Tennessee Sales Tax Regulations on the Sale of Farm Products
A program of the
Hal PepperFinancial Analysis Specialist
Center for Profitable Agriculture
Farmers Market ForumJanuary 24, 2013
“Should I Collect Sales Tax?”
Or,
A program of the
Hal PepperFinancial Analysis Specialist
Center for Profitable Agriculture
Topics We’ll CoverSales Taxes on Sales of:
Raised Farm Products Purchased Farm Products
Sales Tax Liability and Registering with Tennessee Department of Revenue
Sales Tax Implications on Sales of: Value-Added Products Agritourism Farm Products and Services
QuestionA man is driving 65 miles per hour on
Highway 64.Is he breaking the law?
Some points in the Law (Title 67 of Tennessee Code) are clearer than others.
Consult Sales and Use Tax Guides
For specific situations, consider requesting a Letter Ruling
Sales TaxA tax that permits you to engage in the
business of:
Selling tangible personal property at retail
Selling certain services at retail
Charging admission to events
Exemptions Exist for Farmers
Sales of farm products by the farmer who raised them
Certain sales of farm products that were purchased from the farmer who raised them
Sales of Farm Products by the Farmer Who Raised Them
“Products of the farm sold by the farmer who raised them” are exempt from sales tax.
Livestock Nursery Stock Fruits Vegetables Poultry
Sales of Farm Products by the Farmer Who Raised Them
The farmer who raises the product may be a person or an entity. When we talk about “sales of farm products by the farmer who raised them” we mean that the person or entity who sells the farm products to the consumer is the same person or entity who raised them.
Sales of Farm Products by the Farmer Who Raised Them
Any Buyer
Any Location
No special registration needed.
Certain Sales of Purchased Farm Products
A farmer can buy farm products and sell them.
When the farmer sells these “purchased” farm products, the sale is exempt from sales tax if two conditions are met.
Conditions for Tax Exempt Sales of Purchased Farm Products
1. The products must be purchased from the farmer who raised them, and…
Conditions for Tax Exempt Sales of Purchased Farm Products
2. The total amount of farm products raised & sold in a calendar year must be at least 50% of total sales of farm products in the same calendar year.
Sales of Farm Products
Sales of Raised Farm ProductsSales of Purchased Farm Products
Example 1: Raised Farm Products 100% of Total
Farmer Smith raises 1,000 pumpkins and sells them to consumers for $8.00 each for a total of $8,000. Does Farmer Smith owe sales tax when he sells the pumpkins?
Answer: No. The sales are exempt from sales tax because Farmer Smith raised the pumpkins.
Example 2: Raised Farm Products 50% or more of Total
Farmer Smith raises pumpkins in a calendar year and sells them for $8,000, and sells pumpkins to consumers for $5,000 that were bought for resale from the farmer who raised them in the same calendar year.
Are any of the pumpkin sales taxable?
Example 2: Raised Farm Products 50% or more of Total
Answer: No, none of the pumpkins are taxable. Both the raised pumpkins and purchased pumpkins are exempt.
Pumpkin SalesSales of Raised Pumpkins $8,000Sales of Purchased Pumpkins $5,000
Example 3: Raised Farm Products Less than 50% of TotalIf Farmer Smith’s raised
pumpkin sales are $8,000 and the pumpkins purchased from the farmer who raised them are sold to consumers for $10,000…
Are any of the pumpkin sales taxable?
Example 3: Raised Farm Products Less than 50% of TotalAnswer: The raised sales of $8,000 are
exempt.The sale of the purchased pumpkins
($10,000) are taxable.Pumpkin Sales
Sales of Raised Pumpkins $8,000Sales of Purchased Pumpkins $10,000
Example 4: Farm Products Purchased from Others
If Farmer Smith’s raised pumpkin sales are $8,000 and pumpkins are purchased from a broker and resold to consumers for $7,000…
Are any of the pumpkin sales taxable?
Example 4: Farm Products Purchased from Others
Answer:
The sales of the purchased pumpkins ($7,000) are taxable because the pumpkins were not purchased from the farmer who raised them.
Farmer Smith must pay sales tax on the sale of the purchased pumpkins.
Registering with Tennessee Department of Revenue
Farmer Smith should complete an Application for Registration with Tennessee Department of Revenue.
Application for Registration may be completed and submitted online at http://www.tn.gov/revenue/forms/sales/index.shtml
Remitting Sales Taxes When the Application for Registration is
completed, the business is given option of filing online or on paper.
File State and Local Sales & Use Tax Return—SLS 450—to report to Tennessee Department of Revenue by the 20th of the month following the period for which tax is due.
Documents Business Will Receive
Upon registering, a business will receive
Certificate of Registration
Blanket Certificate of Resale (if qualified to make purchases for resale)
Purchases for Resale
The Blanket Certificate of Resale allows a business to make tax free purchases of goods for resale.
The Streamlined Sales Tax Certificate of Exemption may also be used.
With proper documentation, there is no sales tax on purchases for resale.
Will Farmer Smith Pay Sales Tax Twice?
Without a Blanket Certificate of Resale, Farmer Smith paid sales tax when he purchased the pumpkins from the broker.
Sales tax is also due on the sale of the pumpkins to Farmer Smith’s customers.
When Farmer Smith remits the sales tax to Tennessee Department of Revenue, he will get credit for the sales tax he paid to the broker, so sales tax will not be paid twice.
Purchases for ResaleWith proper documentation, sales tax
should be collected only one time—when the end product is sold.
When properly documented, sales tax should not be charged on:
Purchases of products that will be resold Purchases of inputs to be used in making a product
Thresholds
Thresholds when sales taxes become due:
Taxable product sales are more than $4,800/year
Taxable services (i.e., entertainment, hunting, agritourism) are more than $1,200/year
Business is liable for sales tax, even if it doesn’t collect from customer.
Occasional and Isolated SalesExemption for persons not regularly engaged in
business.
Sales are not subject to sales tax
No limit to the dollar amount of these sales
Limited to 1 or 2 temporary sales periods per year
Sales periods are limited to 30 consecutive days or less
Yard Sales Girl Scout cookie sales
Sales Tax RatesState rate 7.00%
Fruits and vegetables taxed at lower rate of
5.25% Candy & prepared food taxed at 7.00%
Local rate varies from 1.00% to 2.75%
Maximum combined tax rate 9.75% (8.00% food)
Value-Added Products
Farm products may be preserved and sold tax exempt if the only non-raised ingredients are water, sugar, salt, pectin and preservatives.
If value-added product is to be sold tax exempt:
Farmer must raise all the products used to make the value-added product (except for above ingredients)
Same entity must raise the products and sell the value-added product
Example 5, Value-Added ProductDehydrated apple crisps from raised
applesBuys salt and preservatives
Example 6, Value-Added Product
Salsa from raised tomatoes, green peppers and onions
Buys salt, olives, red peppers, oil, vinegar, spices
Making Value-Added ProductsWhich Certificate Should You Use for Purchases?
BLANKET CERTIFICATE OF RESALE
Use to Purchase:
IngredientsContainersLidsLabels
AG SALES AND USE TAXCERTIFICATE OF EXEMPTIONUse to Purchase:
Containers Lids Labels
(only if farmer raises all products contained in the value-added product, with the exception of water, sugar, salt, pectin and preservatives)
Example: Agricultural Sales and Use Tax Certificate of Exemption
Agricultural Sales and Use Tax Certificate of Exemption
Who is eligible?
Must meet at least one of following criteria:
Owns or leases ag land with $1,000 or more ag product sales Provides for-hire custom ag services or processing of ag
products Owns land that qualifies under Greenbelt Income tax return includes Schedule F or farm rental income Otherwise shows is actively engaged in business of raising,
harvesting or producing ag commodities
Application form and complete list of criteria available athttp://www.tn.gov/revenue/forms/sales/f1308401.pdf.
Agricultural Sales and Use Tax Certificate of Exemption
The Department of Revenue does not approve all requests for an Agricultural Sales and Tax Certificate of Exemption.
See Sales and Use Tax Application to Farming, Timber Harvesting, Nursery Operations, and Agritourism at http://www.state.tn.us/revenue/taxguides/agricultural.pdf for more information about the use of the Agricultural Sales and Use Tax Certificate of Exemption.
Agricultural Sales and Use Tax Certificate of Exemption is granted for a period of up to four years.
Prior to the expiration date on the certificate, the Department will notify farmers about the requirements and procedures involved with the renewal process.
AgriTourismIn general, sales tax is due on admission
charges for agritourism attractions such as hay rides, horse rides and corn mazes.
If an admission is charged for a farm activity that is solely educational in nature (e.g., demonstrations of how a working farm operates) and void of amusement, recreation and entertainment, then the admission charge is not subject to sales tax.
AgritourismThe sale of a farm product by the farmer
who raised it is exempt from sales tax.
However, if such a product is combined or bundled with an admission to an agritourism farm with recreational activities as a single sale, then the entire sale (farm product with admission) is subject to sales tax.
Example 7, Agritourism
A pumpkin grower offers a hayride to the pumpkin patch for customers to select a pumpkin. If a $10 admission is charged for each person to take the hay ride and select one pumpkin, then the entire $10 charge is subject to sales tax because the sale of the pumpkin by the farmer who raised it is combined with a recreational activity (hayride).
Example 8, Agritourism
Options:
Split the transaction into:$6.00 pumpkin (exempt raised farm
product)$4.00 hayride (taxable amusement)
Or, charge $10 for the pumpkin and offer free hayrides and the entire transaction would be tax exempt.
Exemption for NonprofitsTennessee Department of Revenue issues
certificates of exemption for nonprofit organizations.
Examples: churches, schools, 501 (c) (3) organizations
Nonprofit can purchase free of tax, goods and services that the organization will use, consume or give away.
Exemption for Nonprofits
Retain a copy of the purchaser’s nonprofit Certificate of Exemption or a fully completed Streamlined Sales Tax Certificate of Exemption form with the nonprofit’s exemption number for documentation.
Purchase must be billed to the exempt organization.
Payment must be made directly by the exempt organization with checks or credit cards.
SummaryA farmer’s sales of raised farm products
(“products of the farm sold by the farmer”) are exempt from sales tax.
The same business entity must raise and sell the farm products if the sale is to be tax exempt.
Farmers may sell farm products tax exempt that were purchased from the farmer who raised them if raised farm product sales are at least 50% of total farm product sales.
Business with taxable sales of products (>$4,800) or services (>$1,200) should complete Application for Registration and remit sales tax.
ResourcesAgricultural Tax Guide
http://www.state.tn.us/revenue/taxguides/agricultural.pdf
Sales and Use Tax Guide http://state.tn.us/revenue/taxguides/salesanduse.pdf
Tennessee Department of Revenue (800)342-1003 http://www.tn.gov/revenue/index.shtml Email [email protected]
Special “Thanks” to Tennessee Department
of Agriculture
Answers to Sales Tax Quiz
• Sales of farm products are always tax exempt. False• Sales tax is not due when a farmer sells the
farm products he or she raised. True• If a farm partnership raises a farm product,
the farm partnership can sell the farm product tax exempt.
True
Answers to Sales Tax Quiz
• A farmer making jelly must raise all the fruit used in the recipe if the jelly is to be sold tax exempt.
True
Tennessee Sales Tax Regulations on the Sale
of Farm Products
Hal PepperFinancial Analysis SpecialistCenter for Profitable Agriculture
[email protected](931) 486-2777http://www.cpa.utk.edu
A program of the
