Sales of Grains, Seed, Pesticides, Herbicides and Fertilizers

PURPOSE: Sections 144.030.2(1), (22), and (32), RSMo, exempt the sales of certain grains, seed, pesticides, limestone, fertilizer and herbicides. This rule explains the requirements that must be met in order to qualify for these exemptions. Section 144.020.1(3), RSMo, taxes certain utility services. This rule explains the application of this taxing provision for sales to agricultural consumers. (1) In general, the sale of grains to be converted into foodstuffs or seed, and limestone, fertilizer, and herbicides used in connection with the growth or production of crops, livestock or poultry is exempt from tax. (2) Definition of Terms. (A) Herbicides—Chemical substances used to destroy or inhibit the growth of plants, especially weeds. (B) Livestock—See 12 CSR 10-110.900. (C) Pesticides—Chemicals used to kill pests, especially insects. Pesticides include adjuvants such as crop oils, surfactants, wetting agents and other pesticide carriers used to improve or enhance the effect of a pesticide and the foam used to mark the application of pesticides and herbicides for the production of crops, livestock or poultry. (3) Basic Application of Tax. (A) The sale of grain to be converted into foodstuffs ultimately sold in processed form at retail is exempt. (B) The sale of seed, lime or fertilizer used in producing crops that will be sold at retail or will be fed to livestock or poultry to be sold ultimately in processed form at retail is exempt. (C) Sales of pesticides or herbicides used in the production of crops, orchards, aquaculture, livestock or poultry are exempt. (D) Seed, pesticides and fertilizers sold for nonagricultural use are subject to tax. Sales of fertilizer for lawns, shrubbery and similar ornamental uses and seeds for ornamental purposes are examples of sales subject to tax. (E) The sale of electricity, water, and gas used for agricultural production is exempt. (4) Examples. (A) A pesticide dealer sells pesticides to an orchard to spray on the fruit trees to kill insects. The sale of the pesticide is not subject to tax. (B) An agricultural chemical dealer sells foam marker to a farmer to aid in determining where herbicides have been sprayed on crops. The sale of the foam marker is not subject to tax. (C) A seed dealer sells seed, pesticides and fertilizer to a construction company for use on a construction site. These sales are subject to tax. (D) A pesticide dealer sells fly spray for dairy cattle and rat and mouse poison for use in the dairy barn. The sale of the fly spray is not subject to tax. The sale of the rat and mouse poison is not subject to tax because it is used in the production of an agriculture product. AUTHORITY: section 144.270, RSMo 1994.* Original rule filed Jan. 3, 2000, effective July 30, 2000. *Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1945, 1947, 1955, 1961. Conagra Poultry Co. v. Director of Revenue, 862 S.W.2d 915 (Mo. banc 1993). Wood shavings were sold by the taxpayer, a turkey processor, to its contractors as part of the contractors’ compensation for raising the turkeys. The contractors expected to use as fertilizer all the litter that the turkey-raising operation would produce in their own farming. The court ruled that at the time the wood shavings passed to the contractors, the wood shavings had no value as fertilizer. The wood shaving become fertilizer upon absorbing nutrients in the turkey droppings. The wood shavings were not exempt as materials used in processing because even though the wood shavings became a component part of the fertilizer, the contractors used the fertilizer for their own farming and did not sell any products for final use or consumption. Norwin G. Heimos Greenhouse, Inc. v. Director of Revenue, 724 S.W.2d 505 (Mo. banc 1987). Gas, water and electricity were used for the operation of greenhouses. A refund was requested on tax paid on utilities used in the greenhouse’s production of flower and vegetable plants for sale to retailers. The court found that the greenhouse’s use of utilities constituted agricultural consumption and was not subject to sales tax under Section 144.020.1(3), RSMo. The legislatures distinguished between agricultural and commercial in the property tax statutes and the Employment Security Law. The court concluded that the legislature also intended that agricultural consumers be considered as a class separate from commercial consumers for sales tax purposes.