Ohio Agricultural Sales Tax Exemption Rules

OAM-2
Agriculture and Natural Resources
Date: 
08/16/2012
Chris Bruynis, PhD, Assistant Professor and Extension Educator, Ohio State University Extension, bruynis.1@osu.edu

Farmers have been exempt from Ohio sales tax on purchases used for agricultural production for several decades. However, this does not make all purchases by farmers exempt. Currently, Ohio sales tax is charged on all sales of tangible personal property and services unless there is an exception to this tax. Farming is one of the exceptions. Since the majority of exceptions or exemptions from the Ohio sales or use taxes are based on the use of the items or services purchased, it would be difficult for the Department of Taxation to provide a list of taxable and exempt items or services. For a farmer to claim exception or exemption, the farmer must be using the items or services in a manner eligible for the tax exemption.

Farming Defined

Farming is defined as the occupation of tilling the soil for the production of crops and the raising of farm livestock, bees, or poultry as a business. The tax rules further broaden the definition of farming to include agriculture, horticulture, and floriculture. Agriculture is the cultivation of the soil for the purpose of producing grain, vegetables, and fruits, and it includes gardening or horticulture, together with the raising and feeding of cattle or stock for sale as a business. Horticulture includes the production of vegetables, vegetable plants, fruits, or nursery stock and the operation of commercial vegetable greenhouses or nurseries. The production of flowers and plants for sale as a business, either in the field or in a greenhouse is considered floriculture.

Purchases That Are Ohio Sales Tax Exempt

Ohio tax rules provide some broad categories of purchases that are tax exempt for farmers. Typically, tangible personal property used in farming is exempt while real property is not exempt from sales tax. Tangible personal property refers to property—except land or buildings—that can be seen, weighed, measured, felt, touched, or otherwise perceived by the senses. Real property is considered property that includes land, buildings, and anything affixed to the land. Exemptions for farmers include all of the following purchases:

  • The purchase of articles for the purpose of incorporating them into tangible personal property to be produced for sale.
  • The purchase of articles to be used or consumed in farming directly in producing tangible personal property for sale.
  • The purchase of articles for resale. A sales tax resale certificate should be obtained, especially if purchasing items from a wholesale company. Virtually all legitimate wholesale companies will ask for a resale certificate before they will sell at wholesale prices.
  • The purchase of portable grain bins, field tile, single-purpose livestock buildings, and single-purpose horticultural buildings. A portable grain bin is defined as a structure that is or will be used by a person engaged in farming or agriculture to shelter the person's grain. The bin also has to be designed to be disassembled without significant damage to its component parts.

Examples of purchased items that would qualify for tax exemption include tractors, plows, combines, and specially designed motor vehicles with PTO applicator units that travel from farm to farm to apply chemicals and fertilizers, seeds, fertilizers, insecticides, pesticides, and farm input and supplies including freezers, portable storage containers, crates, and gates. This is not a complete listing as it would be impossible to list every item that would qualify for Ohio sales tax exemption. The taxability or nontaxability of sales is determined by the use of articles sold. For the sale to be exempt, it is necessary that the articles sold be used in an exempt manner as defined above.

Purchases That Are Not Sales Tax Exempt

Farmers should understand the difference of items being Ohio sales tax exempt and being tax deductible. Many of the following business items' use can be deducted from income taxes, but they are still subject to Ohio sales tax. Here are categories of items that farmers typically purchase that do not qualify for the tax exemption:

  • Tangible personal property that is not incorporated in products being produced for sale nor consumed directly in products being produced for sale. Examples include most motor vehicles licensed to operate on the highway: passenger cars, pickup trucks, and larger trucks and trailers that are primarily used to haul people, animals, farm supplies, and farm products. Other items that may be used on the farm but do not qualify as tax exempt are lawn mowers, weed eaters, chain saws, home garden equipment, all-purposes vehicles that are primarily used for recreation, and items used to maintain set-a-side fields. Office equipment, office supplies, educational material, furniture, etc. are not incorporated in the products being produced for sale nor are they used or consumed directly in producing the items for sale. They are, therefore, taxable. Mere use of an item during a farming activity does not necessarily mean that it is used directly in producing an item for sale. Direct use means that the purchased item directly acts upon the product being produced for sale.
  • Items in​corporated into real property are also deemed taxable. This includes but is not limited to fencing, irrigation pipes, lumber, nails, glass, and similar items to be used in the construction or repair of real property. Exceptions to this rule are provided for portable grain bins, field tile, and single-purpose livestock and horticultural buildings.

Responsibility of Determining Tax Exemption

All sales are presumed to be taxable until the contrary is established. If a farmer wants to claim exception or exemption from sales tax based on the use of the goods or services purchased, the farmer must provide a properly completed exemption certificate (unit or blanket) to the seller of those goods or services. If a farmer has provided a valid blanket exemption certificate and is purchasing an item to be used in a taxable manner, he or she should instruct the seller to charge sales tax on that particular purchase. Unless the seller fraudulently fails to collect the tax or solicits a farmer to participate in an unlawful claim of exemption, the seller is relieved of the duty to collect sales tax on any sale covered by a fully completed certificate. However, if the Ohio Department of Taxation feels that an exemption has been erroneously claimed by the farmer, they will contact the farmer and obtain additional information that justifies the claimed exemption or payment of the tax, plus applicable penalties.

 

How to Claim Exempt Status

Farmers need to obtain either form STEC U (Sales and Use Tax Unit Exemption Certificate) or STEC B (Sales and Use Tax Blanket Exemption Certificate) at tax.ohio.gov/Forms.aspx. The blanket certificate is used when dealing with a vendor where multiple purchases will be made over time while the unit certificate is used for a one time purchase from a vendor. A completed form requires the vendor's name, the reason claimed for the sales tax exemption, and the purchaser's name, address, signature, date, and vendor's number, if the purchaser has one. An example reason for the purposes of completing the form could read "purchases used for agriculture, horticulture, or floriculture production." It is the buyer's responsibility to provide the form to the vendor, although many vendors who frequently deal with farmers have blank forms available either in paper copy or electronically. 

Summary

Determining whether or not a purchase is Ohio sales tax exempt is not always easy. Taking time to think about whether the purchased item meets the guidelines outlined by the Ohio Revised Code and Ohio Department of Taxation will help in making that determination. If the decision is not clear, either pay the tax on the purchase or if time allows, e-mail the Ohio Department of Taxation for a ruling.

References

Ohio Department of Taxation. 2010. ST 201001—Sales and Use Tax: Food Service—Equipment and Supplies Used in the Food Service Industry. Accessed April 11, 2012. tax.ohio.gov/sales_and_use/information_releases/st_2010_01.aspx.
Ohio Department of Taxation. 2010. Tax Rules: Final: 5703-9-03, Sales and Use Tax; Exemption Certificate Forms. Accessed April 10, 2012. tax.ohio.gov/legal/rules/final/5703_09/5703_09_03.aspx.
Ohio Department of Taxation. 2007. ST 2002-02, Portable Grain Bins, Field Tile, Livestock Structures, Horticulture Structures. Accessed April 11, 2012. tax.ohio.gov/sales_and_use/information_releases/st200202_archive.aspx.
Ohio Department of Taxation. 1993. Opinion of the Tax Commissioner, Opinion No: 93-0004. Accessed April 10, 2012. tax.ohio.gov/portals/0/legal/93st_opinion930004_rwt.pdf.
Ohio Department of Taxation. 1962. Tax Rules: Final: 5703-9-23, Personally Used or Consumed in Farming, Agriculture, Horticulture or Floriculture. Accessed April 10, 2012. tax.ohio.gov/legal/rules/final/5703_09/5703_9_23.aspx.
Wright, P., D. Sassen, and N. Still. Ohio Sales Tax Guidelines for Agribusiness and Farm Managers. Columbus, OH: The Ohio State University, 1987.
 
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