billing determines the sales tax
responsibilities. The contractor is not a seller but the consumer of the
incorporated materials supplied by him under a lump-sum contract or billing.
This means the contractor must pay sales tax on the incorporated materials at
the time of purchase. The turnkey charge to your client will not be taxable.
Under a separated contract or billing, the contractor is the seller of the
incorporated materials. Again, the separated charge for the new construction
labor is not taxable. Your client may issue an exemption certificate to the
contractor instead of paying sales tax on the purchase of the materials
incorporated into the greenhouse. The greenhouse is considered agricultural
equipment when used to produce agricultural products sold in the regular course
of business.
- Is the purchase and installation of atmospheric control equipment (heating,
cooling, humidity control, etc.) and utility access (electrical connections,
plumbing, etc.) in this greenhouse exempt from Texas Limited Sales and Use Tax?
Answer: Yes, but see the response to Question 1.
- Is the purchase of utilities (electricity, water, natural or liquified
petroleum gas, etc.) for use exclusively in this greenhouse exempt from Texas
Limited Sales and Use Tax?
Answer: Use of utilities (natural gas and electricity) for agricultural
purpose is exempt. The purchase of water is exempt regardless of use.
Liquefied petroleum gas is not taxable unless it is used as fuel in a motor
vehicle operated on public roadways.
- Is the purchase of materials and/or labor to effect repairs to this
greenhouse or its component equipment exempt from Texas Limited Sales and Use
Tax?
Answer: The purchase of materials and to repair the greenhouse or component
equipment (structural components) are exempt. If a service provider
(repairman) furnishes the materials and labor to repair the greenhouse, the
total charge will be taxable if the repair is made under a turnkey or lump-sum
contract or billing. The greenhouse is real property once constructed. The
repair to the greenhouse is a taxable nonresidential real property repair
service that the sales tax law does not exempt. If the repair is performed
under a separated contract, the separate charge for the materials and component
equipment may be purchased tax free under an exemption certificate claiming
agricultural exemption. However, the separately stated charge for the labor to
repair the greenhouse or its component equipment will be taxable as
nonresidential real property repair for which there is no agricultural
exemption.
This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.
You may call me toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts. My e-mail address is
.
Sincerely,
Eddie C. Washington
Tax Policy Division
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