In our previous post we talked about how to be a bona fide farm. In this post, let’s take a look at how to get your farm purchases exempt from sales tax.
Qualifying farmers are exempt from sales tax on many items that would be used on a property. Planning on getting a John Deere Gator to survey the property (and let the kids have fun)? That’s a farm vehicle. Need feed for your horses? Tools for the garden? Tools for your construction projects on the farm? All exempt from sales tax IF you qualify. There is a great write-up on what it takes to qualify and how to get it done on CFSA’s website. However the summary is this. You need $10,000 in revenue on your farm to qualify for a sales tax exemption. Either all in one year, or averaged over three years ($30,000 total over three years). There is no provision about maintaining this level of revenue going forward. It appears that once you qualify, you are done as long as you maintain your farming status. Understand, I’ve not seen this tested yet and as this new requirement appeared suddenly out of the legislature, it wouldn’t be difficult to imagine being required to demonstrate it again at a future date.
$10,000 is a lot of revenue to produce by a gentleman farmer who already has a job and doesn’t want to farm full time. However it is revenue, not profit. Do you have 30 acres of pasture? Buy 10 cows in the spring and sell them in the fall. They cost, per the last market report, $2.00 per pound at 400 pounds. After grazing all year, they weigh about 800 pounds and sell for $1.48 per pound which is $1184 per cow. Multiply times 10 and you have $11,840 in revenue, done and documented through a third party sale.
After paying trucking, a local farmer to manage the cows for you, putting in or repairing fencing, maybe some hay, did you make money? Who cares? You are now tax exempt on sales tax for the next 30 years, and now you know your neighbor the cattle farmer and your local stock yard, both very good people to know.
What if you cannot keep 10 cows? What if it’s only 5? Buy them in the spring, sell them in July and buy another 5 at the same sale. Then sell those five in the fall. For the year, you’ve sold 10 cows so you still have the same amount of revenue. Nobody said you had to be a smart farmer, or a profitable farmer, just that you are farming. Don’t want cows? Cut some of the timber to get a better view and sell it. Daughter getting married? Charge her for the use of your shiny new farm as a wedding venue. Pay the income tax on the agritourism income, and call it done. You can gift her the $10,000 under the annual gifting exclusion anyway and the money ends up right back where it started. Obviously you want to be above board with what you do. You want everything to be legitimate and able to withstand scrutiny but the point is there are ways of generating revenue without having to sit at the farmer’s market selling produce.
Now that you have your sales tax exemption, it’s time to talk about the big topic, property tax exemption or “present use value.” That will be our next post.