Agricultural production is a series of activities that result in a product that will ultimately be sold at retail.

Agricultural Production Process

The agricultural production process begins when:

• You purchase or breed a qualifying animal
• You prepare the soil for planting crops

The process ends when:

• You place livestock or crops – packaged or unpackaged – into finished goods inventory
• Your grain is sellable or at a stage that it can be commingled

Note: If a product is not placed into finished goods, the process ends when the last step before loading the product for shipment is complete. Loading or preparing a product for shipping are not part of the production process.

Types of Agricultural Production

Agricultural production includes these activities (when they result in a product that will be sold at retail):

• Agriculture – cultivating soil, planting, raising and harvesting crops, rearing, feeding, and managing animals
• Aquaculture – raising private aquatic animals (fish)
• Floriculture – growing flowering plants
• Horticulture – growing fruits, vegetables, and plants
• Maple syrup harvesting
• Silviculture – growing and caring for forest trees

Businesses involved in agricultural production include:

• Breeding operations
• Farms, including crops and certain animals
• Greenhouses and nurseries that grow their products to be sold at retail
• Ranches
• Tree and sod farms (if products are sold at retail and not installed by the grower)

Agricultural Production does not include:

• Storing or preserving raw materials before the start of the production process
• Storing, preserving, handling, or moving finished goods
• Storing or processing agricultural products at co-ops, grain elevators, dairies, or meat packers
• Raising animals for your own use

If you sell taxable items, you must charge sales tax unless an exemption applies. If the item qualifies for an exemption, the purchaser must give you a completed Form ST3, Certificate of Exemption.

Taxable Sales

• Animals sold as farm-working stock, including mules, oxen, and herd dogs
• Animals sold as pets or to breed pets
• Hay bales to a contractor for erosion control
• Manure for purchasers to use on their lawns or gardens (flower, vegetable)
• Plants and seeds sold to purchasers for home vegetable gardens, lawns, or flower beds
• Plants, trees, and sod sold to person installing into real property

Nontaxable Sales

• Feed for agricultural animals, including pets raised for sale, farm-working stock, and breeding stock
• Grain sold as feed to other agricultural producers
• Produce such as eggs, honey, fruits, and vegetables

Prepared Food Sales

Prepared food is taxable. Common prepared food items in the agricultural industry result when a seller creates a single item for sale by adding two or more ingredients together. The combining or mixing may occur at premises other than the location where the sale is made. 

For example, a dairy making cheese that they sell directly to the public. These sales are taxable. 

For more information, see Prepared Food.

Equipment Sales

If you sell items that do not qualify for the farm machinery exemption, the sale is taxable. Examples include:

• Fencing
• Grain bins
• Hand tools
• Snow blowers

For more information, see Machinery and Equipment.

Farm Auctions

Farm auctions are exempt from tax. A farm auction is a public auction conducted by a licensed auctioneer. Substantially all the property sold at a farm auction consists of property used in the trade or business of farming and nonbusiness property such as household goods.

For more information, see Isolated and Occasional Sales.

Rentals and Leases

If you rent or lease farm machinery, the payments are not taxable. The purchaser or lessee must give you a completed Form ST3, Certificate of Exemption.

Note: The rental or lease payments are taxable if the machine or implement:

• Does not meet the definition of farm machinery in state law
• Is rented to a contractor or others for nonagricultural use

For more information, see Machinery and Equipment.

Charging Sales Tax

When you sell a taxable item, you must charge the state general sales tax and any local sales taxes that apply. Calculate tax based on the taxable sales price of the item (including any delivery charges).

Local Sales Tax

Sales of Animals

Some animal sales are taxable and some are exempt, depending on the type of animal and how it is used. Several services and items purchased for certain animals are also exempt from tax.

Taxable Animals

Sales and purchases of the following animals are taxable:

• Breeding animals (unless the offspring will be exempt)
• Farm dogs used for security purposes
• Farm working stock, including mules, oxen, and herd dogs
• Pets
• Show animals

Nontaxable Animals

Sales and purchases of the following animals are not taxable:

Breeding Stock

All horses are exempt from sales tax including racehorses, working stock, or pets. Related items and services are not taxable if used or consumed in breeding, boarding, keeping, owning, and raising horses.

Note: Machinery, equipment, tools, and other durable items are taxable if used in breeding, raising, grooming, owning, boarding, and keeping horses. 

For more information, see Veterinary Practice.

Research Animals

Sales and purchases of animals used for research and development are not taxable.

Artificial Insemination

Costs related to artificially inseminating agricultural animals are not taxable, including the following items:

• Disposable inseminating gloves and catheters
• Liquid nitrogen used to process agricultural semen
• Semen

However, the following items are taxable:

• Charts
• Office records
• Reusable inseminating gloves and catheters

Feed

Feed, feed additives, and feed supplements for agricultural animals are not taxable. However, feed for other animals may be taxable. See the table below for more information.

Miscellaneous Items

When the following items are used in qualifying agricultural production activities, they are exempt from tax:

• Bedding
• Hay

Veterinary Medicine and Services

Veterinary services, drugs, and medicines for agricultural and other tax-exempt animals are not taxable. Examples include:

• Calf boluses
• Dehorning paste
• Foot rot spray
• Mastitis tubes
• Terramycin powder

However, medicine and supplies for pets are taxable.

For more information, see Veterinary Practice.

Agricultural producers may purchase some items exempt from tax. This exemption applies to items used or consumed in the production process, whether or not they become part of the product produced.

To purchase these items exempt, you must give your supplier a completed Form ST3, Certificate of Exemption. Specify the Agricultural Production Exemption.

The following are examples of items you may purchase exempt.

Chemicals

Chemicals may be taxable or exempt, depending on how they are used in agricultural activities. See the table below for more information.

Fuel and Electricity Used in Production

Fuels, electricity, gas, and steam used or consumed in agricultural production are not taxable. For specific exemptions see below.

For more information, see Revenue Notice 07-01, Utilities – Agricultural Production Animals.

Qualifying new and used farm machinery is exempt from sales tax. To be exempt, the machinery must do all of the following:

• Meet the definition of farm machinery outlined in Minnesota Statutes 297A.61, subd. 12
• Be used directly in agricultural production
• Be used 50% or more of its operating time in agriculture production

You must give your supplier a completed Form ST3, Certificate of Exemption. Specify the Farm Machinery Exemption.

What does farm machinery include?

Farm machinery includes, but is not limited to:

• Machinery for the preparation, seeding, or cultivation of soil for growing agricultural crops
• Barn cleaners, milking systems, grain dryers, feeding systems including stationary feed bunks, and similar installations, whether or not the equipment is installed by the seller and becomes part of the real property
• Irrigation equipment sold for exclusively agricultural use, including pumps, pipe fittings, valves, sprinklers, and other equipment necessary to the operation of an irrigation system when sold as part of an irrigation system, whether or not the equipment is installed by the seller and becomes part of the real property

For a list of farm machinery that qualifies for this exemption, see Exempt Farm Machinery.

The following list of farm machinery, equipment, implements, and other items are exempt from Sales and Use Tax when they're used in qualifying agricultural production activities.

To claim the exemption, you must give your supplier a completed Form ST3, Certificate of Exemption.

A livestock confinement system is the complete livestock or poultry production facility. It includes the following:

• Buildings
• Feed and water systems
• Manure handling systems
• Livestock handling equipment
• Pens and gating
• Slotted flooring
• Ventilation systems
• Other incidental items

For sales tax purposes, livestock confinement systems are generally separated into three categories: building, exempt equipment, and taxable equipment.

Building

The basic structure is treated as real property including walls, roof, foundation, and electrical wiring that serves the general building.

• Materials to build the basic structure are taxable. This applies whether the builder is a contractor, owner or lessor, or is hired by an exempt entity.
• Payments for leasing the building are not taxable.

Exempt Equipment

Exempt items include:

• Components for feeding and watering systems
• Certain livestock handling equipment
• Ventilation systems that directly affect the health and productivity of the livestock
• Other items that are considered farm machinery

A contractor may purchase the materials to build qualifying equipment that becomes real property exempt from tax.

Taxable Equipment

Taxable items are generally considered personal property (rather than real property). Sales or leases of these items are taxable. Examples include:

• Free stall partitions
• Gates
• Interior pens
• Poultry cages
• Stalls
• Slotted flooring
• Ventilator fans for general building ventilation

Leases

A lease involving livestock confinement systems must separate the components of the system into the three categories (building, exempt equipment, and taxable equipment) and properly apply sales tax. If the charges are not separately stated, sales tax applies to the entire lease charge.

Fencing

Most fencing materials are taxable.

However, an exemption applies to fencing for farmed cervidae (deer and elk family). To qualify for the exemption, the fencing must be used to confine farmed cervidae to prevent them from escaping and it must be 8 feet high.

This section provides information about real property issues related to the agricultural and farming industries.

Building Materials, Supplies, and Equipment

Materials, supplies, and equipment used to construct, repair, or maintain real property are taxable. Examples include:

• Farm buildings
• Greenhouses
• Residence

The following are considered real property when they are permanently attached to real estate:

• Grain elevators
• Silos
• Storage bins

Note: When a contractor buys the materials and uses them to improve real property, the contractor must pay sales or use tax on the materials.

Farm Machinery Installed Into Real Property

When a contractor installs items that qualify for the farm machinery exemption into real property, the contractor may purchase the items exempt from sales tax. Give your supplier a completed Form ST3, Certificate of Exemption. Specify the farm machinery exemption.

Examples include:

• Barn cleaners
• Feeding systems
• Grain dryers
• Irrigation equipment
• Milking systems

Contractors may also buy repair and replacement parts for this equipment exempt from sales tax.

Some taxable services are exempt if used in agricultural production. To claim the exemption, you must give the seller a completed Form ST3, Certificate of Exemption. Specify the Agricultural production exemption.

Examples include:

• Spraying, tilling, fertilizing, and tree trimming services for an apple orchard
• Exterminating and pest control services used to prevent or control insect infestation, growing crops, or to control or eradicate predators and other pests for the health and protection of agricultural animals
• Disinfecting services used to control or eliminate disease or pests for the health and protection of agricultural animals
• Electronic surveillance services used to ensure that turkeys are in good condition and have water and food available

Machinery, equipment, tools, and other durable items used in agricultural production are taxable unless an exemption applies. Several services are also taxable.

If you do not pay sales tax on a taxable purchase, then use tax is due.

Items That Are Not Farm Machinery

Certain items used in agricultural production do not qualify for an exemption. For more information, see Taxable Items Used in Agricultural Production.

ATVs

All-terrain vehicles (ATVs) are taxable. However, if the purchaser uses the ATV directly and principally in agricultural production, it qualifies for the farm machinery exemption. You must give the seller a completed Form ST3, Certificate of Exemption.  

Motor Vehicles

Motor vehicles that must be registered for road use are taxable. This includes cars, vans, utility vehicles, trucks, and horse and livestock trailers.

For more information, see Motor Vehicle.

Grain Hopper Tanks and Bins

Grain hopper tanks and bins do not qualify as exempt farm machinery and are generally taxable.

Grain hopper tanks and bins are not grain dryers (which are exempt). This is true even if some drying occurs in the grain hopper tanks and bins, or if there are component parts such as ladders connecting the bin to a grain dryer.

The purchase of a grain hopper tank or bin is taxable unless they are sold installed because the installation is considered an improvement to real property. In that case, the contractor (installer) does not charge sales tax on the installed tank or bin. But the installer must pay sales tax on the cost of any materials and supplies used to install the items.

Use Tax

Certain items used on a farm do not meet the definition of farm machinery or are specifically excluded from the definition by law.

The following list of items and their repair and replacement parts are taxable.

See Taxable Purchases and Use Tax for more information.

Certain agricultural products are further processed to create another product. In these cases, capital equipment and industrial production exemptions may apply.

For more information, see Industrial Production and Capital Equipment.

Meat Processing

Some farms process their meat, package it, and sell it directly to consumers and stores. For exemptions that may apply, see Meat Processors.

The legal references and resources related to the agricultural and farming industry are listed.

Minnesota Statutes

• 297A.61, Definitions
  • subd. 12, Farm machinery
  • subd. 13, Aquaculture production equipment
  • subd. 36, Agricultural production
• 297A.69, Agricultural Exemptions

Minnesota Rules

• 8130.1200, subp. 1(B), Sales of building material, supplies, or equipment
• 8130.5500, Agricultural and industrial production
• 8130.8700, Veterinarians
• 8130.8900, Florists and Nurseries

Revenue Notices

• 07-01, Utilities – Agricultural Production Animals
• 08-01, Agricultural Production - Grain Drying
• 08-05, Correction to 08-01 (Added effective date of on or after Feb. 4, 2008)
• 99-14, Farm Machinery

Fact Sheets

• Capital Equipment
• Computer Software
• Detective and Security Services
• Industrial Production
• Laundry and Dry Cleaning Services
• Lawn and Garden Maintenance, Tree and Shrub Service
• Meat Processors
• Nursery and Greenhouse Production
• Petroleum Products
• Use Tax for Businesses
• Utilities Used in Production

Guides

• Building and Cleaning Maintenance
• Contractors and Other Property Installers
• Local Sales and Use Taxes
• Motor Vehicle
• Pets and Pet Services
• Sales and Use Tax Business Guide
• Veterinary Practice