Farmers reading this article know that most businesses keep a record of customers that have tax-exempt status and apply that exemption when purchases are made. First-time customers complete form 51A158 — Farm Exemption Certificate.
The form has questions pertaining to the customer’s name, farm location, and farming enterprises. No verification that the customer is actually a farming business and justified in not paying sales tax is required.
Farm businesses in Kentucky are exempt from paying sales tax on supplies required for the production of crops and livestock, certain machinery and tool items, and materials related to the repair and construction of buildings and storage facilities.
STARTING NOW: Applicants must verify their engagement in the type of farming eligible for sales and use tax exemptions included in KRS Chapter 139. These exclusions include certain items purchased for the purpose of raising livestock as food for human consumption or producing crops.
The deadline to apply for the new agriculture exemption number for current farmers is January 1, 2022. The agriculture exemption number is valid for three years from the date issued by DOR.
BACKGROUND: Leadership in the Kentucky General Assembly took notice of this lack of actual farming verification in allowing people to forgo sales tax and passed KRS 139.481 in the 2020 legislative session.
The law requires the Department of Revenue to issue Agriculture Exemption numbers to farmers who meet the sales tax exemption qualifications in the statute.
This was done to reduce the chance of individuals who do not actually farm being exempt from sales tax. The agricultural exemptions available to farm businesses remain the same but everyone will have to apply to the department of revenue to receive a department-issued number associating the farm business customer the right to utilize the sales tax exemption beginning in 2022.
The application Form 51A800 is currently available on the Department of Revenue website at https://revenue.ky.gov/Forms/51A800%20(4-21)_fill-in.pdf. Applications can also be picked up at my office and will be included in my fall newsletter.
The application is short but does require verification of agricultural activity. Suggested documents to include can be your most recent IRS Schedule F — Profit or Loss from Farming, IRS Form 4835 — Farm Rental Income and Expenses, your Farm Service Agency number, or another type of verification such as a current year FSA-578. Once approved, the Department of Revenue (DOR) will issue an agriculture exemption number by mail. The number must be renewed every three years.
The Agriculture Exemption Number alone does not exempt purchases from sales tax. As of right now, the Farm Exemption Certificate for production input purchases or Certificate of Exemption for Materials, Machinery, and Equipment for construction of farm facilities will still be required to keep with individual businesses where farm purchases are made.
The newly issued number will be required when requesting or updating sales tax exemption status with suppliers the farm business purchases from. Exemption Certificates without an exemption number will expire and no longer be valid as of July 1, 2022. For more information, farmers may contact the Division of Sales and Use Tax at 502-564-5170, option 1, or at DOR.Webresponsesalestax@ky.gov.
Article Contributed From Clint Hardy, KY Department of Revenue & Jay Cash, Auctioneer