Does a Texas company that performs artificial insemination of cattle on ranches owe sales tax on its semen, insemination labor, and the AI supplies/equipment it uses to perform the service?

Plain-English summary

A company whose technicians travel to Texas ranches to perform artificial insemination (AI) of cattle -- and which also sells some products directly to ranchers -- asked how sales tax applies to its work and supplies.

The Comptroller's answer covers several pieces:

• Semen and insemination labor charges are not taxable at all -- this isn't even a farm-exemption question, these charges simply aren't subject to sales tax.
• Tax Code Section 151.316 exempts machinery and equipment used exclusively on a farm or ranch to produce agricultural products held for sale, along with fertilizers, fungicides, insecticides, herbicides, defoliants, and desiccants used the same way. The Comptroller extended this to the company's AI supplies, AI equipment, animal care products, liquid nitrogen, and biostat tank rentals (used to ship semen to the ranch) -- none of these are taxable when the company's own technicians use them on-site to perform the insemination service.
• Because the company's own employees are the ones using these items (not the rancher-customers), no exemption certificate is required from the ranchers for this on-site service work -- though invoices should note the work was performed on a farm or ranch.
• The rule flips when the company sells or rents items directly to ranchers for the rancher's own production use: there, the company must obtain an exemption certificate from the rancher under Rule 3.296.

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 1999 substantive holding about what's exempt.

What this means for you

Artificial insemination and similar on-site agricultural service providers

If your own technicians use supplies and equipment on a farm or ranch to perform an agricultural service, those supplies/equipment can qualify for the Section 151.316 exemption without needing an exemption certificate from your rancher-customer, since you (not the rancher) are the one using the items. Document on invoices that work was performed on a farm or ranch.

Agricultural service companies that also sell products directly to ranchers

Draw a clear line between your service work (no certificate needed from the customer) and direct sales/rentals of items to ranchers for their own use (certificate required from the customer under Rule 3.296).

Accountants and tax professionals

A useful illustration that the "who uses the exempt item" question, not just "is the item exempt," determines whether an exemption certificate is needed -- and a reminder to check for the post-2011 agricultural/timber registration-number requirement (H.B. 268) when advising a client relying on any pre-2012 agricultural exemption letter, since it adds a registration step without changing the underlying exemption analysis.

Common questions

Q: Is artificial insemination labor taxable in Texas?
A: No, charges for semen and insemination labor are not subject to sales tax.

Q: Do I need an exemption certificate from ranchers when my technicians use AI supplies on their ranch?
A: No, not when your own employees are the ones using the supplies/equipment to perform the service -- only when you sell or rent items directly to the rancher for their own 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 to claim certain agricultural/timber exemptions from 2012 forward) layered on top of, not a change to, the 1999 exemption analysis here.

Q: Can I rely on this letter for my own business?
A: No. It is based on the specific facts presented and can only be relied on by the taxpayer to whom it was issued.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.316 (agricultural exemption for farm/ranch machinery and equipment)
• 34 Tex. Admin. Code Rule 3.296 (agricultural exemptions)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9906522L

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.

June 30, 1999

Dear Ms. ***:

Thank you for your recent letter regarding the sales tax treatment of products
related to the artificial insemination of cattle. As we discussed in our
telephone conversation of June 30, 1999, COMPANY A technicians travel to
ranches in Texas and perform the insemination for your customers. The work is
not done in other locations such as veterinarians facilities. COMPANY A also
sells a limited amount of products to Texas ranchers.

Charges for semen and insemination labor are not subject to sales tax.

Tax Code Section 151.316 exempts from sales tax machinery and equipment
exclusively used on a farm or ranch in the production of agricultural products
held for sale in the regular course of business. Also exempted are
fertilizers, fungicides, insecticides, herbicides, defoliants, and desiccants
used in the same manner. Accordingly, your firm's charges to ranchers for your
technicians use of AI supplies, AI equipment, animal care products, liquid
nitrogen, and biostat tank rentals (used to ship semen to the ranch) are not
subject to sales tax. You are not required to obtain an exemption certificate
from your customers since COMPANY A employees are using the products to perform
the insemination services. However, your invoices should note that the work is
done on a farm or ranch.

You must obtain an exemption certificate from your customers when selling or
renting items to ranchers for use in production. I am enclosing Rule 3.296 and
an exemption certificate for your files.

A full set of rules and publications including local sales and use tax rates
are available on the Internet at
.

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

You may call me toll free at 1-800-531-5441. You may also write to Tax Policy,
Comptroller of Public Accounts. The email address is .

Sincerely,

Tax Policy Division