How to become Ag Exempt in Texas!
One of the most common questions I am asked here in Parker County is: "Is this ranch land ag exempt?" If the answer is no, the follow up is, "How do I become Ag Exempt?"
Who Qualifies for Agricultural and Timber Exemptions?
If you are a farmer, rancher or timber producer engaged in one of the activities listed below, you qualify for tax exemption on the purchase of certain items used to produce your agricultural and timber products for sale.
All purchasers, including non-Texas residents, must have a valid agricultural and timber registration number (ag/timber number) issued by the Comptroller to claim exemption from Texas tax.
If you do not have a valid ag/timber number, you must pay tax to retailers on your purchases.
Your business type must be listed below to qualify for tax exemption on certain items or for an ag/timber number.
Which Activities Qualify?
farming or ranching for the purpose of raising agricultural products for sale;
timber production (including contract logging);
commercial fish farm operation;
crop dusting (as defined by 14 CFR Section 137.3);
growing plants for sale in a commercial nursery;
a veterinary business that makes farm or ranch calls;
Future Farmers of America or 4-H; or
teaching an agricultural vocational course.
Which Activities do NOT Qualify?
horse racing, boarding, training or trail rides;
rodeos, circuses or zoos;
florists or similar retailers who maintain plants before sale;
wildlife management and conservation;
hunting and fishing operations, including aerial hunting;
wildlife or livestock surveys;
companion animal (pet) breeding; and
kennels or other animal boarding businesses.
I breed and sell horses. Do I qualify for an ag/timber number to purchase eligible items tax free?
Yes. Persons who breed and sell horses in the regular course of business (including standing studs or using live cover, shipped semen or artificial insemination) qualify for an ag/timber number. Equipment used exclusively on the farm or ranch to produce horses for sale can be purchased tax free.
My family does team penning and I rope, but I don't routinely sell my horses. Do I qualify for an ag/timber number to purchase eligible items tax free?
No. To qualify, persons must produce horses for sale in the regular course of business. The horses themselves and horse feed (including grain, hay and feed supplements) can be purchased tax free without an ag/timber number or an exemption certificate.
I lease my land to a person who raises cattle for sale. The cattle graze on this land, and my lease agreement states that I am responsible for providing grass for the cattle. Do I qualify for an ag/timber number?
Yes. Because your contract requires you to provide grass for the cattle, you can obtain an ag/timber number and use it to purchase tax-free those items used exclusively to produce the grass.
I raise cattle for sale. Because of the drought, I was forced to sell my entire herd earlier this year. As a result, I am not actively engaged in the production of agricultural products for sale right now, but will begin again as soon as the drought is over. Do I qualify for an ag/timber number?
Yes, since your ordinary course of business is the production of agricultural products for sale, you are eligible for an ag/timber number. You can use the number to claim an exemption on items that will be used exclusively to maintain or prepare the land for commercial agricultural production.
How do I apply for an Ag Exemption, or an Ag/Timber Number?
Basic information about your business (such as its name, description and address)
Social Security number (if you do not qualify for a Social Security number, you must apply by mail and include your national identification number and country of origin on the application)
If your business is registered with the Texas Secretary of State (SOS), your SOS file number (find your file number using our Taxable Entity Search)
If you don’t already have an eSystems/Webfile account with the state of Texas, you will first register to create a secure online profile. Otherwise, log on as a returning user. The application takes about 10 minutes to complete. No signature is required, and they will issue your ag/timber number at the end of the application process.
They will mail you a confirmation letter in five to seven business days after you complete the online application. In the meantime, you can view and print a copy of your confirmation letter (using Adobe Acrobat Reader) upon completing the registration process, or write down your ag/timber number. You can also look up your registration information at any time.
You can print the application (PDF) and mail the paper version to us. Allow three to four weeks for processing time.
Additionally, you can call our Fax on Demand service at 1-800-531-1441, or call 1-800-252-5555 to ask for an application to be mailed to you.
Land qualifies for special appraisal (1-d-1 appraisal) if it has been (1) used for agriculture for five of the preceding seven years and is currently devoted principally to agricultural use as defined by statute, (2) used to protect federally listed endangered species under a federal permit, or (3) used for conservation or restitution projects under certain federal and state statutes. The land must also be used for agriculture to the degree of intensity generally accepted in the area. The value of the land is based on the annual net income from a typical lease arrangement that would have been earned from the land during the five-year period preceding the year before the date of appraisal by an owner using ordinary prudence in the management of the land and the farm crops and livestock produced or supported on the land, including income received from hunting or recreational leases.
Under Article VIII, section 1-D-1, the owner of the land does not have to make their living off of the land, and their primary occupation does not have to be farming or ranching. The Tax Code defines agriculture as: “cultivating the soil, producing crops for human food, animal feed or planting seed or for the production of fibers; floriculture, viticulture, and horticulture; raising or keeping livestock; raising or keeping exotic animals for the production of human food or of fiber, leather, pelts, or other tangible products having a commercial value; and planting cover crops or leaving land idle for the purpose of participating in any governmental program or normal crop or livestock rotation procedure and wildlife management.” Some activities that would not qualify include, harvesting native plants, hunting native wild animals such as deer or turkey, and processing activities that take place after the crop or animal has been harvested such as slaughter operations or cotton ginning.
There are minimum numbers of average and amount of agricultural produce required to qualify as well. Properties with less than 10 acres generally will not qualify. Depending on the county, you may need one animal unit per 5-10 acres of improved land, and the animal units are as follows (for Wise County, and these requirements are similar in the surrounding counties. Please call your local tax assessors office for your county's specific requirements):
1 - Cow & Calf = 1 animal unit
1 Bull = 1 ½ animal unit
1 Horse = 1 animal unit
6 Sheep or goats = 1 animal unit
2 Miniature horses or donkeys = 1 animal unit
Chickens and Pigs can qualify depending on how they are being used.