Tax Guide for the Agricultural Industry (Español)

Helping your business succeed is important to the Board of Equalization. We recognize that understanding the tax issues specific to the agricultural industry and to those who sell farm and related supplies can be time-consuming and complicated, and we want to get you the information you need so you can focus on growing your business.

To help you better understand the tax obligations specific to your industry, we have created this guide detailing the tax issues and information important to your industry.



How to Use This Guide

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Each section of this guide contains information important to your business. The Getting Started section provides key resources related to registration, filing returns, account maintenance, other required licenses, and other important information you need.

The Farming Exemptions tab covers topics related to the exemptions available and the certificates you will need.

The Industry Topics section covers many topics in an at-a-glance format that can be expanded to provide more extensive information if you need it.

Lastly, the Resources section provides links to a wealth of information, including web-based seminars, forms and publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that the information included is general in nature and is not intended to replace any law or regulation.



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If You Need Help

If at any time you need assistance with topics included in this guide - or with topics we may have not included - feel free to contact us by telephone or email. Contact information and hours of operation are available in the Resources section

If you have suggestions for improving this guide, please contact us via email.

Getting Started

If you own a business in California, and you expect to be making taxable sales, you must register with us for a seller's permit and file regular sales and use tax returns. You may be required to register for other licenses or accounts using our online registration service and file other returns. Listed below are other tax and fee programs that may be applicable to the agricultural industry.

Diesel Fuel Tax Program

If you make sales to farmers who use diesel fuel for tax-exempt farming purposes, you may apply for an Ultimate Vendor license. As an ultimate vendor, you may file a claim for refund of the diesel fuel tax you paid on your purchase of diesel fuel that you sold to an ultimate purchaser without collecting the diesel fuel tax reimbursement. All claims for refund for sales of diesel fuel to farmers must be supported by a BOE-608, Certificate of Farming Use, accepted in good faith.

Underground Storage Tank Maintenance Fee Account

If you own an underground storage tank (UST) to store petroleum products, and it is even partially underground, you are required to register with us to file UST fee returns and pay any fee amounts due based on the number of gallons of petroleum products placed in the UST during the reporting period. For rates see the Underground Storage Tank Maintenance Fee Schedule.

In most cases, if you lease an underground storage tank, you are considered an operator and are not required to pay the fee. However, as an operator, you may have an agreement with the owner to report and pay the fee.

Registration

Online Registration — Register with us for your seller’s permit and apply for any of the licenses, permits, or accounts listed above.

Filing and Payments

Notice of Business Change – Keep your information current by using the links below and notifying us of any business changes.

Farming Exemptions

Farm Equipment and Machinery

In general, the sale of farm equipment and machinery is taxable. However, certain sales and purchases are partially exempt from sales and use tax.

The partial exemption applies only to the state general and fiscal recovery funds portion of the sales tax, currently 5.5%.

To calculate the tax rate for qualifying transactions, subtract 5.5% from the sales tax rate that would normally apply at the location where the purchase is made. For example, if the current tax rate in your area is 9%, the tax rate for a qualifying transaction would be 3.5%.

Note: The rate for the state general and fiscal recovery funds portion of the sales tax is subject to change. The rates used in this example are for demonstrative purposes only. You must use the rate in effect at the time of the sale, current rates can be found on our website.

Three requirements must be met for the partial exemption to apply. The item must be:

  1. Sold to a qualified person
  2. Used exclusively or primarily in producing and harvesting agricultural products. Primarily means 50% or more of the time.
  3. Farm equipment and machinery which includes, but is not limited to, any tool, machine, equipment, appliance, device or apparatus used in the conduct of agricultural operations.

If any of the first three requirements is not met, the partial exemption does not apply and the sale or purchase is fully taxable.

When a lease meets the three requirements above, and the lease payments are taxable, the lease may also qualify for the partial exemption.

Mobile transportation equipment does not qualify for the exemption.

Exemption Certificates

When you make a sale that qualifies for a partial exemption, you must obtain a valid exemption certificate from your buyer.

To be valid, the buyer or buyer’s representative must do all of the following:

  • Furnish the certificate timely* to the seller
  • Provide all relevant information
    • The seller’s name and address,
    • The type of property being purchased,
    • The buyer or company name, title, telephone number, address, and
    • The seller’s permit number (if applicable), if not applicable, an explanation as to the reason the purchased is not required to hold a permit.
  • Date of execution of the document.

*A certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.

Listed below are the types of exemption certificates you may need:

Buildings for Raising Livestock and Plants

Certain buildings may qualify for the partial farming exemption. The buildings must be a single-purpose building to house either livestock or plants (horticulture).

To qualify for the partial exemption, a livestock building must be:

  • Designed for breeding and raising livestock.
  • Used exclusively for those purposes.
  • Contain equipment needed to contain, raise, and feed livestock or their young.

Buildings, and materials used for their construction and repair, do not qualify as farm equipment when the buildings are:

  • Designed for raising and breeding horses, for example, stables and barns.
  • Used for storing feed or machinery unless that use is only incidental.
  • Designed for a particular type of livestock, but used for a different type of livestock, for example, a poultry barn converted to a pig barn.
  • Intended solely for sheltering livestock, for example, shade barns.

To qualify for the partial exemption, a horticulture building must be:

  • Specifically designed for commercially raising plants or mushrooms, and
  • Used exclusively for that purpose.

You should obtain a partial farming exemption certificate when you make qualifying sales.

For more detailed information on this exemption see Regulation 1533.1, Farm Equipment and Machinery

Solar Power Facilities

If you otherwise qualify for the partial farming equipment, your solar power facilities may also qualify.

If your solar power facilities are tied to the local power grid, but not directly attached to qualifying farm equipment, it may still qualify for the partial exemption if they are designed to generate power for such equipment and machinery.

How does a system qualify?

  • Demonstrate that a solar facility is specifically designed to provide power to qualifying machinery.
  • Use the facility at least 50 percent in the production and harvesting of agricultural products.

What support do I need to claim the partial exemption?

It is important you document the annual amount of electricity consumed by qualifying farm equipment and machinery for the first 12 months after the solar power facility is operating.

For more information see our November 2012 Special Notice: Solar Power Facilities May Qualify as Farm Equipment

Diesel Fuel Used in Farming or Food Processing

Most sales and/or purchases of diesel fuel are taxable. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities or food processing.

The partial exemption applies to the sale or purchase of diesel fuel only if the diesel meets the following two requirements:

  • Be a type of diesel that qualifies for the exemption
    • Diesel Fuel No. 1-D or No. 2-D
    • Diesel that meets ASTM standard D1655, when sold for use in agricultural aircraft, or
    • EPA-rated diesel, commonly known as "federal fuel," and
  • Be used in qualifying farming activities or food processing, or related contract hauling.

You should identify the type of diesel on your sales invoices and retain records showing the diesel qualifies for the exemption. It is important that you obtain a timely exemption certificate from your purchasers and maintain copies for your records to support exempt fuel sales.

Sales of diesel to farmers or ranchers will qualify for the partial sales and use tax exemption when they use the fuel to:

  • Prepare land for planting
  • Plant, protect, or grow crops
  • Harvest crops
  • Feed, water, or transport livestock
  • Transport the harvested agricultural or horticultural products from the field or ranch to the buyers.

An example of a use that qualifies for the partial exemption is: A farmer raises lemons and sells the crop to a citrus cooperative in which he holds shares. The cooperative grades and packs the farmer’s lemons and sells them to a grocery distributor. In this example, these diesel sales would qualify for the partial exemption:

  • The sale to the farmer of diesel the farmer uses to transport the lemons to the cooperative,
  • The sale to the cooperative of diesel it uses to grade or pack the farmer’s lemons, and
  • The sale to the cooperative of diesel it uses to haul the products to the grocery distributor.

Sales of diesel to food processors will qualify for the partial tax exemption when they use the fuel for:

  • Hauling a raw agricultural product to the processing plant. Raw agricultural product means an unprocessed product such as grain, vegetables, fruit, or livestock.
  • Processing agricultural products. This includes using diesel to run processing equipment, backup generators, and equipment used to move the product during processing.
  • Hauling supplies and materials to the processing plant. This includes only items used in producing the processed food product, such as cans, labels, and ingredients.
  • Hauling partially processed food products between processing plants owned by the same company. For example, one division of a company processes tomatoes into tomato paste. Another division uses the paste to produce spaghetti sauce. Moving the paste between the two plants is a qualifying food processing activity.

Diesel used to move the product after processing is completed, does not qualify for the exemption.

The sale of diesel to persons who contract to haul agricultural products for a rancher, farmer, or food processor may qualify for the partial tax exemption. The contractor must use the diesel to:

  • Transport to buyers or intermediate points for handling agricultural products produced and owned by a rancher, farmer, or a business wholly or partially owned by a rancher or farmer.
  • Transport raw products, materials, and supplies for a food processor.

For more detailed information about diesel fuel used in farming, see Regulation 1533.2, Diesel Fuel Used in Farming Activities or Food Processing.

Farm and Garden Supplies

You are responsible for paying tax on many items sold for ranching, farming, and gardening. However, sales of certain ranch, farm, and garden supplies may not be taxable.

Seed

Seed sales are generally taxable. However, tax does not apply when:

  • The seeds, or the products grown from them, will be used as food for human consumption or as feed for food animals. Examples include vegetable seeds and seeds used to grow grain or pasture grass for cattle.
  • The buyer will resell the seeds or the products grown from them, in the regular course of the buyer’s business.

Fertilizer sales

Tax does not apply to the sale of fertilizer to be applied to land; including foliar application to plants, provided the land is used to produce any of the following:

  • Food
  • Feed for food animals, including pasture grasses.
  • Products to be sold by the purchaser.

All other sales of fertilizer are taxable.

Note: if you sell a combination of insecticide and fertilizer, the portion of the sales price representing the price of the fertilizer is not taxable if the fertilizer otherwise qualifies.

Plants, rootlings, rootings, and root stock

Sales of ornamental and landscaping plants are generally taxable. However, tax does not apply to the sale if the plants will produce either of the following:

  • Food such as vegetables, fruits (including grapes), grains, edible seeds or berries, olives, or nuts.
  • Products the purchaser will resell, such as flowers.

If the customer is purchasing a nonfood plant and intends to resell the plant or its products, the customer should give you a resale certificate for the plant. For more information on sales for resale see publication 103, Sales for Resale.

For more information about these exemptions see Regulation 1588, Seeds, Plants, and Fertilizer.

Liquefied Petroleum Gas (LPG) and Agriculture

Sales of LPG for agricultural use are not taxable when purchased by a qualified buyer and used in commercial crop or livestock production or harvesting.

You should obtain a timely LPG exemption certificate from the qualified buyer and maintain a copy in your records.

Nonagricultural use does not qualify for the exemption, even if used on a ranch or farm.

LPG is considered a use fuel; you must have a Vendor Use Fuel Tax Permit to sell this fuel. You can register for this permit online.

Diesel Fuel Tax Exemption for Diesel Fuel used on a Farm for Farming Purposes

For diesel fuel excise tax purposes, a farmer may purchase diesel fuel tax without paying the excise tax by issuing an exemption certificate to his/her vendor, or by purchasing dyed diesel fuel.

Dyed diesel fuel may not be used to operate a vehicle on any public highway in this state.  There are severe penalties for using dyed diesel fuel on the highway (Either $10 for every gallon of diesel involved or $1,000, whichever is greater.)

To claim the exemption for the excise fuel tax the diesel fuel must be used:

  1. In carrying on a trade or business of farming,
  2. On a farm in California, and
  3. For farming purposes, by the owner, tenant, or operator of the farm.

Please note that transporting/hauling agriculture products from the farm/ranch to buyers is not an exempt use of diesel fuel for excise tax purposes.

Your diesel fuel vendor may provide you with a BOE-608 that you must complete to purchase diesel fuel for farming activities without paying the excise tax. The farmer exemption certificate meets criteria established by the Internal Revenue Service. To be valid, all requested information on the certificate must be provided. You will need to note on the certificate if it covers a particular purchase, all purchases, or a percentage of your purchases. You must annually renew your exemption certificate.

For further information, see Diesel Fuel Tax Regulation 1431, Diesel Fuel Used on a Farm for Farming Purposes.

Industry Topics

Sales and Use Taxes in General

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt, or touched.

Use tax is a companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under "Purchases Subject to Use Tax" on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

Sales of Animals

Generally, sales of animal-related products, such as tack, cages, and pet supplies are taxable. However, some sales of animals and supplies are exempt from tax.

Tax does not apply to the purchase or sale of food animals that are commonly used in producing food or are intended for human consumption. See publication 66 for a list of common food animals.

Sales of animals that do not meet the definition of food animals are taxable sales, regardless of their use. See publication 66 for a list of common nonfood animals.

Sales of Feed

Feed includes grain, hay, seed, kibble, and similar products. Tax does not apply to sales of feed for food animals.

Some feed, like alfalfa, can be used for either food or nonfood animals. When selling this type of product, you should obtain a feed exemption certificate to support the exempt sales. You should itemize all invoices that include taxable and nontaxable sales.

Specific Exceptions:

You do not need a seller’s permit or pay sales tax if the only products you sell are feed for the following:

  • Food animals.
  • Nonfood animals that are to be sold in the owner’s business operations.
  • Breeding animals and their offspring both being held for resale in the owner’s business operations.

Hay growers fall in this category provided they either:

  • Produce their hay for sale only to beef cattle feedlots or dairies.
  • Sell their hay exclusively through a farmer-owned cooperative.

You do not need exemption certificates for the following nontaxable sales:

  • Feed ordinarily used only in the production of meat, dairy, or poultry products used as food.
  • Two or fewer standard sacks of grain, four or fewer bales of hay (used for feed) or both.
  • Feed bearing a manufacturer’s label indicating that it is intended for food animals.

Feed sold for a nonfood animal is generally taxable. There are two exceptions, if the feed is sold for the following purposes, you may accept a feed exemption certificate:

  • To feed animals that will be sold in the purchaser’s business operations, i.e. kibble for puppies at a pet store.
  • To feed breeding animals whose offspring will be sold in the purchaser’s business operations, i.e. bone meal to bird breeders who sell the chicks.

Sales of feed to boarding and training facilities

Facilities that charge a flat fee to their customers are responsible for paying the tax on items they purchase such as feed, grains, hay or other merchandise.

Facilities that separately itemize taxable charges for the feed they sell may purchase the items with a resale certificate and they are required to report those taxable sales.

Note: if a boarding or training facility boards animals owned by ranchers and farmers, items they purchase may be eligible for a partial exemption described under Farming Exemptions.

Drugs and Medicines

Under certain circumstances, tax does not apply to your sale, or a buyer’s purchase or use of drugs or medicines that will be administered to animals, as explained below. Drugs and medicines are products intended to prevent or control disease in animals. In addition, vitamins and insecticides labeled for livestock, including poultry, may be considered drugs and medicines. Under certain circumstances, oxygen can also be considered a drug.

Drugs and medicines include, but are not limited to:

  • Legend drugs
  • Pills and capsules
  • Liquid medications
  • Injected drugs, including vaccines
  • Ointments
  • Intravenous fluids
  • Medicated soaps

To qualify as nontaxable, the drugs and medicines must be intended for the prevention or control of disease in any of the following:

  • Food animals.
  • Animals to be sold as part of business operations.
  • Breeding animals whose offspring will be sold as part of business operations.

See publication 66 for a list of common drugs and medicines.

The table below shows how tax applies for transactions involving animal drugs and medicine:

Drug or Medicine Administered
Type of Animal: in Feed or Water: Directly¹:
Food Animal Nontaxable Nontaxable
Nonfood animal (if it or its offspring will be sold in the regular course of business) Nontaxable Taxable
Other nonfood animal Taxable Taxable

¹ oral, hypodermic, external, or topical application, including injections, implants, drenches, repellents, and pour-ons.

Any time you make a nontaxable sale of drugs, medicine, or oxygen, you should obtain a timely drug exemption certificate, completed by the purchaser with all required information, and keep a copy with your records. See Regulation 1587, Animal Life, Feed, Drugs and Medicine, for more detailed information and exemption certificates.

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Top Resources

Forms

Other Helpful Resources

  • Sign Up for BOE Updates — Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides — These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates — A listing of current and historical tax rates.
  • Special Notices — BOE special notices are issued whenever there is a change in law, tax rates, or BOE procedures.
  • BOE Online Services — Learn about the online services BOE offers.
  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • BOE Field Offices — A comprehensive listing of all BOE field offices and contact information.
  • Find Your Board Member — You can use this application to quickly identify your elected BOE representative.
  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Taxpayers' Rights Advocate (TRA) — The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels, when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.
  • Contact Us — A listing of BOE contacts for your questions and concerns.