Business Tax Policy: Exemptions for Certain Farming Activities
A person is exempt from taxation under the Business License Law and the Business Income Tax Law if that person's only transactions within the City and County are exclusively limited to the raising, harvesting and selling of the person's own crops, or the feeding, management and sale of the person's own livestock, poultry, furbearing animals or honeybees. These activities must be conducted only on that person's behalf; they cannot be conducted on behalf of others. Exempt activities do not include the processing of the products beyond those activities which are normally incidental to the growing, raising, or harvesting of such products. If a person conducts non-exempt activities, the exemption for the farming activities is lost and the income from all activities, including the farming activities, become subject to the Business License and Business Income Tax laws.
Example 1: Local Nursery raises flowering plants and trees and sells them from its farm in the County. Along with its own products, Local Nursery also sells plant foods, fertilizers, potting soils and pottery. Local Nursery falls outside the protection of the farming activities exemption since it sells products other than its own agricultural crops, and is therefore required to file a County tax return and assess the tax against all activities conducted by the entity.
Example 2: White Corporation is in the business of growing and harvesting wheat and other grains. White Corporation grinds the grains that it has harvested in order to produce flour, which it then sells to customers in the course of its business. Although the growing and harvesting of the grains is a farming activity, White Corporation is not exempt from taxation. Milling the grain into flour is processing activity that is not exempt, and therefore, all the activities are subject to taxation by the City and County.
Example 3: Amy Storm raises fruits and vegetables on her farm in the County. When the fruits and vegetables are ready to be harvested, Amy's crews pick, wash, inspect, and sort the crops. Amy Storm is exempt from taxation since washing, inspecting and sorting the crops are incidental to the raising of her crops.
Example 4: Stevenson Chickens is in the business of raising poultry. Stevenson Chickens uses the chickens in its meat processing operation in which the chickens are slaughtered, processed, and packaged or canned in preparation for sale to the consumer. Although raising the chickens is a farming activity, it is not exempt from taxation since the processing of the chickens is beyond that which is incidental to the growing, raising, or harvesting of the chickens.
7-8-2009 Sue Klobertanz
Date Director, Revenue Bureau
Updated: July 2009