N.J. Admin. Code § 18:24-19.4

Current through Register Vol. 56, No. 11, June 3, 2024

Section 18:24-19.4 - Direct use

(a) In order to be exempt under 54:32B-8.1 6 a farmer's purchase of qualified tangible personal property or services must be used directly at the purchaser's farming enterprise in the production and handling and preservation of agricultural or horticultural commodities for sale.

(b) In determining whether a service or an item of tangible personal property is used directly for an exempt purpose, the following factors are to be considered:

1. The physical proximity of the item in question to the production and handling and preservation process in which it is used;

2. The proximity of the time of use of the property or service to the time of use of other property or services employed before or after it in the production and handling and preservation of agricultural or horticultural commodities for sale; and

3. The active causal relationship between the use of the property or service in question and the production and handling and preservation of an agricultural or horticultural commodity for sale.

(c) Tangible personal property and services qualify for the farm use exemption when used primarily in growing agricultural or horticultural commodities for sale, or in preserving agricultural commodities for sale from the time of harvest until they are in a marketable state, or in maintaining farm animals or handling agricultural or horticultural commodities for sale until they reach a marketable state.

1. Tangible personal property used in planting, propagating, growing, feeding, stimulating growth, or raising plant and animal agricultural or horticultural commodities for sale is used directly in production, for example, tilling equipment used in a vegetable farm, seeds used in a forage crop farm, fertilizer used in a sod farm, feed scoops used in a poultry farm, bull semen used in a cattle ranch, and an incubator used by a poultry farm. Repair and replacement parts for exempt farm equipment are also exempt from tax, but repair services are taxable.

2. Services of an outside service contractor of tilling, planting, or harvesting are used directly in production.

3. Property used to extract or separate an agricultural or horticultural commodity from farm animals, the soil, water, or plants is used directly in production (for example, milking equipment, egg collecting equipment, cherry picking devices, combines, sheep shearing tools, and ropes used by a tuna aquaculture enterprise).

4. Services of an outside service contractor of extracting agricultural or horticultural commodities from farm animals, soil, water, or plants for the farmer are used directly in production (for example, picking fruit for an orchard, shearing sheep for a sheep farm, aerial spraying of pesticide on an orchard).

5. Tangible personal property or services are used directly in handling and preservation of agricultural or horticultural commodities for sale when used for the following purposes:

i. Maintaining the health of farm animals, handling and maintaining agricultural or horticultural commodities for sale during production, and preparing them until they reach a marketable state (for example, equipment used to wash and pack fruit at a fruit orchard, ropes and harnesses used in moving livestock on a ranch, medicines for a sheep farmer's herding dog, debeakers used on a poultry farm, service of washing eggs on a poultry farm, and grooming and shoeing service provided for a horse breeding farm); or

ii. Preventing the spoilage or deterioration of agricultural or horticultural commodities for sale until they reach a marketable state (for example, refrigerators to cool and preserve raw milk on a dairy farm, disinfectants to sterilize milking equipment and cans on a dairy farm, cooling equipment to preserve harvested perishable fruits on an orchard, watering equipment to maintain the freshness of balled and burlapped trees on a tree farm until shipment to market, pesticide application service to preserve horticultural products being prepared for sale by a farm).

(d) A farmer's purchase of building materials used to construct a silo, greenhouse, grain bin, or manure handling facility is exempt from sales tax if the silo, greenhouse, grain bin, or manure handling facility will be used directly and primarily in producing, handling, or maintaining the specific varieties of agricultural or horticultural commodities raised in that farmer's farming enterprise:

1. Repair or replacement parts purchased by the farmer for such structures are also exempt.

2. Tools and equipment used to construct such structures are not exempt.

(e) Property or services used in producing secondary products, made from agricultural or horticultural commodities, are not deemed to be used directly in the production of an agricultural or horticultural commodity and are not eligible for the farm use exemption. (The manufacturing exemption may apply in certain circumstances. See 54:32B-8.1 3.a and N.J.A.C. 18:24-4.)

1. Property or services used in making butter, sausage, jellies, flour, cider, cheese, ice cream, woolen fabric, floral wreaths, herbal sachets, bees wax candles, finished lumber, furniture, and other items which are made from farm products, but which are not in themselves agricultural or horticultural commodities, are not eligible for exemption under the farm use exemption.

2. Property and services used directly and primarily in producing an agricultural or horticultural commodity for sale are exempt from tax, even though the farmer may also operate another enterprise, which is not a farming enterprise, in which the farmer produces and sells secondary products made from the farmer's farm products:

i. Example: A corporation which raises sheep for their wool, which it then uses to make sweaters and blankets for sale, is eligible for the farm use exemption on purchases of tangible personal property used in raising the sheep and shearing the wool.

ii. Example: A business that raises flowers and herbs in order to produce wreaths, sachets, teas, and jellies for sale is eligible for the farm use exemption on seeds, fertilizers, and farming equipment used in planting, raising, and harvesting the herbs and flowers.

(f) The fact that a particular item of tangible personal property or service may be essential to the conduct of a farmer's business because its use is required by law or practical necessity does not, by itself, mean that the property or service is used directly in production and handling and preservation of agricultural or horticultural commodities for sale.

1. Example: A vegetable farmer's purchase of a smoke alarm to install in farm workers' housing is not exempt under 54:32B-8.1 6 because the item is not used directly in production and handling and preservation of agricultural or horticultural commodities for sale.

2. Example: A sod farmer's purchase of books, CD-Roms, information services, and other employee training materials regarding the safe use of pesticides, although necessary, is not exempt because it is not used directly in production.

(g) Property and services used in personal, administrative, clerical, financial, personnel management, promotional, repair, sales, and other non-farming activities are not used directly in the production and handling and preservation of agricultural or horticultural commodities for sale and are not eligible for the farm use exemption.

1. Examples of taxable tangible personal property not used directly in production and handling and preservation of agricultural or horticultural commodities for sale include, but are not limited to:

i. Office furniture, equipment, and supplies; books and educational materials; and recordkeeping materials;

ii. Printed advertising materials and promotional materials;

iii. Equipment and supplies used in transporting products to market or to customers, or in displaying products for sale, or in operating a store;

iv. Computers and software;

v. Items used to prevent or fight fires, first aid supplies, safety and accident prevention equipment; and

vi. Property used for the personal comfort or convenience of the farmer, farm employees, service personnel, suppliers, or customers (for example, planking for crosswalks, beds and fans for migrant labor camp, and telephones).

2. Examples of taxable services not used directly in the production and handling and preservation of agricultural or horticultural commodities for sale include, but are not limited to:

i. Repairing farming equipment;

ii. Janitorial services;

iii. Landscaping, snow removal, and grounds cleanup and maintenance services;

iv. Grooming dogs, horses, and other animals kept for the farmer's personal use or enjoyment;

v. Repairing a greenhouse;

vi. Imprinting the farmer's stationery with the farmer's business logo;

vii. Mail processing services for printed advertising material sent to potential New Jersey customers;

viii. Painting and maintaining a silo;

ix. Cleaning and repairing a grain bin;

x. Repairing a farm truck;

xi. Security services, including guard dog services and installation of alarm systems; and

xii. Boarding of horses, not used in the business of breeding and raising horses for sale.

N.J. Admin. Code § 18:24-19.4

Amended by 48 N.J.R. 824(a), effective 5/16/2016