Tax regulations

Farm businesses should consider special regulations and tax breaks

ANGELINA COUNTY, TX (KLTV) – It happened again this week. A couple had inherited rural land and wanted to keep it, perhaps turn it into a farming business. Above all, they had a lot of questions and wanted to understand the myriad of taxes and regulations that seem to confuse those who do not belong to the agricultural world.

First of all, putting aside all politics, our government is generally very helpful with taxes and regulations affecting real agricultural producers (farmers and ranchers). I believe this is a well-intentioned effort to support the production of food and fiber. There are lower property taxes for farmland, and Texas does not charge sales tax for items used in farm production.

Let’s stop here to recognize that starting a farming business just to save on some taxes is unwise at best. The amount of effort, overhead, and risk involved in raising crops or livestock requires a tremendous understanding of environmental challenges, markets, and incredible personal skills. One of the reasons I urge homeowners to raise a garden is just so that they have a little appreciation for what farmers are doing!

Please don’t read on and be careful and stupid.

You must have a serious farming business. You cannot have a vegetable garden and be called a farmer. You can’t have two pretty cows in a field next to your house and call yourself a breeder. No, you must be involved in the wonderful, difficult, and stimulating work of producing food and / or fiber.

Starting with property taxes, each assessment district in the county will have a set of guidelines on what constitutes agricultural production. My 20 x 10 foot vegetable garden doesn’t make me a farmer. Currently, one must have at least five acres of vegetable production to receive the open-pit appraisal designation that we often call the farmland appraisal.

Likewise, that same five acres with a few cows on it will not be enough for a commercial beef operation. Check out the Angelina County Assessment District website (if that’s where your land is), and you’ll find that their minimum requirement is 20 acres if they’re on native grass pastures. Of course, if your property is not located in Angelina County, you should check their guidelines as they can certainly differ.

It is important to note that the open space provision is not an absolute exemption. If the land is transferred to non-agricultural use, the owner must pay a decommissioning tax equal to the tax savings of the past 5 years (plus 7% accrued interest from the due dates for taxes).

The provision saves taxes only for people who retain the open space status of their land for more than five years. Nonetheless, this special treatment allows landowners to save more money in annual tax savings than any other local or state farm tax exemption or provision.

With respect to sales tax, farmers and ranchers are exempt from state and local sales taxes for most of the agricultural inputs they purchase as well as for the products they sell. The exemption covers virtually all inputs used exclusively to produce agricultural goods.

Although this is not a new tax law, effective January 1, 2012, agricultural businesses must obtain a Texas Agriculture and Timber Exemption Registration Number (“Ag / Timber Number ”) To the State Controller. The Texas Comptroller’s Office has a form you can fill out to request a farm sales tax exemption for certain items required for on-farm and ranching use. You can apply online on the controller’s website at

On the back side, products sold by farms and ranches such as grain, milk, cattle and raw cotton for further processing are also exempt from tax. In the state of Texas, food products such as flour, sugar, raw meat, milk or produce are not taxable. Go to your favorite local grocer and buy only raw farm produce and see how much tax you pay!

Other tax benefits available to agricultural producers include taxes on sales and the use of motor vehicles for vehicles specializing in agricultural production, sales and excise taxes on fuel used on farms and farms. ranches, and finally some state franchise taxes.

Regarding regulations, the Texas Department of Agriculture will have a list of all the regulations that agricultural producers must follow. With a few exceptions, I find great flexibility in existing laws.

Go to the Texas Dept of Agriculture website and look under “Regulatory Programs” and you will find that they audit trade scales, regulate wholesale raw eggs, and several other areas. Ultimately, this State Department has a strong consumer protection program, which includes oversight of items such as grocery scales, egg quality, and nursery / floral plants.

You have more questions ? Schedule a visit with your local county extension office. It would be prudent to understand the business of agriculture before spending resources.

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