New Requirement for Texas Sales Tax Exemption Number May Affect Horse Businesses

Currently, anyone in Texas can say they are “ag exempt”, sign a form, and buy agricultural products tax free. But this is about to change. As of January 1, 2012, the Texas Comptroller will require all farmers and ranchers to obtain an Agricultural Sales Tax Exemption Registration Number in order to buy tax-free farm and ranch supplies. This new measure was signed into law during the 2011 Legislative Session via House Bill 268, and will be included in Chapter 151, Subchapter E of the Texas Tax Code.

When I was home in Ellis County last weekend, I heard several farmers grumbling about this new requirement and the added “red tape” being imposed on farmers. But is it such a bad thing? Texas Farm Bureau doesn’t think so.

Texas Farm Bureau discussed the new law and posted information for farmers on its blog, Texas Ag Talks. According to the Texas Farm Bureau blog post, the new “registration number” will be good for the overall agricultural industry, because abuses under the current system were so rampant that the agricultural sales tax exemption itself was at risk. 

I'm not sure what the State’s intent was in enacting this new law, but I don’t think its affects will be good for many horse businesses. I predict that many Texas horse business owners that have been buying ag supplies tax free in the past will not be able to successfully apply for a registration number in 2012 (at least if they are honest on the application). A link to the application for the new registration number can be found here

On the very first page of the application, the State boldly warns horse racing, boarding, and training businesses that they do NOT qualify for an ag exemption registration number. Under the list of “principal types of exempt activities” on page 2, the only activity on the list that involves horses states, “I raise and sell horses, mules, donkeys, burros and/or ponies.” The application and other applicable authority suggests that “raising and selling horses” must be your principal activity or your “normal course of business” in order to qualify for the sales tax exemption. The States’s intent with respect to mixed operations such as boarding operations who also breed and sell horses is not altogether clear.  The Comptroller has answered some FAQs about horse businesses that give a little insight on how various circumstances will be treated.  The Horses FAQ page published by the Texas Comptroller can be found here.

Boarding facilities and horse trainers who check the “raise and sell horses” box when they do not engage in said activities do so at their own risk. Page 3 of the application includes a signed statement by the applicant that acknowledges all of the penalties (criminal and otherwise) that may arise from the misuse of the tax exemption ID. I don’t have any data that suggests how strictly these forms are enforced.

But one thing is clear, the State of Texas will have the name, federal tax ID, Texas taxpayer ID, legal entity filing number (if any), mailing address, physical location, and Texas drivers license number for all horse businesses who buy tax exempt products from January 1, 2012 onward. I would think these things would make it much easier for the State to investigate and discipline someone if the State deemed purchases to be to frequent, too large in amount, or otherwise suspicious.  

As under prior law, the sale or lease of horses will still be exempt from sales tax in Texas and a registration number is not required for horse sales or lease transactions.  Further, the purchase of horse feed, grain and hay will remain tax free for everyone in Texas (with or without a registration number or exemption certificate). 

To access a quick reference chart published by the Texas Comptroller that outlines items that do and do not qualify for sales tax exemption for agricultural production, click here.

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