Example 1: The processing of grain that a company has grown and harvested in order to produce flour, breads, cereals, and other similar food products, and the sale of the processed products do not constitute agricultural business activity.
Example 2: The processing of grapes into wine, regardless of the source of the grapes, and the sale of such wine do not constitute agricultural business activity.
Example 3: The processing of nuts by shelling and the sale of such processed nuts do not constitute agricultural business activity. Example 4: A farmer raises cattle, slaughters the cattle, and sells the carcasses. Slaughtering cattle and the sale of their carcasses do not constitute agricultural business activity.
The more-than-one-half test set forth in this subsection (C) and in section 25128, subdivision (d)(2), of the Revenue and Taxation Code applies only to service receipts from outside the apportioning trade or business and does not apply to the apportioning trade or business's self-produced agricultural products. For example, if a farming corporation stores both its own and other corporations' agricultural products on its farm premises, and it self-produces over 50 percent of the agricultural products stored there, then the entire proceeds received from the third parties (outside of the apportioning trade or business) for providing storage services would be included as gross business receipts from an agricultural business activity. However, if the farmer self-produces less than 50 percent of the products stored, the receipts from services to third parties will not qualify as gross business receipts from an agricultural business activity. The amounts received from the sales of the self-produced agricultural products which had been stored by the farmer on its farm would still qualify as gross business receipts from an agricultural business activity.
Trades or businesses engaged in performing services for others on a contract or fee basis are not engaged in an agricultural business activity for purposes of section 25128 of the Revenue and Taxation Code unless they are engaged in the business of farming as defined in Treasury Regulation section 1.175-3.
Example: A is a company whose business is soil preparation. A contracts with B, a farming corporation, to provide soil preparation services on B's farmland. A breaks the land, plows, fertilizes, prepares the seed bed and performs other related services for improving the soil for crop planting. B pays A a fee for the soil preparation services it performs. A has no interest in the land or in the crops. A is not engaged in a qualified agricultural business activity. B, however, is engaged in a qualified agricultural business activity.
Example: If X, a farming corporation, purchases peaches from an unrelated farming business which has produced the peaches, the resale of those peaches by X will not give rise to gross business receipts from an agricultural business activity. X did not produce the peaches; therefore, the sales were not derived from a qualified agricultural business activity, as defined in section 25128 of the Revenue and Taxation Code and this regulation, conducted by X.
Cal. Code Regs. Tit. 18, §§ 25128-2
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 25128, Revenue and Taxation Code.