Who knew horses could cause such a sales tax quandary? In a recent case in Texas, a taxpayer who cared for abused horses was denied an agricultural exemption.

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On her 25-acre ranch in which she also produced grass for feeding the horses, the taxpayer purchased an all-terrain vehicle (ATV) used exclusively to help complete the tasks associated with taking care of the horses. She paid sales tax on the purchase of the ATV, but later obtained from the seller an Assignment of Right to Refund (Form 00-985) and requested a refund of the sales tax. The Texas Comptroller of Public Accounts denied the refund.

According to the Hearing summary, “the taxpayer claimed she was entitled to the agricultural exemption under Tax Code Section 151.316 (a)(7) and Rule 3.296 (a)(5) because the ATV was used exclusively in caring for the horses. The taxpayer showed that her land was designated for special agricultural appraisal for property tax purposes by her local appraisal district. The Property Tax Code defines agricultural use to include producing crops for animal feed or raising or keeping livestock. See Tex. Tax Code Ann. Sec. 23.51(2).”

As noted in the decision, however, the agricultural sales tax exemption “is not triggered by qualifying for the special appraisal.”

Tax Code Section 151.316(a)(7) exempts “machinery and equipment exclusively used or employed on a farm or ranch in the building or maintaining of roads or water facilities or in the production of: food for human consumption; grass; feed for animal life; or other agricultural products to be sold in the regular course of business.” Section 151.316 (c)(1), states that a “‘farm or ranch’ includes one or more tracts of land used, in whole or in part, in the production of crops, livestock, or other agricultural products held for sale in the regular course of business.” [Emphasis added.]

The Comptroller determined that because the taxpayer did not sell horses or any other agricultural product, her ATV purchase did not satisfy the requirements of the agricultural equipment exemption set out in Tax Code Section 151.316(a). The Comptroller upheld the denial of the sales tax refund.