Everything You Want To Know About Texas Ag Exemptions for Your Land

how to become tax exempt in texas

May 30, 2013 by admin

DISCLAIMER: Big Sky Ranch in Wimberley Texas meets Texas eligibility requirements for the Agriculture Exemption. All of Big Sky Ranch’s Lots have been registered as Texas Ag Exempt Land by meeting the “Open-Space Land” eligibility requirements. The following information has been put together for anyone looking to learn more specific details about the eligibility requirements and specific provisions around the Texas Ag Exemption program.

1. Register For Your Texas Agriculture Exemption With The Texas Comptroller’s Office Today!

  • Register with the Texas Comptroller’s office for your Ag/Timber Tax Exemption Certificate Number. You can click the button below and go straight to the Comptroller’s website to fill out the form now! The first form should just take a couple of minutes. You fill this form out in order to create an online account with the Comptroller’s system, then the second form will take about 10 minutes, and upon completion you will receive your newly registered Ag/Timber number.

  • Now it is time to complete your Texas Agricultural Sales and Use Tax Exemption Certification form #01-924. This form is also available at GetReadyTexas.org .

2. The Skinny on Texas Ag Exemptions From the Compliance Update in 2012

  • In January 2012, Texas began requiring that anyone claiming an exemption from sales or use tax on the purchase of qualifying products used in the production of agricultural products or food must use a Form 01-924 Texas Agricultural Sales and Use Tax Exemption Certificate .
  • Also in January 2012, Texas began requiring that anyone claiming an exemption from sales and use tax when purchasing qualifying items used to produce timber products must use a Texas Timber Operations Sales and Use Tax Exemption Certificate, Form 01-925 .

3. Everything You Want To Know About Texas Ag Exemptions

Buyers of rural property in Texas often want to know how to get an agricultural (“ag”) exemption for tax purposes. The purpose for the question is that there are tremendous tax savings to be realized if property used for agricultural purposes can be exempted from all or a certain percentage of the property owner’s tax burden and in many cases this is possible.

Well First of All, The Ag Exemption Is Not An Exemption

But Rather an Alternative Ad Valorem Tax (Property Tax) Appraisal methodology. Yes, Your Land At Big Sky Ranch Is Eligible, And Registered Tax Exempt.!

Technically, the Texas exemption for agricultural use is not an exemption. It is actually a county appraisal district’s valuation of the homeowner’s property based on the projected value of what the land will produce. The proper terms for this tax benefit are “Agricultural-Use Valuation” & “Open Space Valuation” although the terms “ag exemption” and “agricultural valuation” are both often used as well. There are two terms because they refer to two separate opportunities for Texas Hill Country Land Owners to lower their taxes by “claiming their Texas Agricultural Exemption” which we just learned isn’t an exemption, but rather an alternative method of land valuation .

  • Agricultural Use Valuation: This first valuation method is called “Assessments of Lands Designated for Agricultural Use” authorized by Texas Constitution Article VIII, Section 1-d and described in detail in Sections 23.41 through 23.47 of the code. The simplest way to differentiate this opportunity for Texas Land Owners, from the Open Space Valuation, is to remember that this valuation methodology is based on the Farmer’s Activity. which must meet specific agricultural requirements for eligibility.
  • Open Space Valuation:
    The other is called “Open-Space Land” authorized by Texas Constitution Article VIII, Section 1-d-1 and further described in Sections 23.51 through 23.59 of the code. The Open Space valuation can be remembered as the valuation methodology that requires the land to qualify, not the activity of the Farmer.

The value derived from these alternative property appraisal methods is typically much less than the market value of the property if the property were to be sold. The taxes are then assessed against the new appraised value of the property based on this lower agricultural appraisal or valuation. Additionally, Texas agricultural business people are eligible for other tax benefits depending on the eligible activities that they engage in on their property. When searching for Texas Hill Country Land For Sale one should consider their use for the land and the amount of tax savings that could be generated based on the qualifying usage expected out of the land.

Texas farmers, ranchers, and agribusiness firms are eligible for the following tax benefits per the Texas Comptroller:

  • Open space land and agriculture land appraisal rates are lower than those for other types of property
  • Farmers and ranchers do not pay taxes on local and state sales and use taxes on products such as seed, equipment, feed, chemicals, and fertilizer
  • Agriculture is not taxed on motor vehicle sales or use taxes for farm purposes or for fuel for farm use

(*Follow the above links to visit the TX Comptroller’s website for additional specific forms and information or click her to visit the Agriculture Info Page )

Activities Eligible for the Agricultural Land Appraisal Valuation Reduction

In order for a Texas agricultural property to be eligible for the agricultural land appraisal valuation reduction, the land must be used for:

  • Wildlife Management
  • Conservation
  • Producing Crops
  • Timber
  • Livestock
  • Exotic Animals
  • Nursery Crops
  • Related Products

Land Appraisal Valuation Methodology: Agricultural vs. Open Space

For agricultural appraisals, the value of the land is an estimate of the productivity value as it is used for agriculture, wildlife or timber only.

This value excludes any other commercial development or speculation which might add value to the land. The agriculture appraisal reduction is applied only to such property as the stock watering tanks, fences, irrigation wells, and land. All other improvements, such as barns, houses, milking sheds, are appraised and valued at the prevailing market rate.

Article VII, Section 1-d-1 of the Texas Constitution and Subchapter D (Sections 23.51 through 23.6) of the Texas Tax Code govern the taxation of certain open space land. Let’s look into the second of two provisions for valuing productivity of agricultural land, from Section 1-d-1, which is open space valuation.

Open space valuation is totally determined based upon how the land is used, not upon the nature of the landowner.

Texas law does not care if the landowner is really a farmer or if the landowner is a banker. To earn an open land exemption, land must have been in agricultural use, actually producing something and can include timber, conservation management or wildlife management for five of the last seven years. In the most recent year, the land must be in use at the common intensity for agricultural use in the general area. Intensity standards will vary between counties and are typically set by the local ag districts. If a landowner is seeking an appraisal for wildlife management, they must be using the land for the purposes as stated in the tax code. If someone buys or inherits land, they must reapply for the open space appraisal in their own name by April 30 to avoid losing the valuation. Once earned, the valuation remains in effect until it is lost or property ownership changes hands.

Open space valuation is not absolute!

If a property changes to a non-agricultural use, the owner will be required to pay rollback taxes equal to the tax savings for five of the most recent years of valuation, plus seven percent interest accrued from the date the taxes were originally due. Individuals who claim a tax exemption based on their land producing and agricultural crop or maintaining open land space are expected to carry on that status for a long while in order to justify the tax savings generated by the exemption.

Not Everything You Purchase For Your Land Is Exempt

Texas did away with the generic tax exemption certificate, form 01-339. which had been used for years to claim tax exemption status when purchasing qualifying products for use in agricultural operations of all types. In Texas, technically farms and ranches are not exempt entities from sales tax and not all purchases are exempt. However, some farm and ranch purchases are exempt, while other purchases are not unless purchased exclusively for commercial use on a farm or ranch in the production of an agricultural product such as food or livestock.

For sales tax, a ranch or a farm is land used in part or wholly to:

  • Produce livestock
  • Crops and/or other agricultural products for sale

These types of operations include but are not limited to:

  • Dairy Farms
  • Commercial Greenhouses
  • Beef Farms
  • Commercial Orchards
  • Feed Lots

Alternatively, the list of activities below don’t qualify for agricultural exemption and aren’t eligible for a registration number:

  • Home Gardening
  • Horse Racing, Boarding or Training
  • Trail or Hay Rides & Zoos
  • Florists & Other Plant Nurseries
  • Wildlife Mgmt. & Conservation
  • Hunting & Fishing Operations, Including Aerial Hunting
  • Predator, Wildlife, and/or Livestock Control
  • Surveys & Censuses
  • Commercial Fishing
  • Pets, Breeding, Kennels

If you have questions about the changes to Texas’ agriculture and timber operation tax exemptions, please visit GetReadyTexas.org .

Tax Exemption of Qualified Items Used to Produce Timber on Your Land

There are certain items used to produce and sell timber which qualify for sales and use tax exemption. These types of activities would include:

  • Planting & Cultivating
  • Repair & Maintenance of Roads
  • Harvesting Timber

Additionally, dyed diesel which is used exclusively for non-highway farm equipment for agricultural purposes is exempt from sales tax and from fuels tax.

The Texas Ag exemption is a good tax benefit for Texas farmers, ranchers and agribusinesses. It is also a good way to preserve open lands from development and help with wildlife management and conservation practices. If you are a prospect looking at Big Sky Ranch would like to mention that our ranch is Texas Ag Exempt under the “Open-Space” exemption. Enjoy the tax savings Big Sky Land Owners!

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Source: bigskyranchtexas.com

Category: Taxes

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