Farmer's Guide To Sales And Use Taxes, Motor Vehicle Fuels Tax and Estimated Income Tax
PURPOSE: Retail sales of tangible personal property used exclusively in agricultural production are exempt from sales and use taxes under Conn. Gen. Stat. §12-412(63) provided the purchaser qualifies for and has been issued a Form OR-248, Farmer Tax Exemption Permit, by the Department of Revenue Services. This publication is intended to answer some of the most frequently asked questions regarding Farmer Tax Exemption Permits and to explain the taxation of sales made to and by those engaged in agricultural production, adding a discussion of the new exemption for certain seeds. In addition, this publication describes the exemption and refund provisions for purchases of motor fuels by farmers. Finally, this publication describes the rules for farmers to make estimated personal income tax payments.
EFFECTIVE DATE: Effective upon issuance.
STATUTORY AUTHORITY: Conn. Gen. Stat. §12-412(63), Conn. Gen. Stat. §12-458, Conn. Gen. Stat. §12-459 and Conn. Gen. Stat. §12-722.
1. Who may apply for a Farmer Tax Exemption Permit?
Anyone engaged in agricultural production as a trade or business and who had in the preceding taxable year gross income of $2,500 or more from the agricultural production, as reported on Schedule C or Schedule F of federal Form 1040, 1041 or 1065, is eligible for a Farmer Tax Exemption Permit. If the person is incorporated and files a federal Form 1120, 1120A or 1120S, the applicant must submit a filled in copy of Schedule C or F. To be engaged in agricultural production as a trade or business, a person must both engage in such production with a profit motive and materially participate in such production. Applicants whose gross income from agricultural production in the preceding taxable year was less than $2,500 may still qualify for a Farmer Tax Exemption Permit, provided in the current or immediately preceding taxable year the farmer bought an agricultural trade or business from a seller who was issued a Farmer Tax Exemption Permit at the time of the sale. However, if the agricultural trade or business is not carried on by the purchaser for a period of five years after the date of purchase, the applicant will be liable for the sales or use tax that would have been due without the exemption.
2. What farming activities are considered agricultural production?
Raising and harvesting any agricultural or horticultural commodity; dairy farming; forestry; raising, boarding or training livestock and poultry; or raising and harvesting fish, oysters, clams, mussels or other molluscan shellfish are considered agricultural production.
Individuals engaged solely in buying agricultural products for resale are not engaged in agricultural production. For example, cut flowers or plants sold by a farmer at a roadside stand are not agricultural products if the flowers or plants were purchased by the farmer for resale.
3. Can selling timber qualify someone for the Farmer Tax Exemption Permit?
No. Sales of timber by a person who is not engaged in farming or forestry management do not qualify as sales of agricultural products raised in agricultural production.
4. Are livestock breeders eligible for a Farmer Tax Exemption Permit?
Yes, if in the preceding taxable year the breeder properly reported for federal income tax purposes gross receipts of $2,500 or more from agricultural production (see question 1). A breeder who is required for federal income tax purposes to treat his or her income from the sales of livestock as capital gains does not qualify.
5. Is a person engaged in the business of boarding horses that are owned by others eligible for a Farmer Tax Exemption Permit?
Yes. Agricultural production includes the raising, feeding, caring for, shearing, training or management of livestock, including horses. A farmer who reported on his or her previous year’s federal income tax return at least $2,500 of gross income from the boarding or training of horses may qualify for a Farmer Tax Exemption Permit. For further information request a copy of Legal Division Ruling No. 96-5.
6. Is the operator of a fish farm or hatchery that engages in breeding fish and confinement raising of fish eligible for a Farmer Tax Exemption Permit?
Yes. The operation of a fish farm or hatchery is considered agricultural production; therefore, the operator is eligible for a Farmer Tax Exemption Permit.
7. How does a farmer apply for an exemption permit?
To obtain a Farmer Tax Exemption Permit you must complete and submit Form REG-8, Application for Farmer Tax Exemption. New applicants must request Form REG-8 from the Department’s Forms Unit (see "For Further Information," page 6). Submit your completed application as soon as possible and allow at least four weeks for the Department to process your application and mail your permit. To avoid delays in processing your application:
8. May the names of both spouses appear on the permit?
Yes, as long as a joint federal income tax return was filed, both spouses’ names are entered on Form REG-8, and both spouses sign the Form REG-8. The permit will be issued to the name or names that appear on the top line of the federal tax return.
9. May a farmer get a refund of sales tax paid on purchases made before his or her exemption permit was issued?
No. No sales tax will be refunded for purchases made before the permit is issued. A farmer must present the permit at the time the purchase is made in order to be able to claim the exemption.
10. Does the Farmer Tax Exemption Permit have to be renewed?
Yes. A farmer must reapply for the permit each year. The permit is valid from October 1 or the date of issuance (whichever is later) until the following September 30. Farmers with a current Farmer Tax Exemption Permit will receive a renewal package each year.
11. May a Farmer Tax Exemption Permit be transferred?
No. The permit may not be transferred or assigned to anyone and is null and void upon the termination of agricultural production by the original applicant. When a farmer ceases agricultural production, the permit must be returned to the Department.
12. What if the farmer’s address changes or the location of the farm changes?
If a farmer changes his or her address or changes the location of the farm, the farmer must apply for a new Farmer Tax Exemption Permit by submitting a new Form REG-8 with the correct information and attaching the old permit.
13. If a farmer who has been issued a Farmer Tax Exemption Permit transfers his or her farm to an immediate family member for no consideration, will a Farmer Tax Exemption Permit be issued to the new farmer?
Yes, as long as that person is the spouse, parent, child or sibling of the former owner and the activities of the new owner meet the other qualifications for an exemption permit. The new owner must submit the specified appropriate pages of the federal income tax return of the former owner with his or her application for a Farmer Tax Exemption Permit. Enter the former owner’s name and Farmer Tax Exemption Number on Form REG-8.
For example, a farmer who holds a Farmer Tax Exemption Permit decides to retire and transfers the farm to his daughter, who will continue to run it. The daughter may apply for a Farmer Tax Exemption Permit. She should attach a written explanation of her relationship to the farmer permit holder.
14. If a farmer who has been issued a Farmer Tax Exemption Permit sells his or her farm will a Farmer Tax Exemption Permit be issued to the new farmer?
Yes. But if the agricultural business is not carried on by the purchaser for at least five years from the date of purchase, the purchaser will be liable for the sales or use tax otherwise due on purchases that were made during the period. The transfer of the assets of the farm as part of the formation of a new entity also qualifies as a sale for the purposes of this provision. The purchaser of the farm, however, must reapply in his or her own name.
For example, a farmer who operates his farm as a sole proprietorship and holds a Farmer Tax Exemption Permit forms a partnership or corporation and transfers the farm to it. The partnership or corporation may apply for a Farmer Exemption Tax Permit. The applicant should also attach a written explanation of his or her relationship to the former permit holder.
15. What purchases may be made tax-free with a Farmer Tax Exemption Permit?
A Farmer Tax Exemption Permit may be used to buy goods that will be used only for agricultural production. Qualifying purchases may include items such as a farm tractor, truck, or refrigeration equipment as long as the item purchased will be used only in agricultural production. If an item will be used partly in the agricultural production process and partly for other purposes, it is fully taxable.
For example, if you buy a truck that will be used on the weekend to transport farm produce to a regional market and during the week to commute to a job that is unrelated to farming, you cannot buy the truck tax-free. You have to pay the tax because you will not use the truck only for agricultural production.
As of July 1, 1997, vegetable seeds suitable for planting to produce food, or an ingredient or flavoring, for human consumption are exempt for all purchasers. The exemption applies to the seeds of foods commonly regarded as vegetables, fruits and herbs, and does not apply to seeds of plants commonly regarded as flowers or of plants commonly regarded to be ornamental, inedible, or for consumption only by animals. The exemption applies to seeds only, and not to spores, seedlings, roots, bulbs, tubers, cuttings, bushes or any other propagative forms of vegetables, fruits and herbs.
16. What documents must a farmer provide to a retailer to show eligibility for the exemption from sales and use taxes?
A copy of the Farmer Tax Exemption Permit must be provided to the retailer at the time of each purchase or a blanket certificate may be issued for a continuing line of exempt purchases. A blanket certificate, which is simply a copy of the original permit with the words "Blanket Certificate" written across the top, is valid from the date of issuance until September 30 of the following year.
If a copy of the exemption permit is not provided to the retailer at the time of purchase, the retailer must collect the applicable sales tax.
17. Can farm equipment be leased tax-free?
Yes. The lease of equipment used exclusively in agricultural production by a farmer who holds a valid Farmer Tax Exemption Permit is exempt from tax.
18. Can services like plowing, planting, harvesting, or fertilizer application or repairs to farm vehicles be bought tax-free with a Farmer Tax Exemption Permit?
No. The exemption is limited to purchases of goods. A farmer is liable for sales and use taxes on the purchase of any taxable service. Plowing, planting, harvesting, fertilizer application and other services are taxable as services to income-producing real property. Repairs to a farm vehicle are taxable as motor vehicle repair services. (However, repair parts for vehicles and machinery used exclusively in agricultural production may be purchased with a Farmer Tax Exemption Permit.)
19. If an individual operates a farm and also provides "custom hire work" such as plowing, fertilizer application or harvesting to other farmers, can he or she purchase the machinery and supplies to perform these services without paying sales tax?
No. The Farmer Tax Exemption Permit may only be used to purchase equipment that will be used by a farmer exclusively in the production of agricultural products grown or raised by that farmer. The applicant's farm does not qualify for the exemption if purchases of equipment and supplies will be used other than for agricultural production.
20. If a farmer is renovating a building used exclusively for agricultural production, are the purchases of materials for this project exempt from sales and use taxes?
Yes. Lumber, hardware and other building materials that are sold directly to a farmer for the construction or renovation of a farm structure used exclusively in agricultural production, such as a barn for farm animals or a storage building for the harvest, can be purchased exempt from sales and use taxes. However, if the building materials and supplies are sold to a contractor who is hired to perform the construction services, rather than to the farmer, the sales are fully taxable. Likewise, tax will apply to the purchase of materials if the structure is not used exclusively in the agricultural production process. For example, if a farmer purchases lumber to build or renovate a home, the lumber is fully taxable.
21. If a contractor is hired to renovate a farm building, is the charge for his or her services subject to tax?
Yes. Because the farmer tax exemption does not apply to purchases of taxable services, a farmer is liable for sales tax on the service charges for the renovation or repair of an existing farm structure. However, if the project involves the construction of a new building or an addition that expands the cubic footage of an existing building, the service charges are exempt from tax as a new construction project.
22. Is the fee charged by an auctioneer to a farmer for services at an auction subject to sales and use taxes?
No. Effective July 1, 1997, auctioneer services are no longer subject to sales and use taxes.
23. May a farmer who holds a valid Farmer Tax Exemption Permit purchase electricity, gas or heating fuel for farm buildings tax-free?
Yes, as long as 75% or more of the gas, electricity or heating fuel is consumed in a metered building or location that is used for agricultural production. The farmer must complete and provide the utility company with a CERT 115, Certificate For Gas, Electricity and Heating Fuel Purchased For Residential Use or For Use in Agricultural Production, in the Fabrication of Finished Products to be Sold, or in an Industrial Manufacturing Plant.
24. Must a farmer who is making sales obtain a Sales and Use Tax Permit?
Yes. Any farmer selling goods must register for a Sales and Use Tax Permit and must collect sales tax on the sale of taxable goods. Taxable goods include plants, trees, hay, feed, mulch, fertilizer (including manure), livestock, poultry, rabbits, Christmas trees (living or cut), wreaths, decorated or carved pumpkins and flowers. Tax must be collected on all such sales, unless they are otherwise exempt.
25. What sales commonly made by farmers are not taxable?
Exempt sales include:
A copy of the current Farmer Tax Exemption Permit must be issued to the seller at the time of purchase.
26. How to register for a Sales and Use Tax Permit:
To obtain a Sales and Use Tax Permit, complete and submit Form REG-1, Application For Tax Registration Number, and pay the $20.00 application fee. The permit is valid for two years and may be renewed without an additional fee. You may apply by mail or in person at Department offices in Hartford, Norwich, Bridgeport, New Haven and Waterbury.
27. What are the sales and use taxes filing requirements?
Generally, sales and use tax returns are filed on a quarterly basis. The quarterly periods and due dates are as follows:
If a seller's sales and use taxes liability exceeds $4,000.00 per year, the seller must file monthly returns which are due on or before the last day of the following month. A seller may request permission to file on an annual basis if his or her sales and use tax liability is less than $1,000.00 per year.
28. What are the estimated income tax requirements for farmers?
The required annual payment for farmers is the lesser of:
If, on or before March 1 following the end of the taxable year, you file a Connecticut income tax return and pay the full amount of tax due, you will not be subject to interest for not paying estimated tax. The individual is a farmer for any taxable year if such individual is a farmer as defined in Sec. 6654(i)(2) of the Internal Revenue Code for the taxable year.
29. When can a farmer make exempt purchases of motor vehicle fuels?
A farmer holding a Farmer Tax Exemption Permit may buy motor vehicle fuels exempt from tax as long as the gasoline or diesel fuel will be used either in a vehicle that is not licensed to be operated on state highways, or in a vehicle that is registered with the Department of Motor Vehicles exclusively for use for farming purposes. In addition, the fuel may not be delivered to a tank in which the farmer keeps fuel used for both farm and non-farm purposes. The farmer must furnish the fuel distributor with a Form AU-302, Farmer Affidavit, at the time of purchase.
30. Is there any other way for a farmer not to be taxed on purchases of motor vehicle fuels?
Yes. Farmers holding a Farmer Tax Exemption Permit who did not claim the exemption discussed in question 29 may file a claim for refund on or before the last day of May, as long as the refund claim involves the purchase of at least 200 gallons of fuel during the preceding calendar year. Such refund claims must be filed using either Form AU-725a, if the claim involves purchases of gasoline, or Form AU-725b, for claims involving purchases of diesel fuel. Copies or originals of each numbered slip or invoice issued to the farmer at the time of each purchase must be submitted with the claim for refund.
EFFECT ON OTHER DOCUMENTS: IP 97(8) is superseded, and may not be relied upon after the date of issuance of this publication.
EFFECT OF THIS DOCUMENT: An Informational Publication is a document that addresses frequently asked questions about a current Department position, policy or practice, usually in a less technical question and answer format.
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