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Wine Industry Farming Activities

FarmingSince grape growing represents the vast majority of farming within the wine industry, the farming activities section of this guide is intended to address only farming and related work that apply to viticulture (grape cultivation).  For a more thorough discussion of the taxability of farming, horticultural activities and the agricultural industry, please see the Department’s Agriculture Guide.

Generally, farmers do not need a tax registration number if they only make wholesale sales of agricultural products that they produce.  However, other farming-related activities may be subject to taxation.


Contents

Wine Industry Farming Activities

Business Activities of Farmers

Purchases of Goods by Farmers

Wine Industry Farming Activities

Who is a “farmer”?
A “farmer” makes wholesale sales of agricultural products grown, raised, or produced on his/her own land or land he/she currently possesses.  A “farmer” does not include a person that grows, raises, or produces such products for their own consumption.  RCW 82.04.213

What is an “agricultural product?”
Agricultural products" means any product of plant cultivation or animal husbandry, including a product of horticulture, grain cultivation, vermiculture, viticulture, or aquaculture.  The predominant agricultural product produced for the wine industry is grapes.  However, other fruits may also be grown and used in the wine industry.   

Note:  The definition used in this guide has been shortened from that provided in RCW 82.04.213 to only discuss horticultural and viticultural products (fruit and grapes.)

Business Activities of Farmers

Wholesale sales of agricultural products 
The B&O tax does not apply if you are a grape farmer that makes wholesale sales of grapes you produce on land you own or have right to possess, unless you use grapes you’ve grown to manufacture – see below.  If such wholesale sales are your only sales, then you don’t need to get a UBI or tax registration number from the Department of Revenue.  RCW 82.04.330

If you make wholesale sales of non-agricultural products (i.e., wine barrels, machinery or equipment) or of agricultural products that you did not grow yourself (i.e., grapes grown by another farmer), the gross income from such sales is subject to wholesaling B&O tax.  If you have over $12,000 annual income from such sales, you must have a Department of Revenue tax registration number. WAC 458-20-101

If you make any wholesale sales, you will need to receive a completed reseller permit from the buyer to document the wholesale nature of the sale.

To report such sales on the tax return, report the gross sales amount under the wholesaling B&O tax classification.   

Note:  The term "farmer" does not include a person using grapes they have grown as ingredients in a manufacturing process such as making wine, or a person growing or producing grapes for his or her own consumption.  Therefore, per RCW 82.04.213, persons who use their own agricultural product in a manufacturing process are excluded from the definition of "farmer" and are not eligible for the B&O tax exemption for wholesale sales under RCW 82.04.330

Business Activities of Farmers, continued...

Retail sales of agricultural products

If you are a farmer that sells grapes, fruit, or other agricultural products to consumers at public markets or roadside stands, you are making retail sales.  Depending on the products that you sell, your sales may be exempt or subject to sales tax, as discussed below.

Food Product Sales:  If you sell food products (i.e., grapes, nuts, other fruits, etc.) that you have produced on your land to consumers for consumption, these are sales tax-exempt retail sales of food products.  RCW 82.08.0293   However, there is no corresponding B&O tax exemption, so your gross income from these sales is subject to B&O tax under the “retailing” classification.

If you make more than $12,000 in gross food product sales annually, you will need to register with the Department of Revenue.  WAC 458-20-101

To report such sales on the tax return, report the gross sales amount (not including sales tax) under the retailing B&O tax and retail sales tax lines, then take an “exempt food sales” deduction on the retail sales tax line in the amount of the sale. 

Other Agricultural Product Sales:  If you sell other agricultural products that are not considered tax-exempt food products for human consumption, these sales are subject to retailing B&O tax and you must collect sales tax from the buyer, unless specifically exempt by law.  Examples of taxable agricultural product sales include grape vines, turf, and plants.  If you make such sales, you must obtain a tax registration number from the Department to report and pay all collected sales tax.

The applicable tax rate is determined by the location where the buyer takes delivery of the product.  For example, if a buyer purchases and takes delivery of grape vines or a vine wreath at your roadside stand in Yakima, the sales tax rate for your roadside stand applies.  If the buyer asks you to deliver the wreath to her home in Renton, you will charge the sales tax rate for Renton, where delivery is made.   

When reporting on the tax return, report the gross sales amount (not including sales tax) under the retailing B&O tax and retail sales tax lines of the tax return. 

Retail sales of non-agricultural products:  If you sell goods that are not agricultural products to consumers (including other farmers), these sales are subject to retailing B&O tax and you must collect sales tax from the buyer, unless specifically exempt by law.  Examples include used farm machinery or equipment, vehicles, or tools.  If you make such sales, you must obtain a tax registration number from the Department to report and pay all collected sales tax.

The applicable tax rate is determined by the location where the buyer takes delivery of the goods.  For example, if you sell a used generator to a neighbor who picks up the generator from your farm, the sales tax rate for your farm location applies.  If the buyer asks you to deliver the generator to them, you will charge the sales tax rate for the location where you deliver the generator.   

When reporting on the tax return, report the gross sales amount (not including sales tax) under the retailing B&O tax and retail sales tax lines of the tax return. 

Business Activities of Farmers, continued...

Providing horticultural services/ custom farming services

If you perform horticultural services (also known as customer farming services) for a farmer, you are generally subject to B&O tax under the service and other activities classification. 

“Horticultural services” means services related to cultivating fruit, and other agricultural field and nursery products, specifically:

  • Soil preparation for land currently used for farming (i.e., weed control before planting; removal of trees and stumps from land previously used as an orchard, in preparation for converting the land into a vineyard);
  • Crop cultivation (i.e., planting, grafting, thinning, pruning, or spraying); and
  • Crop harvesting (i.e., picking grapes)

If you provide horticultural services and also sell goods to a farmer for a separate, distinct charge, the charges are taxed separately.  The charge for horticultural services is subject to service and other activities B&O tax, while the charge for goods is subject to wholesaling B&O tax (if the farmer provides a reseller permit) or retailing B&O tax and retail sales tax.   

See WAC 458-20-209 for additional information on horticultural services.  

Business Activities of Farmers, continued...

B&O tax exemptions for certain farming activities

  • Certain custom farming services: Custom farming services performed for farmers by eligible farmers or entities at least 50 percent owned by eligible farmers are exempt from B&O tax.  Custom farming services include planting, cultivating, harvesting or similar activities, when: (1) the activity is directly related to growing, raising, or producing an agricultural product for sales or use by a farmer, and (2) the activity is performed for and under contract with or supervised by a farmer.  An eligible farmer is one that qualifies for the Exemption Certificate for Replacement Parts for Farm Machinery and Equipment under RCW 82.08.855 at the time the custom farming services are performed.  See the Special Notice “Services for Farmers – B&O and Public Utility Tax Exemption” for additional information. RCW 82.04.625
  • Specific farming services between related parties:  Persons that perform one or any combination of specific farming services for a farmer or custom farmer are exempt from B&O tax when the person performing the service and the farmer or custom farmer receiving the service are “related” as defined section 267(b) (1), (2), and (4) through (13) of the Internal Revenue Code, as amended and renumbered as of January 1, 2007.  See the Special Notice “Services for Farmers – B&O and Public Utility Tax Exemption” for the specific relationship list.  RCW 82.04.625 

The specific farming services eligible for this exemption are:

    • Farm management services
    • Contract labor services
    • Services provided to animals defined as agricultural products in RCW 82.04.213.
  • Farmers occasionally assisting other farmers: A farmer who occasionally assists another farmer in planting, pruning, or harvesting grapes is generally not considered to be conducting farming for hire or performing horticultural services for farmers.  Person that advertise or hold themselves out publicly to perform horticultural services are considered to be in the business of farming for hire/performing horticultural services.

Business Activities of Farmers, continued...

Litter Tax

Farmers are not subject to litter tax on wholesale sales of agricultural products. 

However, gross income from retail sales of agricultural products that constitute food for human or pet consumption (grapes, jams, spreads, etc.) is subject to litter tax. 
 
The gross income from qualifying sales is reported under the litter tax classification on the tax return.

Business Activities of Farmers, continued...

Hauling products

Generally, if you generate income from transporting agricultural products for others, the income is subject to either public utility tax (PUT) or B&O tax.

  • Motor/urban transportation PUT:  Any income from transportation that takes place on public roads.
  • Service and other activities B&O tax:  Any income from transportation that takes place on private roads.

PUT exemptions for certain agricultural hauling 

  • Hauling for related persons:  Beginning July 1, 2007, persons that haul agricultural products or farm machinery or equipment for a farmer or person performing custom farming services are exempt from PUT when the person that does the hauling and the farmer or custom farmer are “related.”  The term “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.  See the Special Notice “Services for Farmers – B&O and Public Utility Tax Exemption” for the specific relationship list. RCW 82.04.625

Purchases of Goods by Farmers

Purchases subject to sales tax or use tax

Generally, tangible personal property sold to, purchased, or rented by farmers for their own use is subject to retail sales tax, unless specifically exempt by law.  Examples include:

  • Tools
  • Equipment and machinery
  • New irrigation systems
  • New trellis
  • Vehicles
  • Cleaning materials

Also, certain retail services sold to or purchased by farmers are also subject to retail sales tax, unless specifically exempt by law.  Examples include:

  • Construction services
  • Installation of goods
  • Repair work

If you are not charged sales tax at the time of sale, you must pay use tax directly to the Department on the value (usually determined by the purchase price) of such items, including any shipping or delivery costs. You may report use tax on your Department of Revenue tax return or, if you are not required to be registered (as discussed earlier), you may use a Consumer Use Tax Return (pdf).

Purchases of Goods by Farmers, continued...

Purchases exempt from sales tax and use tax

The law provides several sales and use tax exemptions for farmers.  For qualifying purchases, you must provide the seller of the goods or service with a completed exemption certificate to document the nature of the sales tax-exempt purchase.

1.  Wholesale purchases:  Purchases by a farmer of goods that he/she uses to produce an agricultural product that will be sold are not subject to sales tax.  When purchasing such items, you must give the seller a reseller permit.  Examples include:

  • Seedlings
  • Root stock
  • Fertilizer
  • Agents for enhanced pollination (including bees)
  • Chemical sprays or washes
  • Containers, packaging, and wrappers sold by a farmer along the agricultural product (there can be no intervening use)

Purchases for dual purposes
If you (a farmer) purchase certain goods for both your own consumption and for the purpose of reselling the goods, the taxability of the purchase is determined at the time of purchase by how you primarily (over 50% of the time) use the goods purchased according to the nature of your business. 

If you normally consume the goods yourself, then you must pay sales or use tax on the purchase (unless the items are exempt from sales tax.)  If, at a later point, you resell part or all of the goods, then you may recoup the sales tax paid by claiming a “taxable amount for tax paid at source” deduction on your Department of Revenue tax return. 

Conversely, if you principally resell the goods purchased, then you should give a reseller permit to the seller.  If you end up using some of the goods yourself, you should pay deferred sales tax to the Department on the value of the goods used.  Deferred sales tax is paid on the Department of Revenue tax return in the use tax section.  See WAC 458-20-102 for additional details.  

Note: Effective January 1, 2010, the resale certificate was replaced with a reseller permit issued by the Department of Revenue. Reseller permits are free and are issued to businesses that make wholesale purchases. The permits allow businesses to purchase items or services for resale without paying retail sales tax.

How do I get a reseller permit?
If you did not receive a reseller permit you may submit an application (pdf).

Purchases of Goods by Farmers, continued...

2.  Agricultural employee housing:   RCW 82.08.02745 and 82.12.02685 provide retail sales tax and use tax exemptions for the purchase, construction, and use of agricultural employee housing. The exemption is specifically for labor and services used to construct, repair, decorate, or improve new or existing buildings used as agricultural housing, as well as for tangible personal property that becomes an ingredient or component of the buildings or other structures, such as septic tanks, pump houses, and driveways. Examples of ingredients/components include:

  • cement
  • lumber
  • nails
  • paint
  • appliances and furniture bolted or strapped directly to the building/structure (i.e., stoves, refrigerators, washers, bed frames, lamps, TVs)


The sales/use tax exemption is available only if the buyer provides the seller with a Farmer’s Retail Sales Tax Exemption Certificate

Additional qualifying criteria include:

  • The building must be used to house “agricultural employees,” as defined in RCW 19.30.010, for a least five consecutive years from the date the building is approved for occupancy. 
  • If built for year-round employees of the agricultural employer, the building must be built to the current building code for single-family or multifamily dwellings according to the state building code, chapter 19.27 RCW.

 

Purchases of Goods by Farmers, continued...

2.  Agricultural employee housing, continued...

The sales/use tax exemption does not apply to housing built for occupancy by an agricultural employer as defined in RCW 19.30.010, family member of an agricultural employer, or persons owing stock or shares in a farm partnership or corporation business.  

“Agricultural employer" means any person engaged in agricultural activity, including growing, producing, or harvesting farm nursery products.

"Agricultural employee housing" means all facilities:

  • provided by an agricultural employer, housing authority, local government, state or federal agency, nonprofit 501(c) community or neighborhood-based organization that is exempt from income tax, or for-profit provider
  • housing agricultural employees on a year-round or seasonal basis
  • including bathing, food handling, hand washing, laundry, and toilet facilities, single-family and multifamily dwelling units, and dormitories. 

“Agricultural employee housing" does not include housing:

  • regularly provided on a commercial basis to the general public, such as hotels, motels, apartments, rooming houses.
  • 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.

See WAC 458-20-262 for additional information on this sales/use tax exemption.

Purchases of Goods by Farmers, continued...

3.  Fuel used by farmers to produce agricultural products: Purchases by farmers of diesel, biodiesel, or aircraft fuel are exempt from sales/use tax if the fuel is for nonhighway use and is used to produce agricultural products by farmers or persons providing horticultural services for farmers.  The exemption also applies to fuel blends if all of the component fuels of the blend are otherwise exempt if sold separately.  The exemption for diesel and aircraft fuel took effect March 6, 2006.  The exemption for biodiesel took effect May 11, 2007. 

The sales/use exemption does not apply to uses other than producing agricultural products or providing horticultural services.  To claim the sales tax exemption, a farm fuel user must give the seller a completed Farmers’ Retail Sales Tax Exemption Certificate.  RCW 82.08.865; RCW 82.12.865

Purchases of Goods by Farmers, continued...

4.  Replacement parts and repair services for farm machinery and equipment
Purchases by eligible farmers of replacement parts for qualifying farm machinery and equipment are exempt from sales tax and use tax.  This exemption was expanded July 22, 2007, to include charges for installing qualifying replacement parts and repair services for qualifying machinery and equipment and to include “farm vehicles” as qualifying machinery and equipment.  RCW 82.08.855; RCW 82.12.855

To claim the sales/use tax exemption, you will need to apply to the Department of Revenue.  To document your eligibility, you may either:

  • Attach certain federal income tax information verifying your gross sales or harvested value of agricultural crops; or
  • Sign a declaration that you are an eligible farmer.

The Department will issue an Exemption Certificate for Replacement Parts and Services for Farm Machinery and Equipment, which is good up to five years, to eligible farmers.  An “eligible farmer:”

  • Grows, raises or produces agricultural products for sale on his/her own land or land to which he/she has a current right of possession AND
  • Generates gross sales of or has a harvested value of agricultural products of at least $10,000 in the year prior to applying for the exemption.

The sales/use tax exemption applies to:

  • Parts that replace an existing part or that are essential to maintain the working condition of a piece of qualifying farm machinery and equipment;  
  • Installation of replacement parts for qualifying farm machinery and equipment; and
  • Repairs of qualifying farm machinery and equipment.

“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, other farm implements, and (as of July 22, 2007) vehicles licensed with the Department of Licensing (DOL) as farm vehicles (e.g., “farm use,” “farm exempt,” “farm combination”) that are used primarily on farms for transporting machinery, equipment, implements, farm products, supplies, and/or farm labor and are only used on public highways for the purpose of going from one farm to another. 

See the Special Notice Repair Parts and/or Services for Farm Machinery and Equipment – Sales and Use Tax Exemptions for additional details.