Sales Tax and Ag Products – Avoid a painful and potentially costly lesson

The other day I got a call about a farmer being audited by the Virginia Department of Taxation, the caller was asking me about the “agricultural exemption” for the sales and use tax. It wasn’t an unfamiliar call; I usually get at least one or two a year about the tax and the production of farm products. That’s why I pulled together a handout we house on the Virginia Farm Bureau Resource page to help educate folks about it to help in running their operation. Virginia Cooperative Extension also updated their publication on the tax for the industry, theirs a link to it on our page as well. To some it’s confusing, but once you have a better understanding it makes a lot more sense.

In Virginia, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. Many think if you are a farmer you are exempt from paying the tax when buying products, but that is how the tax works.

When a farmer is buying something, items they buy used in the “producing an agricultural product for market” should qualify for the exemption, they buyer would file a Form ST-18 from the Virginia Department of Taxation with the retailer claiming the purchase met the exemption. The retailer would maintain the form on file. The same goes for farmers that sell products directly to consumers. If the farmer is selling to another farmer something that would be used in the production of an agricultural product for sale, then the buyer farmer would make sure he has completed and given the seller farmer Form ST-18 for him to maintain in their files in case they were audited.

Think it like this, the end user of a product pays the tax. When you buy a television, you pay the sales tax as you are the one buying the item for your use at home. In the case of a gallon of milk, every thing purchased to go into the production of that milk should qualify for a sales tax exemption (think input), and then when that milk is sold at the store to the consumer, they are the one that pays the tax.

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