DOAG: FARM TAXES



February 27, 2019

FARM TAXES

Bureau of Agricultural Development and Resource Conservation

 

The due date for filing 2018 federal and state income tax returns is April 15, 2019. For many Connecticut farm businesses, filing taxes is an opportunity to perform an annual financial analysis that can be a helpful decision-making tool for the following year.

Below are links to two publications that provide useful information for farmers about taxes and filing income tax returns:

The following are excerpts from the DRS Farmer's Guide to Sales and Use Taxes, Motor Vehicle Fuels Tax, Estimated Income Tax, and Withholding Tax.  

General Information:

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) if the purchaser qualifies for and has been issued a Farmer Tax Exemption Permit by the Department of Revenue Services (DRS). Conn. Gen. Stat. § 12-412(63) does not apply to services.

Who may apply for a Farmer Tax Exemption Permit?

Any person engaged in agricultural production as a trade or business is eligible for an exemption permit. To be engaged in agricultural production as a trade or business, a person must both engage in the production with a profit motive and materially participate in the production. The applicant must also meet one of the following requirements:

  • The applicant had gross income of $2,500 or more from agricultural production, as reported for federal income tax purposes, in the preceding taxable year or, on average, in the two preceding taxable years;

  • An applicant whose gross income from agricultural production in the preceding taxable year was less than $2,500 may still qualify for an exemption permit if, in the current or immediately preceding taxable year, the applicant bought an agricultural trade or business from a seller who had an exemption permit at the time of the sale; or

  • The applicant is starting a new farming business (start-up farmer) and intends to carry on agricultural production as a trade or business for at least two years.

What farming activities are considered agricultural production?

Raising and harvesting any agricultural or horticultural commodity; dairy farming; forestry; raising, feeding, caring for, shearing, training or management of livestock, including horses, bees, poultry, fur-bearing animals or wildlife; or raising and harvesting fish, oysters, clams, mussels, or other molluscan shellfish are considered agricultural production.

How can I apply for a Farmer Tax Exemption Permit?

You must complete and submit Form REG-8, Application for Farmer Tax Exemption Permit. Submit your completed application and allow at least four weeks for DRS to process your application and mail your exemption permit. Visit the DRS website at portal.ct.gov/DRS if you are a new applicant and need a copy of Form REG-8.

Do I have to renew the Farmer Tax Exemption Permit?

Yes. Exemption permits must be renewed every two years. For example, an exemption permit issued in 2018 is valid from October 1, 2018, or the date it is issued, whichever is later, until September 30, 2020. Farmers with a current exemption permit will receive a renewal package in 2020. To renew an exemption permit, attach the same documents required to apply for a Farmer Tax Exemption Permit to Form REG-8R, Renewal Application for Farmer Tax Exemption Permit.

A start-up farmer will initially be issued an exemption permit that is valid for two years from the date it is issued. When the farmer renews the exemption permit for the first time, the farmer may be issued an exemption permit for a period of less than two years. This exemption permit will cover a short period until the next regular renewal date.

What purchases may I make tax free with a Farmer Tax Exemption Permit?

You may use an exemption permit to buy goods that will be used only in agricultural production. Qualifying purchases include items such as a farm tractor, truck, or refrigeration equipment if the item 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 or sport utility vehicle that will be used on the weekend to transport farm produce to a regional market and during the week to commute to a job, you cannot buy the vehicle tax free. You have to pay the tax because you will not use the vehicle only for agricultural production.

When is a farmer subject to use tax on purchases?

Use tax is due when taxable purchases are made but Connecticut sales tax is not paid. Goods purchased by a farmer with the farmer tax exemption are not taxable and are therefore not subject to use tax when the goods are used exclusively in agricultural production. However, a farmer is subject to sales and use taxes on purchases of goods that do not qualify for exemption because the goods are not used exclusively in agricultural production. If sales tax is not paid on taxable goods, use tax is owed on those goods.

If you are required to have a sales tax permit, you must report and remit use tax on Form OS-114, Connecticut Sales and Use Tax Return.

Must I obtain a Sales and Use Tax Permit to make sales?

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, certain seeds, trees, hay, feed, mulch, fertilizer including manure, livestock, poultry, rabbits, living or cut Christmas trees, wreaths, decorated or carved pumpkins, and flowers. Tax must be collected on all sales unless they are otherwise exempt.

However, if you are exclusively in the business of boarding horses, dairy farming, or raising and selling tobacco, fruit, or vegetables, you are not required to obtain a Sales and Use Tax Permit.

How do I register for a Sales and Use Tax Permit?

To obtain a Sales and Use Tax Permit, complete and submit Form REG-1, Business Taxes Registration Application, and pay the $100 application fee (this can be completed online via the DRS Taxpayer Service Center). The permit is valid for two years and may be renewed without an additional fee.

What are the filing requirements
for sales and use taxes?

DRS will notify you of your filing status upon registration. The due date for Form OS-114 is the last day of the month following the end of the reporting period. A return must be filed for every period, even if no tax is due or no business was conducted for a particular period. 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 per year.