96-115

Response July 22, 1996

Response

June 28, 1996

XXXXX

Utah State Tax Commission

210 N. 1950 W.

Salt Lake City, UT 84134-0400

Dear XXXXX

It was suggested to me to write to you for an “advisory opinion” on my business, which is called XXXXX. We have not yet begun to make sales with this business, but we hope to soon. For many years, I have been growing lily bulbs from seeds and hybridizing them. I hope to begin sales to the public, using a three year crop rotation as a farming plan. Several years ago, I was told by someone at the tax commission that such a business would be exempt from collecting sales tax, as it would appear to be an agricultural enterprise. We grow a crop from seed on our own land, and then intend to pass the harvest along to the public. In strength of my position, I would point to another business, XXXXX. This business does just what I intend to do -- only the flower crop is different. This business has been operated under an agricultural exemption for the past five years. Finally, I would like to reiterate that we are not a nursery. We do not buy plants and re-sell them. We grow a crop from seed and harvest the bulbs at the end of a three year period.

Thanks for your attention to this matter. I would like to have it on record whether or not we are exempt from collecting sales tax.

Thanks Again,

XXXXX

July 22, 1996

XXXXX

Advisory Opinion - Application of sales tax to sales of lilies.

Dear XXXXX

We have received your request for information regarding sales tax on your sales of lilies grown as a crop on your land. We find as follows:

Utah law provides certain sales tax exemptions that pertain to purchases or sales by agricultural producers. With regard to horticultural specialty trades, an agricultural producer is one primarily engaged in the production of ornamental plants, nursery products such as bulbs, florists’ greens, flowers, shrubbery, flower and vegetable seeds and plants, trees and sod. As a producer of lily bulbs, you qualify as an agricultural producer.

Utah sales tax law extends a sales tax exemption on the “exclusive sale of locally grown seasonal crops, seedling plants, or garden . . . produce if sold by a producer during the harvest season. §59-12-104 (23) Utah Code Ann. Assuming that your bulbs are “seasonal” and also assuming that you do not sell anything other than the bulbs or other qualifying agricultural produce, you may sell tax free. If you are selling through a shop which retails non-agricultural items, you are considered a retailer. In that case, you must collect sales tax on all sales.

With two exceptions, a commercial agricultural producer may purchase or lease equipment, machinery, supplies and other tangible personal property used or consumed primarily and directly in agricultural production operations tax free. The two exceptions are purchases of vehicles which must, under the laws of this state, be registered, and hand tools with a unit price of less than $$$$$. §59-12-104 (22) Utah Code Ann.

Examples of items that may be purchased tax free include irrigation equipment, seed or seedlings, fertilizer, and sprays and insecticides used in the commercial production of plants to control insects, diseases or weeds. Materials and supplies used to construct an irrigation system or greenhouse may also be purchased tax free. However, purchases of concrete are taxable at the point of sale. If the concrete is used to build or line irrigation ditches, the agricultural producer may apply directly to the Tax Commission for a refund.

Items purchased for use in activities that are not directly related to agricultural production may not be purchased tax exempt. For instance, purchases of office equipment, janitorial supplies, equipment used in the sales or distribution operations, and equipment or supplies used in research or development are all taxable.

You may also qualify for an exemption on electricity or other fuels used in your agricultural activities. Purchases of gas, electricity, heat, coal, fuel oil or other fuels is exempt from sales tax if used in agricultural operations to produce an agricultural product, including uses in:

. commercial greenhouses,

. irrigation pumps,

. off-highway farm machinery, and

. farming activities.

The exemption extends to use for production activities up to the time of harvest or placing the product into a storage facility. If the electricity or gas for both qualifying and non- qualifying activities is delivered to a single location through a single meter, the determination of whether it qualifies for exemption depends upon whether the electricity or fuel is used predominately for qualifying activities.

Please contact us again if you have other questions.

For the Commission,

Alice Shearer,

Commissioner