Agricultural Tax Exemption: 9 Things (2024) You Ought to Know

Depending on the state, property taxes can be expensive.

Any savvy landowner knows that finding ways to reduce your property tax bill can help you when April 15th rolls around.

Property tax breaks extend to seniors, people with disabilities, veterans, and other protected classes.

But did you know that farmers can apply for agricultural tax exemptions, also known as an “ag exemption,” as well?

In this blog, we’ll dive into what agricultural exemptions are, who is eligible, and how you can get an agricultural exemption for your land.

Who doesn’t want to lower their property taxes?

1. What is an agricultural tax exemption?

An agricultural tax exemption is when agricultural landowners have their property taxes calculated based on the productive agricultural value of the land rather than the land’s market value.

Qualifying landowners could have thousands of dollars knocked off their property tax bills.

Additionally, this term could also apply to other exemptions on taxied levied on farming equipment, animals, or other supplies needed to run a farm.

Obtaining a tax exemption (such as a sales tax exemption) can be another great way for landowners and farmers to save.

Agricultural tax exemptions vary by state because property taxes aren’t administered at the federal level.

To find out more about whether you qualify for an agricultural tax exemption, you’ll need to do more research based on the state you reside in.

We’ll include some information about the states that offer the best agricultural tax exemptions below.

2. Who is eligible for an agricultural tax exemption?

The eligibility requirements vary by state, so you’ll need to do research for your specific state (and in some circumstances, your county).

However, most of the time these requirements will pertain to the amount of land (number of acres) that you have as well as the amount of income that your farm generates annually.

For instance, in Pennsylvania, to receive tax breaks on agricultural land, you must have at least 10 acres or generate a minimum of $2,000 in farm income annually.

3. How many acres do you need for an agricultural tax exemption?

The land requirement for an agricultural tax exemption will vary by your state.

However, to give you a sense of what states require, in Texas, generally at least 10 acres of qualified agricultural land are mandatory to be eligible for an exemption.

4. How much can an agricultural tax exemption save you on taxes?

There’s no set number because the amount depends on several factors, including the specific type of agricultural tax exemption and the land’s market value.

You’ll need to check with both your state and your country for the eligibility requirements and tax rates because these vary.

There’s no one-size-fits-all calculation you can do to see how much money you’ll save.

That said, if you think you are eligible, then the savings are often worth the investment of time and effort.

5. What animals qualify for agricultural tax exemptions?

Sometimes landowners with agricultural land used for livestock aren’t sure if they qualify.

Each county and state will have its own rules.

However, generally speaking, cattle, sheep, goats, and bees will qualify for an agricultural tax exemption.

You should contact the county where your property is located to find out more information.

When it comes to the number of livestock, you’ll need to meet the intensity standard for each appraisal district.

The intensity standard is normally defined by the number of acres of land needed to sustain a grazing animal unit.

So, for instance, in Texas, a unit is considered one cow and five sheep or five goats.

You’ll need to keep in mind the amount of acreage that is deemed adequate for an animal unit.

This will vary based on your geographic location, which can be impacted by the average rainfall and other local factors.

6. What about chickens? Do they qualify for an agricultural tax exemption?

Land used for poultry may qualify for an agricultural tax exemption if certain qualifications are met.

These qualifications will vary depending on — you guessed it — your state and county.

The qualifications are also subject to changes due to weather and patterns.

You’ll need to find your country’s agricultural appraisal guidelines regarding chickens for more information.

7. What type of agricultural tax exemptions might exist beyond land?

Some states and counties offer farming exemptions that extend beyond property tax breaks to certain kinds of personal property.

Below is a list of exemptions that the state of California offers.

bulletFarm equipment and machinery

While the sale of farm equipment and machinery is generally taxable, certain sales and purchases can be partially exempt from sales and use tax.

Note that if you make a sale that qualifies for a partial exemption, then you need to obtain a valid exemption certificate from your buyer.

bulletSales of animals

Some sales of animals and supplies are tax-exempt.

However, any animal-related agricultural products like tack, cages, and pet supplies are taxable.

bulletSales of feed

Tax doesn’t apply to sales of feed for food animals. The feed includes grain, hay, seed, kibble, and similar products.

bulletDrugs and medicines

In certain situations, the tax won’t apply to your sale, a buyer’s purchase, or the use of drugs or medicine that’ll be administered to animals.

Drugs and medicines are defined as products that are intended to prevent or control disease in animals.

Insecticides and vitamins labeled for livestock may also be considered drugs and medicine. The same goes for oxygen.

bulletBuildings for raising livestock and plants

You may be able to qualify for a partial tax exemption for buildings that are used for a single purpose to house livestock or plants (horticulture).

bulletSolar power facilities

If you qualify for the partial exemption of farming equipment, then you may also qualify for the exemption of your solar power facilities.

bulletDiesel fuel used in farming or food processing

Most sales and/or purchases of diesel fuel are taxable; however, some tax exemptions do exist for certain sales and purchases of diesel fuel in farming activities or food processing.

bulletFarm and garden supplies

Similarly, items sold in ranching, farming, and gardening are taxable unless you receive a special exemption which is possible.

bulletAuto parts and accessories

You can get exemptions on auto parts and accessories for farm equipment and machinery.

However, you should keep in mind that passenger vehicles and pickup trucks do not generally qualify as either, so you cannot get tax exemptions on these purchases.

bulletLiquefied petroleum gas (LPG) and agriculture

If purchased by a qualified buyer and used in a commercial crop or livestock production or harvesting, then sales of LPG for agricultural use are not taxable.

bulletDiesel fuel tax exemption for diesel fuel used on a farm for farming purposes

A farmer can purchase diesel fuel without paying the excise tax by issuing an exemption certificate to his/her vendor or by purchasing dyed diesel fuel.

If you’re looking to maximize tax breaks, then your first step is learning as much as you can about what you can get exemptions for in your state.

8. How do you apply?

Applying for an agricultural tax exemption will be different in every state because the process will vary.

However, we’ll walk you through the process of applying for an exemption in the state of Texas.

bulletStep 1: Apply for a Texas Agricultural and Timber Registration Number (Ag/Timber Number)

Before you can claim exemption on qualifying items, you must have an Ag/Timber Number.

You get this from the Comptroller.

When buying qualifying items, you’ll include this number on the exemption certificate or timber exemption certificate.

You’ll need to renew the number every four years.

When applying, make sure you have basic information on hand about your business, like name, description, and address.

You’ll also need your social security number and your SOS file number if your business is registered with the Texas Secretary of State.

Next, you’ll need to apply either online or with a paper application.

Online applicants will need to have an eSystems/Webfile account.

Fortunately, the application only takes about 10 minutes to complete.

Five to seven business days later, you’ll receive a confirmation letter in the mail.

Make sure you keep a paper copy of your Ag/Timber Number; although, you can also look up your registration information at any time.

If you choose to print the application and mail the paper version to the Comptroller, then you’ll need to allow three to four weeks of processing time.

bulletStep 2: Receive your Ag/Timber Courtesy Cards

The confirmation letter that you receive after submitting your application has two courtesy cards.

Make sure to keep these cards in a safe place.

You should also note that Ag/Timber cards do not replace the requirement to provide a completed exemption certificate when making a tax-exempt purchase.

If you need to have a spouse, employee, or other individual make purchases in your name, you can make copies of the cards.

However, make sure you trust whoever you give this card to.

Because you’re responsible for properly using your Ag/Timber Number, you’ll be held liable for its misuse.

bulletStep 3: Understand Your Benefits  

Texas has no state property tax, so that isn’t something you need to worry about as a property owner.

You could still be taxed locally for services like schools, streets, roads, police, fire protection, etc.

However, the Comptroller’s office doesn’t collect property tax or set tax rates.

However, if you hold an Ag/Timber card, you could qualify for certain exempt purchases.

Visit the bottom of this page to learn more about those exempt purchases as well as the exemption certificates you’ll need to use.

If you don’t live in Texas, don’t worry.

You’ll likely have to follow a similar process with entities in your state.

It may be a bit more complex for a state that pays property tax, but that’s all the more reason to do it!

You want to make sure you maximize your savings!

Start with online research to see what the first step is in the application process.

9. Where do I find additional information?

The best place to do more research is state-specific.

Below are state-by-state resources where they are available.

Note that these are often just first-step sites, and you should do additional research.

  1. Alabama
  2. Arizona
  3. California
  4. Colorado
  5. Connecticut
  6. Florida
  7. Georgia
  8. Illinois
  9. Indiana
  10. Iowa
  11. Kansas
  12. Kentucky
  13. Louisiana
  14. Maine
  15. Maryland
  16. Massachusetts
  17. Michigan
  18. Minnesota
  19. Mississippi
  20. Missouri
  21. Montana
  22. Nebraska
  23. New Jersey
  24. New York
  25. North Carolina
  26. Ohio
  27. Oklahoma
  28. Pennsylvania
  29. Rhode Island
  30. South Carolina
  31. South Dakota
  32. Tennessee
  33. Texas
  34. Utah
  35. Vermont
  36. Virginia
  37. Washington
  38. West Virginia

Read here for information regarding how Colorado, Idaho, Montana, North Dakota, Oregon, South Dakota, Washington, and Wyoming handle agricultural land for property tax purposes.

Final Thoughts

Agricultural tax exemptions can be greatly beneficial to landowners who want to reduce their take burden.

While the information in this article should give you a general idea of how agricultural tax exemptions work, you should continue to research your specific state and county.

Local authorities will be able to give you the most accurate information on how you can start saving on taxes.

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Erika Gokce Capital

Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.

Erika

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