New KY Agricultural Tax Exemption Law Requirements
Anew law went into effect on Jan. 1 that will directly affect anyone who farms and indirectly anyone who is a home gardener or hobby farmer.
The law is KRS 139.481, passed in the 2020 legislative session, and it requires farmers who are eligible for agriculture exemptions from sales and use tax apply for and use their Agriculture Exemption (AE) Number on the certificates used to claim the applicable tax exemptions.
In the past, if you operated a farm, any farm supplies seed, feed, fencing, etc., you could purchase, free of sales and use tax. And this was codified in the KRS. All you were supposed to do, by law, was fill out a state form with your contact and farm info on it and give it to the farm store you were dealing with at the time to put in their files.
Nowhere on the form did you have to actually show you were involved in actual farming. The above mentioned home gardeners or hobby farmers could fill the form out and get the same tax exempt status as someone actually involved in farming.
This is not the case anymore. Non-farmers will no longer be able to take advantage of this loophole.
The process now for someone who farms to get this tax exemption is relatively simple, but initially a little time consuming. This new tax program is being implemented and overseen by the Department of Revenue.
First, you have to fill out an Application for Agriculture Exemption Number (form 51A800). This form requires the normal items: name, mailing address, farm address, email address and driver’s license number or Federal Employer Identification Number (FEIN).
Then, to prove that you are actually involved in production farming, you have to identify the type of agricultural business activity you
are engaged in. You also will have to provide one of the following five verifications, per the Department of Revenue when I called them, even though there are only four options on the form itself.
IRS Schedule F, Profit or Loss from Farming, IRS Form 4835, Farm Rental Income and Expenses, The FSA, Farm Services Agency, number , Any other type of documentation/ information that may verify/document sales of ag products to prove you are eligible for the AEN (Agriculture Exemption Number), such as receipts, invoices, etc.
A written statement of agriculture activity. This option is only to be used if you are unable to provide any of the other above options.
Since home gardeners and hobby farmers will not be able to produce any of these required documents, 1-4, and writing a statement to satisfy 5 would be lying on a government form, they will now start being charged sales tax on seed, fertilizer, etc. they purchase.
The application is then mailed to Frankfort. After they process the application, they will send you a letter with your AEN on it. That letter is for you only. Do not make copies to take to the farm stores you deal with. It is of no use to them.
This application can be accessed and filled out on-line, found at the Department of Revenue website, and emailed to them. Either way the AEN is good for three years. The Department of Revenue will provide details on renewal at a later date.
Instead, there are two additional forms for you to fill out. You can do either one or both. The first form is the one most farmers will definitely want to do. It is the Farm Exemption Certificate (Form 51A158). This form is for general ag supplies such as feed, seed, fencing, fertilizer, etc.
The second form is the On-Farm Facilities Certificate of Exemption for Materials,
Machinery and Equipment (Form 51A159). This is for items to be used in construction, repair or renovation of farm facilities (barns, feed sheds, hay storage structures, etc.) exempt under KRS 139.480. This one can be used directly by the farmer or in conjunction with a contractor doing the work.
These last two forms which the farmer fills out, or copies, are to be given to each farm retailer that the farmer deals with.
Each farm store or retailer is to keep copies of this in the files. The farmer’s responsibility ends when they give the store a copy.
It is the farm store/retailers responsibility to keep all of these on file for anyone who they do not charge sales tax to under the guise of being a farmer.
So, what types of farming qualifies for the AEN? Here is a short list, from the Revenue Cabinets FAQ page on the AEN Program: Occupation of tilling and cultivating the soil for the production of corn, soybeans, hay, timber, vegetables (commercially), etc., Occupation of raising and feeding the kind of livestock that is sold for the purpose of food for human consumption (this does not include horses and bees), Raising and feeding poultry, R aisingratitebirds(ostriches, emus, etc.) llamas, alpacas, buffalos, cervids (deer, elk, red deer. etc.)or aquatic organisms, Any of these activities must be for business purposes and not for personal consumption.
All of this went into effect on Jan. 1; however, if you have not filled out and sent in an application yet, you can still fill out either or both of the Certificates of Exemption and instead put your driver’s license number.
This can be used until you get your AEN, at which time you will need to give a new form, or modify the old one, at each farm store or retailer. The last date the driver’s license number can be used is June 30. After that date, if you do not have an Exemption Certificate
on file at the farm store/retailer, they will be required to start charging sales tax.
Additionally, those who farm in West Virginia or Ohio, even if they also live there, are eligible to fill out these same forms and follow the same process if they purchase farm supplies in Kentucky. If they buy their farm supplies in another state, then this does not apply.
In an effort to try to make this easier for farmers in Boyd County, I have dropped off copies of all of the appropriate forms to give out at the three local farm stores/retailers, and the Conservation Office and Farm Bureau Offices, on U.S. 60 and Carter Avenue. They are also available at the Boyd County Extension Office in Catlettsburg at 2420 Center St.
I also will offer a couple of opportunities, open to everyone, to help further explain this new process. They are scheduled for 10 a.m. and 6 p.m. Wednesday and at the Extension Education Center at Coalton. I will have forms on hand to be filled out and will offer assistance in doing so to those who request it.
For more information, call the extension office at (606) 739-5184.
LYNDALL HARNED is Boyd County Extension agent for agriculture and natural resources.
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