Is sales tax due on equipment (microscope, vials, droppers, bottles, forceps, and collection vessels) sold to farmers and ranchers for performing fecal egg counts to check livestock for parasites?

Plain-English summary

A company selling equipment used by farmers and ranchers to perform fecal egg counts — checking parasite loads in livestock to decide whether deworming is needed — asked whether Texas sales tax applies to that equipment: a microscope, lens paper and cleaning solution, slides and cover glasses, flotation solution, droppers, sample-collection vials, a marking pen, forceps, disinfectant, mixing bottles, a sample-grinding instrument, and vessels for transporting animal tissue/fluid samples to a veterinarian or lab.

The Comptroller applied Tax Code Section 151.316, which exempts machinery and equipment used exclusively on a farm or ranch in agricultural production. Every item on the list qualifies for the exemption, with one exception: the collection vessels used to transport samples to a veterinarian or diagnostic lab. Because those vessels leave the farm/ranch as part of their function, they're not used exclusively on the farm or ranch and so don't qualify. The seller must obtain an exemption certificate from farmer/rancher customers to sell the qualifying items tax-free (Rule 3.296), but must collect sales tax if selling the same equipment to a lab or veterinarian instead of a farmer or rancher.

What this means for you

Sellers of veterinary/agricultural testing equipment

Most fecal-egg-count testing equipment sold to farmers and ranchers for their own on-farm use is exempt, but you need a signed exemption certificate on file from each qualifying customer (Rule 3.296). The collection/transport vessels are the one item that stays taxable regardless of who buys them, because they aren't used exclusively on the farm.

Farmers and ranchers buying livestock-testing equipment

Most of this equipment should be tax-free if you're buying it for your own farm/ranch use and provide the seller an exemption certificate — except the sample-transport vessels, which are taxable.

Veterinarians and diagnostic labs

If you buy this same type of equipment directly (not as a farmer/rancher), it's fully taxable — the farm/ranch exemption doesn't extend to lab or veterinary purchasers.

Accountants and tax professionals

A precise, item-by-item application of the "exclusively used on a farm or ranch" test in Section 151.316/Rule 3.296 — useful for seeing how a single multi-item invoice can split between exempt and taxable lines based on each item's actual use, not the invoice as a whole. The letter also carries a standing STAR ALERT (added after the 1999 ruling) noting that agricultural exemption-certificate purchasers must now register for an Agriculture and Timber Registration Number under 2011's House Bill 268 — a registration-paperwork requirement layered on top of, not a substantive change to, the item-by-item exemption analysis above.

Common questions

Q: Is a microscope sold to a rancher for on-farm parasite testing exempt from Texas sales tax?
A: Yes, if used exclusively on the farm or ranch, under Section 151.316.

Q: Are the sample-collection vessels used to transport tissue/fluid samples to a vet or lab exempt too?
A: No — because they aren't used exclusively on the farm or ranch, they don't qualify for the exemption.

Q: Does a seller need anything on file to sell this equipment tax-free to a farmer or rancher?
A: Yes, an exemption certificate under Rule 3.296.

Q: Is this equipment exempt if sold directly to a veterinarian or lab instead of a farmer or rancher?
A: No — the seller must collect sales tax on sales to labs or veterinarians.

Q: Can I rely on this letter for my own equipment sales today?
A: No. It's based on the specific facts presented and can be relied on only by the taxpayer to whom it was issued. Also note the Agriculture and Timber Registration Number requirement added by 2011's House Bill 268 for agricultural exemption-certificate purchasers.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.316 (exemption for farm/ranch machinery and equipment used exclusively in agricultural production)
• 34 Tex. Admin. Code Rule 3.296 (Agricultural, Timber, and Off-Road Vehicles)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9909658L

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.

September 7, 1999

Dear Ms. **:

Thank you for your recent letter which is restated in part with response below.

"I represent **, a company engaged in the sale of equipment used by

farmers and ranchers to perform fecal egg counts to determine whether parasite

loads in their livestock indicate that they should deworm the animals.

The equipment consists of a microscope, lens paper and solution for cleaning

the microscope, slides and cover glasses, flotation solution, droppers, vials

to collect samples in the field, pen for writing on the sample vial, forceps,

disinfectant for cleaning equipment and work surfaces, bottles for mixing the

sample and the flotation solution, instrument for grinding the fecal sample,

and vessels to collect various animal tissues and fluids for transport to a

veterinarian or diagnostic lab for analysis

I am unable to determine whether sales tax should be charged Texas residents

for any of these items and would appreciate your opinion as to the exempt

status of these items."

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. Each item with the exception

of the collection vessels will qualify for exemption if they are used

exclusively on a farm or ranch. The vessels are not used exclusively on a farm

or ranch and so do not qualify for exemption.

You must obtain an exemption certificate from your customers when selling these

items to farmers and ranchers for use in agricultural production. I am

enclosing Rule 3.296 and an exemption certificate for your files. If you sell

these same items to a lab or to a veterinarian, you must collect sales tax.

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, ext. 3-4680. The direct line is

512/463-4680. You may also write to Tax Policy, Comptroller of Public

Accounts. The email address is .

Sincerely,

Al Van Allen

Tax Policy Division