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Overview of taxes applying to farming

Registration requirements

Farmers that make retail sales, manufacture products for sale, or provide services are required to register with the Department and obtain an Account ID. Farmers can register by completing a Business License and paying the appropriate fees.

Farmers that only make wholesale sales of agricultural products that they grow, raise, or produce are not required to be registered with the Department (and do not need to have an Account ID number).


Business and occupation (B&O) tax classifications

Retailing

Farmers that sell products at retail to consumers (e.g. roadside stands, farmer's markets, CSA, etc.) are subject to B&O tax under the retailing classification. (RCW 82.04.050)

Manufacturing

Farmers who manufacture products using agricultural products that they have grown, raised, or produced are subject to B&O tax under the manufacturing classification on the value of products manufactured. (RCW 82.04.110 & RCW 82.04.120)

Activities not considered manufacturing

The following activities are not considered manufacturing activities for purposes of the manufacturing classification of B&O tax:

  • Activities which consist of cutting, grading, or ice glazing seafood which has been cooked, frozen, or canned outside this state;
  • The growing, harvesting, or producing of agricultural products;
  • Conditioning of seed for use in planting;
  • Cubing hay or alfalfa;
  • Packing of agricultural products, including sorting, washing, rinsing, grading, waxing, treating with fungicide, packaging, chilling, or placing in controlled atmospheric storage; and
  • The removal of the head, fins, or viscera from fresh fish without further processing, other than freezing.

References: RCW 82.04.120 & RCW 82.04.2403


Service and other activities

Persons that perform horticultural services for farmers are subject to B&O tax under the service and other activities classification. A farmer who occasionally assists another farmer in planting or harvesting a crop is generally not considered to be engaged in the business of performing horticultural services. These activities are generally considered to be casual and incidental to the farming activity.

References: RCW 82.04.290, WAC 458-20-209 & WAC 458-20-210


Wholesaling

A sale by a farmer to someone who will resell their product is classified as a wholesale sale. A B&O tax exemption is provided for wholesale sales by farmers of agricultural products they have produced on their farms. (RCW 82.04.060 & RCW 82.04.330)


Retail sales tax

If the product sold at retail is not an exempt food product or is not otherwise exempt from sales tax, retail sales tax must be collected. (For more information, see sales and use tax exemptions.) Sellers that fail to collect and remit sales tax can be held liable for the tax. Sellers must collect the tax based on the rate in effect where the buyer receives the goods or services. The following are examples of agricultural products and other items sold by farmers that are subject to retail sales tax:

  • Turf
  • Flowers
  • Plants, including fruit and vegetable starts
  • Trees
  • Shrubs
  • Vines
  • Moss
  • Plantation or other Christmas Trees
  • Soap from goats' milk
  • Candles
  • Decorative items
  • Hay/Haylage (feed) except sales for breeding animals registered with a nationally recognized breeding association are considered sales for resale and not subject to retail sales tax. To validate the wholesale sale, the animal owner must give a completed Farmers' Certificate for Wholesale Purchases and Sales Tax Exemption (Section 2 of the form) to the seller stating that the animal is registered with a nationally recognized breeding association and is used for breeding purposes.

Reference: RCW 82.08.020


Use tax

If a farmer uses items in Washington that were acquired without paying sales tax, and the items are not exempt from sales tax, then the farmer owes use tax. A farmer must pay either use tax or sales tax on a non-exempt item, but not both. Use tax is applied at the same rate as sales tax.

Example: Farmer John purchases a plow in Idaho and does not pay sales tax. He brings the plow to Washington and uses the plow on his field in Washington. In this situation, the purchase of the plow was not exempt from sales tax; therefore, Farmer John owes use tax on the value of the plow. Farmer John may submit the use tax on either a consumer use tax return or on his next excise tax return if he is registered with the Department.

For more detailed information on use tax please see the Use Tax Section of this guide.

Reference: WAC 458-20-178 & RCW 82.12.020


Public utility tax (PUT)

Public utility tax is assessed on specific public service businesses in lieu of B&O tax. While there are several different types of businesses that are subject to this tax, generally farmers are not subject to PUT. However farmers who transport items (agricultural products and/or machinery and equipment) for others could be subject to PUT under the motor or urban classification.

For more information see also Hauling for Hire:

References: RCW 82.16.020 & WAC 458-20-180


Litter tax

The gross proceeds of sales of certain products, including food for human or pet consumption, are subject to litter tax. A farmer does not owe litter tax on wholesale sales of agricultural products grown by the farmer. When due, litter tax is reported on the same return as B&O tax and sales tax (excise tax return).

A farmer owes litter tax when the farmer:

  • Makes retail sales of food and food ingredients for human or pet consumption.
  • Manufactures products to sell at wholesale or retail in this state (e.g., a farmer who produces wine from grapes that the farmer has grown).
  • Makes sales of other products subject to the litter tax.

Example: RD Orchards (RD) grows apples in its orchards. Most apples are sold at wholesale, but RD operates a seasonal roadside fruit stand where it makes retail sales of apples. RD's wholesale sales of apples are exempt from both the B&O and litter taxes. RD's retail sales of apples are subject to retailing B&O and litter taxes but are exempt from sales tax. RD is not responsible for collecting the retail sales tax because apples are an exempt food product.

For more information about the litter tax, including a list of the 13 product categories subject to litter tax, please see WAC 458-20-243.

References: RCW 82.19.020, RCW 82.19.050 & WAC 458-20-243