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Home / Doing business / Business types / Industry specific guides / Agriculture
Agriculture
This tax guide was written to help farmers understand their tax liability in the state of Washington. For additional information or answers to any questions about Washington excise taxes, please contact us.
Contents
Agriculture Common Terms
Agricultural Product
Any product of plant cultivation or animal husbandry including, but not limited to: A product of horticulture, grain cultivation, vermiculture, viticulture, or aquaculture as defined in RCW 15.85.020; plantation Christmas trees; short-rotation hardwoods as defined in RCW 84.33.035; turf; or any animal including but not limited to an animal that is a private sector cultured aquatic product as defined in RCW 15.85.020, or a bird, or insect, or the substances obtained from such an animal. "Agricultural product" does not include animals defined as pet animals under RCW 16.70.020.
Business and Occupation Tax (B&O)
The B&O tax applies to the gross amount received from conducting business. There are different reporting classifications for retail sales, wholesale sales, professional services, and other business activities. Each classification has its own tax rate. Persons performing more than one activity may be subject to B&O tax under more than one reporting classification.
Consumer
A consumer is any person who uses tangible personal property and receives services defined as retail sales. Tangible personal property or services may be for personal use or for use conducting business activities. If you 're a seller, you need to know who is a consumer to know when to collect sales tax. If you are a buyer, you need to know when to pay sales tax to the seller and, if sales tax hasn't been paid, when to pay sales tax (often referred to as "deferred sales tax") or use tax directly to the Department of Revenue.
Farmer
Any person engaged in the business of growing, raising, or producing, upon the person's own lands or upon the lands in which the person has a present right of possession, any agricultural product to be sold. "Farmer" does not include a person growing, raising, or producing such products for the person's own consumption; a person selling any animal or substance obtained therefrom in connection with the person's business of operating a stockyard or a slaughter or packing house; or a person in respect to the business of taking, cultivating, or raising timber.
Feed
Any substance used as food to sustain or improve animals, birds, fish, or insects, and includes whole and processed grains or mixtures thereof, hay and forages or meals made therefrom, mill feeds and feeding concentrates, stock salt, hay salt, bone meal, fish meal, cod liver oil, double purpose limestone grit, oyster shell, and other similar substances. "Feed" includes food additives which are given for their beneficial growth or weight effects. However, "feed" does not include hormones or similar products which do not make a direct nutritional or energy contribution to the body, nor does it include products which are used as medicines.
Fertilizer
Any substance containing one or more recognized plant nutrients and which is used for its plant nutrient content and/or which is designated for use in promoting plant growth. "Fertilizer" includes limes, gypsum, and manipulated animal and vegetable manures.
Gross Amount
The term "gross amount," which appears at the top of column one on the excise tax return, is a "catch-all " term for whichever of the following terms is applicable to your business: "gross proceeds of sale," "gross income of the business," or "value of products." The gross amount includes all consideration received without deductions for the costs of doing business or other expenses.
RCW
Revised Code of Washington. The Revised Code of Washington (RCW) is the compilation of all permanent laws (i.e., statutes) currently in force.
Retail Sales Tax
A tax imposed on the buyer of goods and certain retail services. The seller is responsible for collecting the tax from the consumer and remitting the tax to the Department of Revenue. The sales tax is a combined state and local tax.
Seed
Propagative portions of plants, commonly used for seeding or planting whether true seeds, bulbs, plants, seedlike fruits, seedlings, or tubers.
Spray Materials
Any substance or mixture of substances in liquid, powder, granular, dry flowable, or gaseous form, which is intended to prevent, destroy, control, repel, or mitigate any insect, rodent, nematode, mollusk, fungus, weed, and any other form of plant or animal life which is normally considered to be a pest. The term includes treated materials, such as grains, which are intended to destroy, control, or repel such pests. "Spray materials" also includes substances which act as plant regulators, defoliants, desiccants, or spray adjuvants.
UBI/Tax Registration Number
Sometimes called a registration, tax reporting account, "C," the Unified Business Identifier (UBI) number is a nine-digit number used to identify persons engaging in business activities. The number is assigned when a person completes a Master Business Application to register with or obtain a license from state agencies. The departments of Revenue, Licensing, Employment Security, Labor and Industries, and the Corporations Division of the Secretary of State are among the state agencies participating in the UBI program.
Use Tax
Use tax is a tax imposed on the use of goods in this state as a consumer when the goods are purchased or acquired without payment of this state's retail sales tax. With respect to the use of goods as a consumer, either sales tax or use tax, but not both, applies. In this manner, use tax serves to complement the sales tax. Like the sales tax, the use tax is a combined state and local tax. Use tax rates and sales tax rates are identical.
WAC
Washington Administrative Code. The Washington Administrative Code codifies the rules (i.e., regulations) of each state agency having rule-making authority.
Overview of Taxes Applying to Farming
Generally, farmers do not need to have a tax registration number if they only
make wholesale sales of the agricultural products that they grow, raise, or produce.
However, this does not mean that taxes do not apply to farming related activities.
Farmers must pay sales tax or use tax on all tangible personal property used in
farming, unless specifically exempted by law. This guide has a discussion on what
items used in farming are exempt from sales tax or use tax.
Wholesale Sales (Exempt for Farmers)
A B&O tax exemption is provided for wholesale sales by farmers of agricultural
products they have produced on their farms. If a farmer only makes wholesale sales
of his or her products, there is no need to obtain a tax registration number from
the Department of Revenue. A farmer that is not required to obtain a tax registration
number from the Department may report and pay use tax with a Consumer
Use Tax Return.
Retail Sales (Not Exempt)
However, if a farmer sells his or her products at retail to consumers, such
sales are not exempt from the B&O tax. Retail sales of agricultural products
by farmers or other persons are taxable under the retailing B&O tax classification.
Additionally, if the product sold at retail is not an exempt food product or is
not otherwise exempt from sales tax, retail sales tax must be collected. (For
more information, see sales and use tax
exemptions.) Below is a listing of some agricultural products that, if sold
at retail by a farmer, require the farmer to collect retail sales tax from the
buyer:
- Turf
- Flowers
- Plants
- Trees
- Shrubs
- Vines
- Moss
- Plantation Christmas Trees
Litter Tax
The gross proceeds of sales of certain products are subject to litter tax under
Chapter 82.19
RCW. Litter tax, however, does not apply to sales of agricultural products
that are exempt from B&O tax under RCW
82.04.330. Therefore, farmers are not subject to litter tax on wholesale sales
of agricultural products.
Litter tax applies to the gross proceeds of retail sales of agricultural
products that constitute food for human or pet consumption. This includes
retail sales by farmers of agricultural products that constitute food for
human consumption. Litter tax is reported on the excise tax return.
Sales of Goods to Farmers
he following discussion provides the tax reporting responsibilities of those
selling goods to farmers.
Retail Sales
Sales or rentals of the following items to farmers are taxable as retail sales.
Sellers must collect sales tax on these sales, unless specifically exempt by law.
(For more information, see sales
tax exemptions.) In addition, retailing B&O tax applies:
- Machinery
- Combines
- Irrigation systems
- Vehicles
- Parts
- Tools
- Cleaning materials
Wholesale Sales (sales tax does not apply)
Sales of the following items to farmers for the purpose of producing for sale
any agricultural product are taxable as wholesale sales (sales tax does not
apply):
- Feed
- Seed
- Seedlings
- Fertilizer
- Agents for enhanced pollination (including insects such as bees)
- Spray materials
Sales of the following items to farmers are also wholesale sales:
- Chemical sprays or washes sold to farmers or other persons for post-harvest
treatment of fruit for the prevention of scald, fungus, mold, or decay.
- Containers, packaging, and wrappers that are sold by the farmer along
with the agricultural product to be contained therein. Some examples include
grain sacks, twine used in binding such sacks, wire used for binding bales
of hay, fruit or vegetable wrappers, and cardboard boxes for fruits and vegetables.
However, sales of packing materials and containers to a farmer who will use
the items as a consumer are retail sales. Thus, sales of binder twine to a
farmer for binding bales of hay that will be used to feed the farmer's livestock
are retail sales.
The seller must document wholesale sales by retaining a copy of a resale certificate or after December 31, 2009, a Reseller Permit provided by the farmer.
References: WAC
458-20-102, 458-20-115.
Providing Services to Farmers
Service B&O Tax (sales tax does not apply)
Farming for hire and performing horticultural services for farmers: Persons who engage in farming for hire or who perform horticultural services for farmers are generally subject to the service and other activities classification of the B&O tax on the gross income of the business. The term "horticultural services" includes, but is not limited to, the following activities:
- Soil preparation of land currently being used to raise plant crops,
such as plowing, weed control, or orchard stump removal before replanting;
- Crop cultivation activities such as planting, thinning, weeding, pruning,
or spraying;
and
- Crop harvesting activities such as threshing grain or legumes, mowing and
baling hay, or picking fruit.
Persons in the business of farming for hire or performing horticultural services
for farmers are considered the consumers of any materials they purchase unless
they resell the materials and bill their customer (the farmer) a separate charge
for the materials. (See wholesale sales below.)
References: RCW
82.04.190 and WAC
458-20-209
Wholesale Sales (sales tax does not apply)
If a person engaging in the business of farming for hire or providing horticultural
services to farmers also sells tangible personal property for a separate charge,
the charge made for the tangible personal property is subject to either the
wholesaling or retailing B&O tax depending on the nature of the sale.
For example, ABC Aviation Co. (ABC) is hired by farmers to spray pesticides on
their crops. ABC segregates the charge for the pesticides and the charge for the
application on its sales invoices. When reporting its tax liability, ABC should
report the charge for the pesticide application under the service and other activities
B&O tax classification. The charge for the sale of the spray materials is
subject to the wholesaling B&O tax, provided ABC obtains a copy of a resale certificate or after December 31, 2009, a reseller permit. The purchases of pesticides by ABC are for resale and are not
subject to retail sales tax, provided that ABC gives the seller a copy of an appropriate exemption certificate.
References: RCW
82.04.050, WAC
458-20-102, and 458-20-209
Farmers' Use Tax Obligation
Unlike other types of businesses, farmers are not generally required to register
with the Department of Revenue. For this reason, many farmers may be unaware that
they may owe use tax when tangible personal property such as machinery and equipment
is acquired without payment of Washington's retail sales tax. For example, a farmer
who buys a combine from a neighboring farmer owes use tax, unless specifically
exempt by law.
What is Use Tax?
Use tax is a tax imposed on the use of tangible personal property in Washington
when sales tax has not been paid. It is computed at the same rate as the sales
tax. Unless specifically exempt by law, all tangible personal property purchased
or used in this state is subject to either the sales tax or use tax, but not
both, regardless of where or from whom the property is purchased.
When a farmer purchases machinery and equipment from a dealer in this state,
the farmer must pay sales tax to the dealer, unless the sale is specifically
exempt by law. The dealer in turn pays the collected sales tax to the Department
of Revenue. There are many instances, however, where sales tax is not paid to
the seller. In these situations, the farmer must remit the sales tax (commonly
referred to as "deferred sales tax") or use tax directly to the Department,
unless specifically exempt by law. The following are examples of when farmers
owe use tax, presuming no exemption from the tax applies:
- Machinery and equipment purchased from another farmer. Unless the selling
farmer is registered with the Department of Revenue, sales tax will not be collected.
- Machinery and equipment purchased in another state with no sales tax
or in a state with a sales tax rate less than Washington's. If sales or use
tax was paid in another state, you may take a credit for the amount of tax paid
against the amount of use tax due in Washington.
- Machinery and equipment are purchased from an out-of-state Internet seller
or from a mail order catalog. These types of remote sellers are many times not
required to collect Washington's sales tax. However, the farmer owes use tax
on these items.
References: RCW
82.12.020 and WAC
458-20-178
Frequently Asked Questions About Use Tax
Do I get credit for equipment I use as a trade-in?
Use tax is computed on the amount due after the value of a "like kind"
trade-in is subtracted from the purchase price. For example, if you bought a
plow from a dealer in another state and you used another plow as a trade-in,
use tax is due on the remaining balance.
If sales or use tax was paid in another state, you may also take a credit for
the amount of tax paid against the amount of use tax due in Washington. In order
to take the credit, you must have documentation, such as an invoice, of the
amount of tax paid.
Is use tax due if I acquire farm equipment when I purchase a farm?
If you acquire tangible personal property with the farm, use tax is due on
the value of the non-exempt personal property. When completing the Real Estate
Excise Tax Affidavit for the County Treasurer, you must indicate the value of
the personal property separate from that of the real property. The value of
the tangible personal property is subject to use tax, unless an exemption applies
to a specific item of property.
Do I owe use tax if machinery or equipment is given to me?
Use tax is not due if the person giving you the machinery and equipment can
document that he or she has already paid sales tax or use tax on the goods.
However, if sales or use tax was not paid by that person, then you owe use tax.
When is use tax due?
Liability for use tax arises at the time the property is first put to use in
this state. Generally, first use occurs when the goods are first acquired or
brought into Washington.
How do I report and pay use tax?
- Farmers that do not have a tax registration number with the Department of
Revenue must report and pay use tax with a Consumer
Use Tax Return (pdf).
- If you are registered with the Department of Revenue, you should report
use tax on the use tax sections of the excise tax return, or you
may use the Consumer
Use Tax Return (pdf).
- For vehicles and trailers that must be licensed for use on roads, use
tax is paid to the County Auditor or licensing agent.
How will the Department of Revenue know if I don't pay the tax?
The Department of Revenue actively investigates and pursues businesses and
individuals to collect unpaid tax, including use tax. Department employees
utilize many resources to discover unpaid use tax. For example, the Department
reviews personal property records of the County Assessor's office to locate
tangible personal property on which sales or use tax has not been paid. After
a review of the assessor's records, notices are sent to farmers requesting either
payment of use tax or verification that sales or use tax has been paid. Likewise,
the Department reviews Real Estate Excise Tax Affidavits to determine whether
use tax has been paid on personal property acquired in connection with a real
property transfer. The Department also detects unpaid use tax through the
audit process.
How can I prove that sales or use tax has been paid?
Your invoice will prove if sales tax has been paid. By law purchase documents
such as sales receipts or invoices, must separately state the sales tax from selling
price.
To prove you have paid use tax, keep the documentation (e.g., Consumer Use Tax
Return or excise tax return) for all items on which you've paid the
tax.
Other Resources: Farmers and Use Tax brochure (pdf)
Specific Activities of Farmers
Plantation Christmas Trees
Persons growing or producing plantation Christmas trees on their own lands or
upon lands in which they have a present right of possession are farmers.
Plantation Christmas trees are Christmas trees that are exempt from the timber
excise tax under RCW
84.33.170. This requires that the Christmas trees be grown on land prepared
by intensive cultivation and tilling, such as irrigating, plowing, or turning
over the soil, and on which all unwanted plant growth is controlled continuously
for the exclusive purpose of raising Christmas trees.
Wholesale sales of plantation Christmas trees by farmers are exempt from B&O
tax, provided that the farmer receives an appropriate exemption certificate or permit from the buyer documenting
the wholesale nature of the sale.
Retail sales of plantation Christmas trees by farmers are subject to the retailing
B&O and retail sales tax.
Farmers growing or producing plantation Christmas trees may purchase seeds, seedlings,
fertilizer, and spray materials at wholesale.
Other Christmas tree operations. Persons who either directly or by contracting
with others for the necessary labor or mechanical services fell, cut, or take
Christmas trees other than plantation Christmas trees are extractors. Tax-reporting
instructions for persons who fell, cut, or take Christmas tress other than plantation
Christmas trees are provided in WAC
458-20-13501 (Timber harvest operations).
References: RCW
82.04.213, RCW
82.04.035, RCW
82.04.100.
Short Rotation Hardwoods
Persons cultivating short rotation hardwoods are considered
farmers. Short rotation hardwoods are trees, such as but not limited to, hybrid
cottonwoods, cultivated by agricultural methods in growing cycles shorter than
15 years.
Sales of short rotation hardwoods to others for resale are exempt from the B&O
tax, provided that the grower receives a resale certificate or a reseller permit documenting
the wholesale nature of the sale.
Farmers growing or producing short rotation hardwoods may purchase seeds, seedlings,
fertilizer, and spray materials at wholesale.
References: RCW
82.04.213 and 84.33.035.
Public Markets - Roadside Stands
Many farmers sell their agricultural products to consumers at public markets
or roadside stands. These sales are sales at retail.
Farmers making retail sales of agricultural products at public markets or roadside
stands may sell food products for human consumption, which are exempt from retail
sales tax, or they may make sales of agricultural products that are not food
products.
Food sales: Although retail sales of agricultural products that are food
for human consumption are exempt from sales tax, farmers that make such sales
are subject to the retailing classification of the B&O tax. If the farmer
expects to have sales of at least $12,000 in a year, the farmer will need to obtain
a tax registration number from the Department of Revenue.
Non-food sales: Farmers that sell agricultural products that are not considered
food for human consumption are subject to the retailing classification of the
B&O tax and must collect retail sales tax from the buyer, unless specifically
exempt by law.
Combination sales: Farmers that sell agricultural products that are exempt
from retail sales tax as food products and also sell agricultural products that
are not tax-exempt food products are subject to the retailing classification of
the B&O tax on all sales. The farmer must collect retail sales tax from the
buyer on those non-food item sales, unless another exemption applies. These farmers
must obtain a tax registration number from the Department of Revenue if they are
required to collect retail sales tax or if they have sales of at least 12,000
per year.
References: WAC
458-20-210 and 458-20-244
Feedlots
Introduction: A feedlot feeds cattle owned by others or cattle that the
feedlot purchases for resale. The cattle are fed on the land owned by the feedlot.
Feeding for hire: Income received by a feedlot for feeding cattle owned
by others is exempt from B&O tax under RCW
82.04.330 if the cattle are held by the feedlot for at least sixty days while
the cattle are prepared for market. If the feedlot raises the cattle for less
than sixty days, the income received for feeding the cattle is subject to service
and other activities B&O tax.
Cattle owned by feedlot: A feedlot which fattens its own cattle for at
least sixty days before selling them at wholesale will be treated as a farmer
(not subject to B&O tax on its wholesale sales of cattle). If a feedlot owns
the cattle for less than sixty days, the sales are subject to the wholesaling
classification of the B&O tax.
References: WAC
458-20-210
Nurseries
Introduction: For the purpose of this discussion, a "nursery"
is a person who grows, propagates or produces for sale upon the person's own lands
or upon land in which the person has a present right of possession, any flowers,
trees, shrubs or vines.
Wholesale sales: Nurseries are exempt from B&O tax for sales at wholesale
of flowers, trees, shrubs, and vines. Sales of seeds, fertilizers, and spray materials
to nurseries for use in producing for sale flowers, trees, shrubs, or vines are
wholesale sales.
Retail sales: Nurseries are subject to the retailing classification of
the B&O tax and must collect retail sales tax from the buyer on all retail
sales of flowers, trees, shrubs, and vines.
References: RCW
82.04.330 and WAC
458-20-158 (Florists and nurserymen.)
Turf Farmers
Introduction: Turf grass is an agricultural product. Sales of turf grass
by farmers are either wholesale or retail sales.
Wholesale sales: Sales of turf grass by farmers for resale are not subject
to the B&O tax. Sales of seed, fertilizer, and spray materials to turf grass
farmers are wholesale sales, provided the seller receives a resale certificate or after December 31, 2009, a reseller permit,
from the farmer.
Retail sales: Sales of turf grass by farmers at retail are subject to the
retailing classification of the B&O tax and retail sales tax must be collected
from the buyer.
References: RCW
82.04.213 and 82.04.330
Shellfish or Other Aquatic Products
Introduction: The term "agricultural product" includes products
of "aquaculture" and animals that are "cultured aquatic products."
Aquaculture means the process of growing, farming, or cultivating private sector
cultured aquatic products in marine or freshwaters and includes management by
an "aquatic farmer." An aquatic farmer is a private sector person who
commercially farms and manages the cultivating of private sector cultured aquatic
products on the person's own land or on land in which the person has a present
right of possession.
Wholesale sales: Sales of products of aquaculture by aquatic farmers for
resale are not subject to the B&O tax. Sales of feed to aquatic farmers for
use in the cultivating or raising for sale of fish are wholesale sales.
Retail sales: Sales of products of aquaculture by aquatic farmers at retail
are subject to the retailing classification of the B&O tax and retail sales
tax must be collected from the buyer, unless specifically exempt by law.
References: RCW
15.85.020, 82.04.050, 82.04.060, 82.04.213, 82.04.330,
and 82.08.0294
Farmers Using Agricultural Products in a Manufacturing Process
Introduction: The B&O tax exemption for farmers that sell agricultural products at wholesale does not apply to any person selling manufactured substances or articles that were manufactured using agricultural products that they have grown, raised, or produced.
Manufacturing: Farmers who manufacture products using agricultural products
that they have grown, raised, or produced are subject to manufacturing B&O
tax on the value of products manufactured.
Wholesale sales: Farmers who sell their manufactured products at wholesale
in the state of Washington are subject to the wholesaling B&O tax. A multiple
activities tax credit (MATC) may be available.
Retail sales: Farmers who sell their manufactured products at retail
in the state of Washington are subject to the retailing B&O tax and retail
sales tax must be collected from the buyer, unless specifically exempt by law.
A multiple activities tax credit (MATC) may be available.
See the Wine Industry Guide
Example: WG Vineyards (WG) produces wine from grapes that it grows in
its vineyards located within this state. WG makes wholesale sales of its wine
to customers both within and outside of this state. WG is subject to manufacturing
B&O tax on the value of the wine it produces. WG is also subject to wholesaling
B&O tax on wholesale sales of wine delivered to buyers within this state,
and WG is entitled to a multiple activities tax credit. In addition, WG is subject
to litter tax on the value of wine sold within this state.
Purchases: Effective July 22, 2001, Farmers that manufacture agricultural products into new products
may purchase feed, seed, fertilizer, spray materials, and agents for enhanced
pollination without paying sales tax.
Manufacturing Equipment Sales/Use Tax Exemption: An exemption from sales
and use tax for manufacturing machinery and equipment is available for manufacturers.
More information is available on this exemption in WAC
458-20-13601 and our publication, Manufactures'
Sales/Use Tax Exemption (pdf).
Rural County Sales/Use Tax Deferral: The Rural County Deferral/Exemption Program grants a waiver of sales/use tax on pre-approved construction of manufacturing facilities and purchases of qualified machinery and equipment for new and expanding businesses in certain geographical areas. See Rural County Sales/Use Tax Deferral Program brochure.
Hauling
Introduction: The transportation by motor vehicle of agricultural products or other property is subject to either the public utility tax or the B&O tax.
Motor/Urban Transportation: If any of the transportation occurs on the
public roads, the income is taxable under either the motor or urban transportation
classification of the public utility tax.
Service B&O: If the transportation occurs only on private land,
the income is taxable under the service and other activities B&O tax.
References: WAC
458-20-180
Compressing or Cubing of Hay
Compressing Hay: Bales of hay are placed into a compressor. No foreign substances or materials are added to the pure hay. Hydraulic presses then compress the bales. No physical change involving grinding or cubing occurs. The bale is merely compressed into a more convenient size for shipping.
Cubing Hay: Involves both the addition and/or subtraction of additional
moisture, and an extensive amount of processing which results in significant
changes in form, demand, and value. Cubing hay is excluded from the definition
of "to manufacture."
Service B&O: Income received from compressing or cubing hay for
hire is subject to the service and other B&O tax.
References: RCW
82.04.120 and Det. No. 94-255, 14 WTD 092 (1994)
Pollination
Sales of Insects: The sale of insects such as leaf-cutter bees for the purpose of pollination to a farmer is subject to the wholesaling B&O tax. A copy of the reseller permit issued to the farmer must be given to the seller.
Beekeepers: Beekeepers provide bees (usually honey bees) to farmers
for the purpose of pollination. Income of the beekeeper is subject to the service
and other B&O tax as a horticultural service.
References: WAC
458-20-210
Cold Storage
Cold Storage Warehouse: A storage warehouse used to store fresh and/or frozen perishable fruits or vegetables, meat, seafood, dairy products, or fowl at a desired temperature to maintain the quality of the product. It does not include providing of freezer space or frozen food lockers.
Warehousing B&O Tax: The gross income from operating a warehouse
includes all income from the storing, handling, sorting, weighing, measuring,
and loading or unloading for storage of items stored in a cold storage warehouse.
References: WAC
458-20-182
Seed Furnished Under Grower Contracts
Introduction: Many seed companies contract with farmer-growers to raise seed. These companies provide the seed, and in turn agree to purchase the crop if it meets specified standards. These contracts will often provide that ownership of the crop is retained by the seed company, while the risk of crop loss is borne by the farmer-grower. However, the farmer-grower is obligated to pay for the seed, whether or not the crop meets the specified standard.
Wholesaling B&O: The transfer of possession of the seed to the farmer-grower
is a sale. There is a transfer of ownership or possession for a valuable consideration.
These sales transactions are sales for resale, and subject to the wholesaling
B&O tax.
Purchases: Fertilizer and spray materials may be purchased by the farmer-grower
with a resale certificate or after December 31, 2009, a reseller permit, without payment of sales tax. The companies that
provide the seeds are not farmers, therefore, they cannot purchase fertilizer
and spray materials without paying sales tax.
Hauling
Persons that haul agricultural products or farm machinery or equipment for a farmer or person performing custom farming services are exempt from public utility tax when the person performing the hauling and the farmer or custom farmer receiving the service are related.
See Custom Farming Services for definitions and further information.
This exemption expires December 31, 2020
Reference: RCW 82.16.300
Sale of Hatching Eggs or Poultry
The B&O tax does not apply to amounts received for the sale of hatching
eggs or poultry by poultry farmers, when the hatching eggs or poultry are
for use in the production of poultry or poultry products for sale.
References: RCW
82.04.410
Processed Hops Sold for Use Out-of-State
The B&O tax does not apply to amounts received by hop growers or dealers
for hops that are shipped outside the state of Washington for first use. The
hops must have been processed into extract, pellets, or powder in this state.
This exemption does not apply to a processor or warehouser on amounts charged
for processing or warehousing hops.
References: RCW
82.04.337
Sale of Agricultural Products by a Farmer
The B&O tax does not apply to any farmer that sells any agricultural
product for resale or to any farmer who grows, raises, or produces agricultural
products owned by others, such as custom feed operations. This exemption does
not apply to any person selling agricultural products at retail or to any
person selling manufactured substances or articles.
References: RCW
82.04.330
Payments Received Under Federal Conservation Reserve Program
The B&O tax also does not apply to any persons who participate in the
federal conservation reserve program or its successor administered by the
United States Department of Agriculture with respect to land enrolled in that
program.
References: RCW
82.04.330
Farmers Who Occasionally Assist Other Farmers
A farmer who occasionally assists another farmer in planting or harvesting
a crop is generally not considered to be engaged in the business of farming
for hire or performing horticultural services for farmers. For example, a
farmer owning baling equipment which is used primarily for baling hay produced
by the farmer, but who may occasionally accommodate neighboring farmers by
baling small quantities of hay produced by them, is not considered to be engaging
in business.
Persons who advertise or hold themselves out to the public as being available
to perform farming for hire will be considered as being engaged in the business
of farming for hire, irrespective of the amount of such business or that the
person also does some farming on his or her own land.
References: WAC
458-20-209
Interstate or Foreign Sales
Washington State does not impose retailing or wholesaling B&O tax on
sales of goods that originate in Washington if receipt of the goods occurs
outside Washington.
References: WAC
458-20-193
Sale of Seed at Wholesale to Farmers or Conditioning Seed for Planting
The B&O tax does not apply to amounts received by a person engaging within
this state in the business of: (a) Making wholesale sales to farmers of seed
conditioned for use in planting and not packaged for retail sale; or (b) conditioning
seed for planting owned by others.
"Seed" means seed potatoes and all other "agricultural seed"
as defined in RCW 15.49.011. "Seed" does not include "flower
seeds" or "vegetable seeds" as defined in RCW 15.49.011, or any
other seeds or propagative portions of plants used to grow ornamental flowers
or used to grow any type of bush, moss, fern, shrub, or tree.
References: RCW
82.04.331, RCW
15.49.011
Buying and Selling at Wholesale Wheat, Oats, Dry Peas, Dry Beans, Lentils,
Triticale, Canola, Corn, Rye, and Barley.
The B&O tax does not apply to amounts received from buying wheat, oats,
dry peas, dry beans, lentils, triticale, canola, corn, rye, and barley, and
selling these products at wholesale. The exemption does not include buying
or selling of any manufactured products made from wheat, oats, dry peas, dry
beans, lentils, triticale, canola, corn, rye, and barley.
References: RCW
82.04.332
Compensation for Receiving, Washing, Sorting, and Packing Horticultural Products
A B&O tax deduction is available for amounts derived by any person as
compensation for the receiving, washing, sorting, and packing of fresh perishable
horticultural products and the material and supplies used therein when performed
for a farmer, either as agent or as independent contractor.
References: RCW
82.04.4287
Interest on loans to Farmers, Ranchers, or Producers or Harvesters of Aquatic
Products
A B&O tax deduction is available for amounts derived as interest on loans
to bona fide farmers and ranchers, producers or harvesters of aquatic products,
or their cooperatives. The lending institution must be owned exclusively by
its borrowers or members. The lending institution must be engaged solely in
the business of making loans and providing finance-related services to bona
fide farmers and ranchers, producers or harvesters of aquatic products, their
cooperatives, rural residents for housing, or persons engaged in furnishing
farm-related or aquatic-related services to these individuals or entities.
References: RCW
82.04.4294
Agricultural Fairs
The B&O tax does not apply to any business of any bona fide agricultural
fair, if no part of the net earnings benefits any stockholder or member of
the association conducting the agricultural fair. Any amount paid for admission
to any exhibit, grandstand, entertainment, or other feature conducted within
the fair grounds by others is subject to the B&O tax, except as otherwise
provided by law.
References: RCW
82.04.335
Exclusions from Manufacturing B&O tax
The following activities are not considered manufacturing activities for
purposes of the manufacturing classification of the B&O tax:
- Activities which consist of cutting, grading, or ice glazing seafood
which has been cooked, frozen, or canned outside this state;
- The growing, harvesting, or producing of agricultural products;
- Conditioning of seed for use in planting;
- Cubing hay or alfalfa;
- Packing of agricultural products, including sorting, washing, rinsing,
grading, waxing, treating with fungicide, packaging, chilling, or placing
in controlled atmospheric storage; and
- The removal of the head, fins, or viscera from fresh fish without further
processing, other than freezing.
References: RCW
82.04.120 and .2403
Sales and Use Tax Exemptions
Feed for Feeding Livestock at Public Livestock Markets
Feed to be consumed by livestock at a public livestock market is exempt from
retail sales and use tax.
References: RCW
82.08.0296 and 82.12.0296
Pollen
Pollen is exempt from retail sales and use tax.
References: RCW
82.08.0277 and 82.12.0273
Semen for Use in the Artificial Insemination of Livestock
Semen for use in the artificial insemination of livestock is exempt from
retail sales and use tax.
References: RCW
82.08.0272 and 82.12.0267
Livestock for Breeding Purposes
The sale or use of livestock, as defined in RCW
16.36.005, for breeding purposes where the animals are registered in a nationally
recognized breed association is exempt from retail sales and use tax. When making
tax-exempt purchases, buyers must provide an exemption certificate to the seller
who is required to keep the certificate on file for a period of five years. (See
the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).)
References: RCW
82.08.0259 and 82.12.0261
Sale of Beef and/or Dairy Cattle for use by a Farmer
Cattle and milk cows used on the farm are exempt from retail sales and use
tax.
References: RCW
82.08.0259 and 82.12.0261
Auction Sales of Farm Property
Retail sales and use taxes do not apply to tangible personal property, including
household goods, which have been used in conducting a farm activity, if the
property was purchased from a farmer at an auction sale held or conducted
by an auctioneer upon a farm.
References: RCW
82.08.0257 and 82.12.0258
Leases of Irrigation Equipment
Retail sales and use taxes do not apply to the lease or use of irrigation
equipment if:
- The irrigation equipment was purchased by the lessor for the purpose
of irrigating land controlled by the lessor;
- The lessor has paid sales or use tax in respect to the irrigation equipment;
- The irrigation equipment is attached to the land in whole or in part;
and
- The irrigation equipment is leased to the lessee as an incidental part
of the lease of the underlying land to the lessee and is used solely on such
land.
References: RCW
82.08.0288 and 82.12.0283
Food Products for Human Consumption
Food products for human consumption are exempt from retail sales and use
tax. This exemption includes livestock sold and/or used for human consumption.
References: RCW
82.08.0293, 82.12.0293,
and WAC
458-20-244
Dairy Nutrient Management Equipment and Facilities
Sales to, or use by, eligible persons of tangible personal property that becomes
an ingredient or component of dairy nutrient management equipment and facilities
is exempt from retail sales and use tax. The exemption also applies to labor
and services rendered in respect to operating, repairing, cleaning, altering,
or improving dairy nutrient management equipment and facilities. This exemption
became effective July 13, 2001, and applies to sales made, or tangible personal
property or labor and services used, after the dairy nutrient management plan
is certified under chapter 90.64
RCW.
These exemptions are available only if all of the following requirements are met:
- The equipment and facilities must be used exclusively for activities necessary
to maintain a dairy nutrient management plan as required under chapter 90.64
RCW; and
- The buyer provides the seller with an exemption certificate in a form and
manner prescribed by the department which must be retained in the seller's
files. The Department of Revenue will provide an exemption certificate to
an eligible person upon application. A sample
letter (pdf) can be used in applying for an exemption certificate.
For purposes of this exemption, the following definitions apply:
- "Eligible person" means a person licensed to produce milk under
chapter 15.36
RCW who has a certified dairy nutrient management plan by December 31,
2003, as required by chapter 90.64
RCW.
- Dairy nutrient management equipment and facilities" means machinery,
equipment, and structures used exclusively in the handling and treatment
of dairy manure, such as aerators, agitators, alley scrapers, augers, dams,
gutter cleaners, loaders, lagoons, pipes, pumps, separators, and tanks.
The term also includes tangible personal property that becomes an ingredient
or component of the equipment and facilities, including repair and replacement
parts.
References: RCW
82.08.890 and 82.12.890
Animal Pharmaceuticals
Retail sales and use taxes do not apply to sales to,
or use by, farmers or veterinarians of animal pharmaceuticals approved by the
United States Department of Agriculture (USDA) or by the United States Food and
Drug Administration (FDA). To qualify for the exemption, the pharmaceutical must
be administered to an animal that is raised by a farmer for the purpose of producing
for sale an agricultural product. When making purchases exempt of retail sales
tax, buyers must provide an exemption certificate to the seller who is required
to keep the certificate on file for a period of five years. (See the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).)
The USDA and FDA have an established approval process set forth in federal
regulations. The FDA maintains a list of all approved animal pharmaceuticals
called the "Green Book." The USDA maintains a list of approved biotechnology
products called the "Veterinary Biologics Product Catalogue." Pharmaceuticals
that are not on either of these lists have not been approved and are not eligible
for the exemption.
Sales of products that are used to administer animal pharmaceuticals (e.g.,
syringes) do not qualify for the exemption, even if they are later used to
administer a tax-exempt animal pharmaceutical. However, sales of tax-exempt
animal pharmaceuticals contained in a product used to administer the animal
pharmaceutical (e.g., a dose of a tax-exempt pharmaceutical contained in a
syringe or cotton applicator) do qualify for the exemption.
References: RCW
82.08.880 and 82.12.880
Nonresident Sales of Machinery and Implements
The retail sales tax does not apply to sales to nonresidents of this state
for use outside of this state of:
- Machinery and implements for use in conducting a farming activity;
- Parts for machinery and implements for use in conducting a farming
activity; and
- Labor and services for the repair of machinery, implements, and parts
for use in conducting a farming activity.
To qualify for the exemption, the machinery, implements, and parts must be transported
immediately outside the state. When making tax-exempt purchases, buyers must provide
an exemption certificate to the seller who is required to keep the certificate
on file for a period of five years. (See
the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).)
References: RCW
82.08.0268 and WAC
458-20-239
Agricultural Employee Housing
The retail sales tax does not apply to charges made for labor and services rendered
by any person in respect to the agriculture, repairing, decorating, or improving
of new or existing buildings or other structures used as agricultural employee
housing, or to sales of tangible personal property that becomes an ingredient
or component of the buildings or other structures during the course of the agriculture,
repairing, decorating, or improving the buildings or other structures. Buyers
must provide an exemption certificate to the seller who is required to keep the
certificate on file for a period of five years. (See the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).)
The use tax does not apply to the use of tangible personal property that
becomes an ingredient or component of buildings or other structures used as
agricultural employee housing during the course of agriculture, repairing,
decorating, or improving the buildings or other structures by any person.
These exemptions require that the buildings or other structures be used to house
"agricultural employees," as defined by RCW
19.30.010, for at least five consecutive years from the date approved for
occupancy. Agricultural employee housing for year-round agricultural employees
must meet the state building code ( chapter
19.27 RCW) for single-family or multi-family dwellings.
These exemptions do not apply to housing built for the occupancy of an agricultural
employer, as defined by RCW
19.30.10; family members of an agricultural employer; or persons owning stock
or shares in a farm partnership or corporation business.
"Agricultural employee housing" means facilities provided by an
agricultural employer, housing authority, local government, state or federal
agency, nonprofit community or neighborhood-based organization that is exempt
from income tax under section 501(c) of the Internal Revenue Code of 1986,
or for-profit provider of housing for housing agricultural employees. The
facilities must be provided on a year-round or seasonal basis to agricultural
employees. It includes single and multi-family dwellings, and dormitories.
It also includes bathing, food handling, hand washing, laundry, and toilet
facilities. "Agricultural employee housing" does not include housing
regularly provided to the general public on a commercial basis, such as hotels,
motels, apartments, rooming houses, and so forth. Nor does it include housing
provided by a housing authority unless at least 80% of the occupants are agricultural
employees whose adjusted income is less than 50% of median family income,
adjusted for household size, for the county where the housing is provided.
References: RCW
82.08.02745, 82.12.02685,
and WAC
458-20-262
Warehouse and Grain Elevators and Distribution Centers
Wholesalers or third-party warehousers who own or operate warehouses or grain
elevators and retailers who own or operate distribution centers, and who have
paid the tax on:
- Material-handling and racking equipment, and labor and services rendered
in respect to installing, repairing, cleaning, altering, or improving the
equipment; or
- agriculture of a warehouse or grain elevator, including materials,
and including service and labor costs, are eligible for an exemption from all or part of the state's portion of
the sales tax in the form of a remittance.
References: RCW
82.08.820
Sales/Use Tax Exemption for Qualified Farmers
Effective July 1, 2005, retail sales tax and use tax exemptions are available for the purchase or use of certain
equipment (listed below) by qualified farmers. The exemptions are also available for materials, labor, and services
for the construction of hay sheds for qualified farmers.
Prior to July 1, 2005 sales and services listed below were exempt from the sales/use tax. After June 30, 2005 this exemption no longer applies to:
- repairing, cleaning, decorating, altering, or improving the tax exempt equipment;
- tangible personal property that become ingredients or components of tax exempt equipment;
- repairing, cleaning, altering, or improving hay sheds after construction;
- materials incorporated into hay sheds after construction; or
- sheds for the storage of equipment.
Exempt Machinery, Equipment, and Structures for Qualified Farmers
The specific items that qualify for the exemption are limited to the following:
- bale handlers*
- balers
- chisels
- combine component: chaff spreaders
- combine component: stripper headers
- combine component: straw choppers
- cultivators
|
- discs
- harrows
- minimum-till drills
- mowers
- no-till drills
- plows
- power rakes
|
- shredders
- sprayers
- swathers
- tractors (250 engine hp and over)*
- transplanters
|
The construction of hay sheds is also exempt.
* A bale handler is equipment specifically designed to load, stack, retrieve, and/or transport bales. Examples include hay trailers, telehandlers, and bale spears. The exemption does not include a tractor that is less than 250 engine horsepower even if exempt components are attached. The exemption includes kits necessary to attach exempt equipment to nonexempt equipment, when the kits and exempt equipment are purchased together.
Qualified Farmer
“Qualified farmer” means a farmer as defined in RCW 82.04.213 who has more than 50 percent (50%) of his or her tillable acres in cereal grains and/or field and turf grass grown for seed in qualified counties. Cereal grains include wheat, oats, corn, barley, rye, spelt, and triticale. Tillable acres include those that are fallow, but exclude acres in the Conservation Reserve Program.
Qualified counties are those where cereal grain production exceeds fifteen thousand (15,000) acres.
Currently, qualified counties include:
- Adams
- Asotin
- Benton
- Columbia
|
- Douglas
- Franklin
- Garfield
- Grant
|
- Klickitat
- Lincoln
- Spokane
- Stevens
|
- Walla Walla
- Whatcom
- Whitman
- Yakima
|
Business and Occupation (B&O) Tax Credit
Prior to 2005 “Qualified farmers” were allowed a credit against the B&O tax for 50 percent of the costs expended for constructing eligible structures and acquiring eligible machinery and equipment. The B&O tax credit remains available for costs incurred before July 1, 2005. The credit must be claimed against the B&O tax liability incurred before July 1, 2005.
Property Tax Exemption
The property tax exemption of RCW 84.36.580 passed by the Legislature in 2000 for property taxes due in 2002 for qualifying farm machinery and equipment used to reduce field burning or to reduce air emissions resulting from such burning was repealed by the Legislature effective July 1, 2005. Farmers who apply for the personal property tax exemption on qualifying equipment when they filed their annual personal property listing on April 30 will be granted the exemption for the 2005 assessment for taxes to be collected in 2006. This exemption will not be available starting with the 2006 property assessments (2007 tax collections). Contact your local county assessor’s office if you have any questions.
Record Keeping Requirements for Buyers
To use the sales tax exemption, a qualified farmer must give the seller a Farmers’ Retail Sales Tax Exemption Certificate documenting the exempt nature of the transaction. The law requires that a farmer taking the exemption must also keep records necessary for the Department to verify eligibility. For example, copies of farm service agency or crop insurance records can be used to identify acreages by year as to crops grown. The records must be available for audit by the Department. Farmers will owe sales or use tax on purchases that do not qualify for the exemption or when records are inadequate in substantiating eligibility. Improper use of the exemption certificate may subject the farmer to interest and penalties in addition to the tax.
Record Keeping Requirements for Sellers
In order to sell equipment exempt from sales tax, the seller must take the certificate and retain it for five years to document the nature of the sale. Sellers should also be aware that there is no comparable B&O tax exemption. Consequently, income from sales of eligible equipment and structures remains subject to retailing B&O tax.
For More Information
Sales Use Tax Exemption -
For more information about the sales and use tax exemption refer to Chapter 420, Laws of 2005.
Field-burning Regulations -
For information concerning field-burning regulations, contact the Department of Ecology, Air Quality Program at (360) 407-6800.
This law expires January 1, 2011
References: RCW 82.08.841 and 82.12.841
Anaerobic Digesters
Retail sales or tax does not apply to sales to, or use by, eligible persons
of anaerobic digesters, nor to services rendered in respect to installing,
agriculture, repairing, cleaning, altering, or improving an anaerobic digester,
nor to the sale or use of tangible personal property that becomes an ingredient
or component of the anaerobic digester. The anaerobic digester must be used
primarily to treat dairy manure.
The retail sales tax exemption is available only when the buyer provides
the seller with an exemption certificate in a form and manner prescribed by
the Department of Revenue. The Department must provide an exemption certificate
to an eligible person upon application by that person. The application must
be in a form and manner prescribed by the Department and must contain information
regarding the location of the facility and other information as the Department
may require.
References: RCW
82.08.900 and 82.12.900
Propane or Natural Gas to Heat Chicken Structures
Retail sales and use taxes do not apply to propane or natural gas used by farmers
to heat structures used to house chickens. The propane or natural gas must be
used exclusively to heat the structures. The structures must be used exclusively
to house chickens that are sold as agricultural products. This exemption became
effective September 20, 2001, and is available only when the buyer provides the
seller with an exemption certificate. (See the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).)
"Structures" are barns, sheds, and other similar buildings in which
chickens are housed.
References: RCW
82.08.910 and 82.12.910
Chicken Bedding Materials
Retail sales and use taxes do not apply to bedding materials used by farmers to
accumulate and facilitate the removal of chicken manure. To qualify for the exemption,
the farmer must be raising chickens that are sold as agricultural products. This
exemption became effective September 20, 2001, and is available only when the
buyer provides the seller with an exemption certificate. (See the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).)
"Bedding materials" are wood shavings, straw, sawdust, shredded
paper, and other similar materials.
References: RCW
82.08.920 and 82.12.920
Poultry
Poultry used in the production for sale of poultry or poultry products is
exempt from retail sales and use tax.
References: RCW
82.08.0267 and 82.12.0262
Fruit/Vegetable Packing Materials
Retail sales and use taxes do not apply to materials and supplies directly used
in the packing of fresh perishable horticultural products by any person who is
entitled to a B&O tax deduction under RCW
82.04.4287 either as an agent or independent contractor.
References: RCW
82.08.0311 and 82.12.0311, RCW
82.04.4287
Wineries
Wineries that harvest and process their own fruits are considered farmers for the harvesting portion of their business. They are, therefore, eligible for all of the exemptions provided to qualified farmers as explained in this guide. The processing of the fruit into wine is considered a manufacturing activitiy and the equipment used directly in this processing is exempt from sales and/or use tax as explained in WAC 458-20-13601. For information on the reporting responsiblities of wineries see the Winery Guide.
Farm Fuel
Qualifying fuel is exempt from sales and use tax when used for producing agricultural products by farmers and persons providing horticultural services for farmers (“farm fuel users”).
Qualifying Fuels
- Biodiesel fuel as defined in RCW 19.112.010 (effective May 11, 2007)
- Diesel fuel as defined in 26 U.S.C. 4083, as amended or renumbered as of January 1, 2006. This includes clear diesel and red-dyed diesel (effective March 6, 2006)
- Aircraft fuel as defi ned in RCW 82.42.010 (effective March 6, 2006)
- Fuel blends if all the component fuels would otherwise be exempt
Exempt Uses of Fuel
The exemption applies to non-highway use of fuel used to produce agricultural products and provide horticultural services to farmers. Horticultural services include the following:
- Soil preparation services
- Plowing
- Weed control before planting
- Crop cultivation services
- Planting
- Thinning
- Pruning
- Spraying (including aerial applications)
- Freeze control (wind machines and smudge pots)
- Crop harvesting services
- Threshing grain
- Mowing and baling hay
- Picking fruit
Taxable Uses of Fuel
The exemption does not apply to uses other than producing agricultural products or providing horticultural services. Also, the exemption does not apply to any use of the fuel by someone other than a farm fuel user. Examples of taxable use include:
- Space or water heating for human habitation
- Generators for producing electrical power for human habitation
- Growing, raising, or producing agricultural products for a person’s own consumption
- Transportation (public road use)
- Aerial or other spray applications for timber
- Logging operations
Record Keeping Requirements for Fuel Buyers
To claim the sales tax exemption, a farm fuel user must give the seller a completed Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf).
Record Keeping Requirements for Fuel Sellers
Sellers must document tax exempt sales of red-dyed diesel, biodiesel, and aircraft fuel by accepting the Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf) from the buyer and filing it with their business records for five years.
These sales are reported under the B&O tax, Retailing classification, and the retail sales tax line on the excise tax return. A retail sales tax deduction is taken for retail sales tax exempt purchases by farmers.
Fuel Tax Refunds
If you paid the “special fuel tax” on your purchase of diesel or biodiesel fuel and used the fuel for non-highway purposes, you are eligible for a refund of the special fuel tax. To get a refund, you must submit a request to the Department of Licensing’s Fuel Tax Section.
Send your refund request to:
Fuel Tax Section
Washington Department of Licensing
PO Box 9228
Olympia, Washington 98507-9228
(360) 664-1838
We recommend that you include a completed Farmers'
Certificate for Wholesale Purchases and Sales Tax Exemptions (pdf) with your fuel tax refund request; otherwise use tax may be deducted from your refund.
Note: The use tax exemption applies only on diesel and aircraft fuel purchases made on or after March 6, 2006, and biodiesel fuel purchases made on or after May 11, 2007. Fuel purchases made prior to these dates will have the use tax deducted from fuel tax refunds.
References: RCW 82.08.685 and 82.12.865
Replacement Parts
As of July 1, 2006
A sales and/or use tax exemption became available to qualified farmers effective July 1, 2006, for purchases of replacement parts for qualified farm machinery and equipment.
The sales and/or use tax exemption was expanded as of July 22, 2007. For further information regarding the available sales and use tax exemption to qualified farmers, please see below.
As of July 22, 2007
This exemption expanded the sales and use tax exemptions for replacement parts for qualifying farm machinery and equipment. Beginning July 22, 2007, per chapter 82.08.855 RCW. The exemptions will include charges to eligible farmers for installing qualifying replacement parts and repairing farm machinery and equipment. In addition, qualifying farm machinery and equipment will also include “farm vehicles”.
An “eligible farmer” includes any person who:
- Engages in the business of growing, raising, or producing agricultural products(as defined in RCW 82.04.213) for sale upon that person’s own land or land in which the person has a present right of possession; and
- Generates gross sales of agricultural products, or has a harvested value of agricultural products, whichthe person has grown, raised, or produced, of at least $10,000 in the tax year immediately before the year in which an application for exemption is submitted to the Department.
If you have not engaged in farming operations for an entire tax year immediately before applying for the exemption because you are new to farming or newly returned to farming, you may apply for an Exemption Certificate for Replacement Parts and/or Services for Farm Machinery and Equipment. An exemption certificate is conditioned on the farmer either:
- Making gross sales of agricultural products, or having a harvested value of agricultural products, which the farmer has grown, raised, or produced, at least $10,000 in the first full tax year that the farmer engaged in farming operations; or
- Being in the process of growing, raising, or producing agricultural products having an estimated value at any time during the first full tax year that the farmer engaged in farming operations of at least $10,000, if the farmer will not sell or harvest an agricultural product during the first full tax year in which the farmer engages in farming operations.
The Department may request documentation from a farmer possessing an exemption certificate to verify whether either of the above conditions have been met. If a farmer who receives an exemption certificate does not meet either of those conditions, the Department will revoke the exemption certificate. In addition, all taxes for which an exemption was claimed plus interest must be paid within thirty days of the date of the notice revoking the exemption certificate.
A replacement part is a part that replaces an existing part, or which is essential to maintain the working condition of a piece of qualifying farm machinery and equipment.
A replacement part does not include an item that may be desirable and is not essential for maintaining the working condition of a piece of qualifying farm machinery and equipment, unless the item replaces an existing part. A replacement part does not include paint, fuel, oil, grease, hydraulic fluids, anti-freeze, and similar items except when the seller incorporates these items when installing exempt replacement parts or making repairs to qualifying farm machinery and equipment.
The exemption applies to charges for:
- Parts that replace an existing part, or which are essential to maintain the working condition, of a piece of qualifying farm machinery and equipment;
- Installing replacement parts for qualifying farm machinery and equipment; and
- Repairing qualifying farm machinery and equipment.
If exempt installation or repair services are provided in a single transaction that also involves the provision of nonexempt services, the exemptions apply to the exempt services as long as the charge for the exempt services are separately itemized and does not exceed the seller’s usual and customary charge for such services. The exemptions do not apply if the seller makes a single non-itemized charge for all of the services.
Qualifying farm machinery and equipment means machinery and equipment used primarily by an eligible farmer for growing, raising, or producing agricultural products including farm tractors and other farm implements. As of July 22, 2007, qualifying farm machinery and equipment includes vehicles licensed as farm vehicles.
A “farm tractor” is a motor vehicle that is designed and used primarily as a farm implement for drawing plows, mowing machines, and other farm implements of husbandry. (RCW 46.04.180)
“Farm vehicles” are vehicles used primarily in agricultural pursuits on farms for the purpose of transporting machinery, equipment, implements, farm products, supplies and or farm labor and are incidentally operated on or moved along public highways for the purpose of going from one farm to another. (RCW 46.04.181) For example, sales tax does not apply to replacement parts for motor vehicles licensed with the Department of Licensing (DOL) specifically for “farm use,” “farm exempt,” or “farm combination,” including farm tractors and farm implements, unless it is specifically excluded from the definition of farm machinery and equipment (as discussed below).
A “farm implement” is machinery or equipment that is manufactured, designed, or reconstructed for agricultural purposes and used primarily by an eligible farmer to grow, raise, or produce agricultural products, but does not include lawn tractors and all-terrain vehicles.
For the purposes of these exemptions, qualifying farm machinery and equipment does not include:
- Vehicles, except for those specifically noted above
- Lawn tractors
- All-terrain vehicles
- Aircraft
- Hand tools and hand powered tools; and
- Property with a useful life of less than one year
The purchase or use of the following items and services remain subject to retail sales or use tax, unless some other exemption applies:
- All machinery and equipment used in farming, including farm vehicles and other motor vehicles, tractors, and other farm implements;
- Parts for non qualifying farm machinery and equipment, including replacement parts for vehicles other than farm vehicles, farm tractors, and other farm implements;
- Other tangible personal property that does not meet the statutory definition of replacement parts, such as GPS equipment installed on a combine that did not previously have GPS equipment;
- Items that are specifically excluded from the statutory definition of replacement parts, such as paint, fuel, oil, grease, hydraulic fluids, antifreeze, and similar items, when purchased by a farmer for installation in qualifying or non-qualifying machinery or equipment. However, the purchase by a farmer of otherwise exempt installation or repair services remain exempt if the seller installs, incorporates, or places such items in qualifying farm machinery and equipment during the course of installing replacement parts or repairing the qualifying farm machinery and equipment;
- Installation services for items that do not qualify as replacement parts;
- Repair services for non-qualifying farm machinery or equipment; and
- Otherwise exempt installation or repair services included in a single transaction involving nonexempt services, if the charge for the otherwise exempt services is not separately itemized or exceeds the seller’s usual and customary charge for such services.
Transactions that include both qualifying and nonqualifying exempt purchases
A seller must separately identify taxable and exempt charges when:
- The seller provides nonqualifying labor and services or nonqualifying parts, in addition to qualifying replacement parts and/or qualifying labor and services.
The separate charge for qualifying parts and labor can not exceed the seller’s usual and customary charge for such services. A seller that does not separately itemize the charges is responsible for collecting and remitting sales tax on the entire charge and will be held personally responsible for any uncollected sales tax due on such a transaction.
To claim the sales tax exemption, an eligible farmer must give the seller a copy of the Exemption Certificate for Repair Parts and Services for Farm Machinery and Equipment issued by the Department of Revenue (Department).
A farmer who wishes to obtain an exemption certificate must apply to the Department of Revenue. To show eligibility, a farmer may either:
- Attach federal income tax or other information verifying the amount of gross sales or harvested value of agricultural products during the tax year before submitting the application to the Department. Federal information includes Schedule F of Internal Revenue Service (IRS) form 1040; IRS form 1120; or other applicable form filed with the IRS; or
- Sign a declaration under penalty of perjury, as provided in RCW 9A.72.085, that the farmer is an eligible farmer. Any person who knowingly makes a false statement on an application is guilty of perjury in the second degree under chapter 9A.72 RCW, and is also liable for payment of any taxes with interest and penalties.
The Department will issue an exemption certificate to eligible farmers. Exemption certificates are generally not transferable and are valid for the remainder of the calendar year in which the certificate is issued and the following four calendar years. Thus, the certificate is valid for a maximum of five years.
A farmer claiming an exemption must keep records necessary for the Department to verify eligibility. Farmers must pay sales or use tax on purchases that do not qualify for the exemption or when records are insufficient to substantiate eligibility for the exemption. Unlawful use of the exemption may subject the farmer to interest and penalties in addition to the tax due.
If a farmer claims a sales or use tax exemption for nonqualifying parts or services, the farmer must pay deferred sales or use tax, including any applicable penalties and interest, directly to the Department. Farmers who are not registered with the Department may use a Consumer Use Tax Return to report deferred sales or use tax.
A seller who makes exempt sales of replacement parts, installation services, or repair services must receive from the buyer a copy of a properly completed Exemption Certificate for Repair Parts and Services for Farm Machinery and Equipment issued by the Department. The seller must keep the copy of the exemption certificate for five years from the last date of sale.
When completing the combined excise tax return, exempt sales to farmers should be included in the gross sales reported for sales tax purposes and then deducted as “Retail Sales Tax Exempt Purchases by Farmer.” The deduction should be reported on the appropriate deduction detail page of the combined excise tax return. There is no comparable B&O tax exemption for sales of qualifying replacement parts or installation or repair services.
Credits
B&O Tax Credit to Encourage Alternatives to Field Burning
Persons who are eligible for the sales/use tax exemption for machinery and equipment
used to reduce field burning may also take a credit against their B&O tax
liability. The credit is limited to fifty percent (50%) of the costs expended
for agriculture eligible structures or acquiring eligible machinery and equipment.
No application is necessary for the credit. The credit is taken on the excise tax return. Persons taking the credit must keep records necessary for the
Department to verify eligibility for the credit. Please note, this credit is subject
to the following limitations:
- The credit may not exceed your B&O tax liability.
- You cannot carry this credit over to subsequent calendar years.
- The credit must be claimed by the due date of the last tax return for the
calendar year in which the payment is made.
- Refunds will not be given in place of credits.
- The credit may not be claimed for expenditures that occurred before March
22, 2000.
- This B&O tax credit expires on January 1, 2006.
Special B&O Tax Classifications
B&O Tax Credit to Encourage Alternatives to Field Burning
Chapter
82.04 RCW contains special B&O tax classifications and preferential tax
rates for the following activities of interest to the agricultural community:
- Manufacturing wheat into flour, barley into pearl barley; soybeans into
soybean oil; canola into canola oil, canola meal, or canola byproducts; or
sunflower seeds into sunflower oil. The special B&O tax classification
only applies to the manufacturing of the whole-grain items listed above - Det.
No. 99-143R, 21 WTD 106 (2002) (doc) and Det.
No. 99-143, 21 WTD 97 (2002) (doc).
- Splitting or processing dried peas. RCW
82.04.260.
- Manufacturing seafood products that remain in a raw, raw frozen, or raw
salted state at the completion of the manufacturing. RCW
82.04.260.
- Manufacturing by canning, preserving, freezing, processing, or dehydrating
fresh fruits and vegetables. RCW
82.04.260.
- Manufacturing dairy products. The dairy products must be identified as of
September 20, 2001, in 21 C.F.R. (Code of Federal Regulations), chapter 1,
parts 131, 133, and 135. The special B&O tax rate includes byproducts
from the manufacturing of dairy products, such as whey and casein. RCW
82.04.260.
- Slaughtering, breaking and/or processing perishable meat products and/or
selling these products at wholesale. RCW
82.04.260. This classification combines manufacturing and nonmanufacturing
activities into a single taxable business activity.
- Operating a cold storage warehouse. RCW
82.04.280. A "cold storage warehouse" means a storage warehouse
used to store fresh and/or frozen perishable fruits or vegetables, meat, seafood,
dairy products, or fowl, or any combination thereof, at a desired temperature
to maintain the quality of the product for orderly marketing. A "storage
warehouse" means a building or structure, or any part thereof, in which
goods, wares, or merchandise are received for storage for compensation, except
field warehouses, fruit warehouses, fruit packing plants, warehouses licensed
under chapter 22.09
RCW, public garages storing automobiles, railroad freight sheds, docks
and wharves, and "self-storage" or "mini storage" facilities
whereby customers have direct access to individual storage areas by separate
entrance. "Storage warehouse" does not include a building or structure,
or that part of such building or structure, in which an activity taxable under RCW
82.04.272 (persons warehousing and reselling prescription drugs) is conducted.
Custom Farming Service
Effective August 1, 2007 the B&O tax does not apply to custom farming services performed by eligible farmers or entities at least 50 percent owned by eligible farmers.
Custom farming services are specific farming operations performed by an operator using any farm machinery or equipment, farm implement, or draft animal, when:
- the specific farming operation is directly related to growing, raising, or producing an agricultural product to be sold or consumed by a farmer, and
- the specific farming operation is performed for and either under a contract with or directed or supervised by, a farmer.
Custom farming services do not include custom application of fertilizers, chemicals, or biologicals.
Specific farming operations include planting, cultivating, harvesting, or similar operations.
Specific farming operations do not include: veterinary services as defined in RCW 18.92.010, farrier, boarding, training, appraisals, artificial insemination or stud services, agricultural consulting, packing or processing agricultural products, or pumping or other waste disposal services.
Persons that perform one or any combination of specific farming services for a farmer or a person performing custom farming services are exempt from B&O tax when the person performing the service and the farmer or custom farmer receiving the service are related as defi ned below. The specific farming services eligible for the exemption are:
- Farm management services
- Contract labor services
- Services provided to animals that are defined as agricultural products in RCW 82.04.213.
For purposes of this exemption, “related” means having any of the relationships described in section 267(b)(1), (2), and (4) through (13) of the Internal Revenue Code, as amended and renumbered as of January 1, 2007 and noted below.
(1) Member of a family, as defined in subsection (c)(4);
(2) An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual;
(4) A grantor and a fiduciary of any trust;
(5) A fiduciary of a trust and a fiduciary of another trust, if the same person is grantor of both trusts;
(6) A fiduciary of a trust and a beneficiary of such trust;
(7) A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts;
(8) A fiduciary of a trust and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust;
(9) A person and an organization to which section 501 (relating to certain education and charitable organizations which are exempt from tax) applies and which is controlled directly or indirectly by such person or (if such person is an individual) by members of the family of such individual;
(10) A corporation and a partnership if the same persons own –
(A) more than 50 percent in value of the outstanding stock of the corporation, and
(B) more than 50 percent of the capital interest, or the profits interest, in the partnership;
(11) An S corporation and another S corporation if the same persons own more than 50 percent in value of the outstanding stock of each corporation;
(12) An S corporation and a C corporation, if the same persons own more than 50 percent in value of the outstanding stock of each corporation; or
(13) Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.
Farm management services are consultative decisions made regarding farm operations, including, but not limited to:
- Determining which crops to plant
- Choosing and determining application timing for fertilizers and chemicals
- Determining horticultural practices to apply
- Marketing crops and livestock
- Care and feeding of animals
This exemption expires December 31, 2020
Reference: RCW 82.04.625
References: RCW
82.04.120 and .2403
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