Ranch owners and farmers in Texas pay local and state taxes just like anyone else. With that said, they do get access to some exemptions that other people don’t. It’s important to understand and use these exemptions so here are the main tax exemptions for ranch owners in Texas.
Productivity Valuation of Open Space Land
Being a ranch owner means having a lot of land, so property taxes will make up the bulk of the taxes paid by farmers and ranchers. However, different states offer their own kind of preferential treatment to ranch land and open space used for preservation.
For Texas ranch owners, the value of a property is assigned based on the agricultural and timber productivity value rather than straight property market value. Land can be valued like this so long as it is used to conserve or manage wildlife, to produce crops, livestock, and exotic animals, to produce timber, or to manage nursery crops and other products related to ranches.
Open space valuation is based on how land is used instead of anything related to the specific landowner. Land must have been used for agricultural production, including timber, conservation, and wildlife management for at least five of the past seven years.
Landowners can get special appraisal for wildlife management if they use the land for purposes outlined in the tax code. People who acquire land that previously qualified for open space valuation must re-apply for evaluation under their own name to continue receiving these benefits.
Sales and Use Tax Exemptions
Ranchers are exempt from paying state and local sales taxes for the agricultural-related products they buy and sell. This exemption covers virtually any input used exclusively for the production of agricultural goods as well as products sold by ranchers including grain, livestock, and milk. It also covers raw products such as meat and vegetables sold to consumers directly.
Motor Vehicle Sales and Use Taxes
Texas doesn’t offer blanket exemptions for agricultural vehicles. Trailers, tractors, and combines used for agricultural purposes exclusively can be exempt from motor vehicle sales and use taxes. Vehicles modified to distribute fertilizer and feed on farms may be exempt from taxes.
These farm vehicles may also be exempt from the Texas Emissions Reduction Plan surcharge. The surcharge is applied to diesel-powered vehicles of at least 14,000 pounds to improve the air quality in Texas and ensure compliance with emission standards.
Fuel Tax Exemption
Ranchers buy a lot of gas and diesel, most of which goes towards running their ranch. Fuel that is used exclusively on agricultural land is exempt from motor fuel tax. This exemption saved ranchers nearly $11 million in 2011. Ranchers must apply for an end user number from the Texas State Comptroller of Public Accounts to qualify for this exemption. Exemptions are declared by submitting an agricultural use only form to the distributor.
Franchise Tax Exemptions
The business tax in Texas is called the Franchise Tax. Farms and ranches organized as corporations are required to pay this tax, but there are exemptions. Businesses with a tax liability under $1,000 and gross sales under $1,000,000 – including ranches – are not subject to the tax. Ranchers are still required to report their income even if they are exempt from the tax though.
Final Thoughts
Every state provides tax incentives for ranches and agricultural businesses. Make sure you understand what exemptions you are eligible for. For Texas, these exemptions include exemptions from fuel and sales tax, property tax, and more. Contact Sarah and the team for more information on ranch properties. We can help you find your ideal home, and explain to you the tax exemptions that you may be eligible for.