N.J. Admin. Code § 18:24-19.5

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

Section 18:24-19.5 - Primary 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 primarily at the purchaser's farming enterprise in the production and handling and preservation of agricultural or horticultural commodities for sale.

(b) When a service or tangible personal property is put to use in more than one way, the service or property is not exempt unless it is used more than 50 percent of the time directly in the production and handling and preservation of agricultural or horticultural commodities for sale.

(c) Examples:

1. A farmer is in the business of raising vegetable plants for sale to garden centers and other retail sellers of plants. The farmer buys tilling equipment which is used to prepare the soil for planting. The equipment is used directly in the production of the horticultural commodities raised for sale. The farmer also occasionally uses the tiller to prepare a small decorative flower border at the entrance of the farm, adjacent to the road. The tiller is used approximately 90 percent of the time in preparing the growing areas for plants raised for sale, and 10 percent in preparing the decorative border.

The tiller qualifies for exemption because it is used directly in the production of horticultural commodities for sale more than 50 percent of the time.

2. A partnership breeds and raises horses for sale. It also uses a portion of its property as a boarding and training facility for customers' horses. It makes the following purchases: food additives, horse shoeing tools, and grooming equipment. The food additives are used approximately 60 percent of the time in feeding the horses used for breeding for sale and 40 percent in feeding the horses being boarded; the horse shoeing tools are used approximately 75 percent of the time on the horses being breed for sale and 25 percent on the horses boarded for customers; the grooming equipment is used approximately 20 percent on the horses bred for sale and 80 percent on the horses boarded or trained for customers.

The food additives and horse shoeing tools qualify for exemption because they are used more than 50 percent of the time directly in the production and handling and preservation of an agricultural product for sale, that is, horses. The grooming equipment does not qualify because it is used directly for exempt purposes only 20 percent of the time; its use in the boarding and training of customers' horses is not a use in the production and handling and preservation of horses for sale.

3. A corporation is in the business of operating a botanical garden. It charges the public a fee for admission to its greenhouses to view the plant collections and displays. Part of each greenhouse is used for propagating and growing plants. Most of the plants are grown for display in the portions of the greenhouses open to the public. Approximately 15 percent of the plants are grown for sale in the botanical garden's gift shop or for sale to plant stores. The corporation is purchasing materials to construct an additional greenhouse in the complex, which will be used in the same way as the existing greenhouses.

The materials purchased to construct a greenhouse will not qualify for exemption because they will not be used more than 50 percent of the time in the production and handling and preservation of horticultural products for sale.

4. A corporation operates a tree nursery, which raises trees for sale. It uses the land adjacent to the tree nursery to operate an arboretum, which grows and maintains trees that are not for sale and provides free tours to the public. The corporation contracts with an aero-spray service to spray pesticide on the nursery and the arboretum as needed. The service is used 70 percent of the time on the tree nursery and 30 percent of the time on the arboretum.

The lump sum fee for the service is exempt, since the aero-spraying of pesticides is a production service used directly in the production and preservation of horticultural products for sale 70 percent of the time.

5. A tree nursery and landscaping business grows shade trees which it installs for its customers as part of its landscaping operation. It purchases tree seedlings, watering equipment, and digging equipment. The watering equipment is used during the growing process, and the digging equipment is used approximately 70 percent in the growing operations and 30 percent in the landscaping operations.

The purchase of the watering equipment is eligible for the farm use exemption because it is used directly in production in the nursery's farming operations. The digging equipment also qualifies for exemption because, although it is used part of the time in the landscaping operations, it is used more than 50 percent of the time, that is, primarily, in production of an agricultural commodity for sale (trees). The seedlings are not eligible for exemption because they become the property which the business installs in its landscaping operation. When this business installs trees or performs other landscaping jobs on its customers' real property, it is acting as a contractor, rather than as a farmer. Contractors are liable for sales or use tax on the materials they install on their customers' real property.

(d) The eligibility of a particular purchase for exemption under the farm use exemption (54:32B-8.1 6) depends upon the nature and extent of its use in the farming enterprise.

1. The fact that an item of service or tangible personal property is purchased by a farmer does not in itself make the purchase eligible for exemption.

2. Examples:

i. A vegetable farmer raises vegetables for sale. The farmer also raises a goat, a sheep, and several ducks for the enjoyment of the farmer's family and guests, but does not sell the animals or their products. The farmer's purchases of feed for the animals are not exempt.

ii. A neighboring farmer raises goats, sheep, and ducks for their meat, milk, wool, and eggs for sale. The farmer also grows vegetables solely for his family's consumption. The farmer's purchases of fertilizer and a hoe for the vegetable garden are not eligible for exemption.

iii. Three farms maintain horses on their premises. Farm No. 1 breeds and raises horses for sale. Farm No. 2 raises corn and beans for sale, and also boards a few horses for customers. Farm No. 3 raises horticultural products for sale in a greenhouse and also has a few horses which it raises for the use and enjoyment of the farmer's family. The purchases of feed, equine medicine, and horse grooming supplies by Farm No. 1 qualify for the farm use exemption. Purchases of the same items by Farm No. 2 and Farm No. 3 are taxable, because the items are not used directly and primarily in the production and handling and preservation of horses (agricultural product) for sale by that farm.

iv. Farmer Bob grows most of his sod for sale to landscaping contractors. However, Farmer Bob sometimes acts as a contractor by supplying fully installed sod to his customers. Farmer Bob purchased a cutting implement used to cut and harvest mature sod for sale and a roller used in planting and installing sod on customers' property. The cutter is eligible for the farm use exemption. The roller is not eligible for the farm use exemption because it is used in contracting work, not in the farming operation.

N.J. Admin. Code § 18:24-19.5

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