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Tennessee Sales Tax Regulations on the Sale of Farm Products. Farmers Market Forum January 24, 2013. Hal Pepper Financial Analysis Specialist Center for Profitable Agriculture. A program of the. Or,. “Should I Collect Sales Tax?”. Hal Pepper Financial Analysis Specialist

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slide1
Tennessee Sales Tax Regulations on the Sale of Farm Products

Farmers Market Forum

January 24, 2013

Hal Pepper

Financial Analysis Specialist

Center for Profitable Agriculture

A program of the

should i collect sales tax
Or,“Should I Collect Sales Tax?”

Hal Pepper

Financial Analysis Specialist

Center for Profitable Agriculture

A program of the

topics we ll cover
Topics We’ll Cover
  • Sales 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
    • AgritourismFarm Products and Services
question
Question
  • A man is driving 65 miles per hour on Highway 64.

Is he breaking the law?

slide5

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 tax
Sales Tax
  • A 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
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
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 them1
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 them2
Sales of Farm Products by the Farmer Who Raised Them
  • Any Buyer
  • Any Location
  • No special registration needed.
certain sales of purchased farm products
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
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 products1
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.
example 1 raised farm products 100 of total
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
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 total1
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.
example 3 raised farm products less than 50 of total
Example 3: Raised Farm Products Less than 50% of Total
  • If 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 total1
Example 3: Raised Farm Products Less than 50% of Total
  • Answer: The raised sales of $8,000 are exempt.
  • The sale of the purchased pumpkins ($10,000) are taxable.
example 4 farm products purchased from others
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 others1
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
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
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
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
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
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 resale1
Purchases for Resale
  • With 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
  • 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 sales
Occasional and Isolated Sales
  • Exemption 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 rates
Sales Tax Rates
  • State 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
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 product
Example 5, Value-Added Product
  • Dehydrated apple crisps from raised apples
  • Buys salt and preservatives
example 6 value added product
Example 6, Value-Added Product
  • Salsa from raised tomatoes, green peppers and onions
  • Buys salt, olives, red peppers, oil, vinegar, spices
making value added products which certificate should you use for purchases
Making Value-Added ProductsWhich Certificate Should You Use for Purchases?

BLANKET CERTIFICATE OF RESALE

Ag sales and use tax

Certificate of exemption

Use 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)

Use to Purchase:

  • Ingredients
  • Containers
  • Lids
  • Labels
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 at

http://www.tn.gov/revenue/forms/sales/f1308401.pdf.

agricultural sales and use tax certificate of exemption1
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 Agritourismat http://www.state.tn.us/revenue/taxguides/agricultural.pdffor more information about the use of the Agricultural Sales and Use Tax Certificate of Exemption.
slide40

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.
agritourism
AgriTourism
  • In 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.
agritourism1
Agritourism
  • The 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
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
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 nonprofits
Exemption for Nonprofits
  • Tennessee 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 nonprofits1
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.
summary
Summary
  • A 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.
resources
Resources
  • Agricultural 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 TN.revenue@TN.gov
answers to sales tax quiz
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 quiz1
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
Tennessee Sales Tax Regulations on the Sale of Farm Products

Hal Pepper

Financial Analysis Specialist

Center for Profitable Agriculture

hal.pepper@utk.edu

(931) 486-2777

http://www.cpa.utk.edu

A program of the