California Tax Agency Publishes New Guide on Agricultural Sales Tax Exemptions

SACRAMENTO — The California Department of Tax and Fee Administration (CDTFA) has published an updated and comprehensive guide clarifying the state’s complex web of sales and use tax exemptions for the agricultural industry. The new document, titled “Publication 66, Agricultural Industry,” was released in January 2025 to provide farmers, ranchers, and related businesses with detailed information on tax obligations and available relief. The publication consolidates guidance on a wide range of industry-specific transactions. It details the tax treatment for the sale and purchase of essential agricultural supplies, including food animals, feed, seeds, plants, fertilizer, and liquefied petroleum gas (LPG). The guide also explains the rules for the partial sales and use tax exemption available for certain farm equipment, machinery, and diesel fuel, a critical area of tax management for California’s vast agricultural sector. While the release of Publication 66 offers welcome clarity from the CDTFA, our experience shows that navigating these complex exemptions is rarely as simple as reading a guide. The sheer number of specific forms, differing requirements for sales versus excise tax, and strict rules around primary use create numerous compliance traps for agricultural businesses. A single misfiled or incomplete exemption certificate can lead to significant tax liabilities, penalties, and interest during an audit. We've seen businesses assume they qualify for an exemption only to find out their documentation was insufficient or their equipment usage didn't meet the 'primarily' or 'exclusively' tests defined in the regulations. This is precisely the kind of intricate challenge where professional guidance is not just helpful, but essential for risk management. For companies in the agricultural sector, ensuring these rules are applied correctly is a core part of their tax preparation and compliance strategy. C&S Finance Group LLC helps businesses establish and maintain these compliance procedures, and you can learn more at csfinancegroup.com. At the heart of the state’s agricultural tax policy is a partial exemption on sales and use tax for qualifying farm equipment and machinery. According to the CDTFA, this exemption applies only to the state general fund portion of the sales tax, which is currently 5.00%. This means that an eligible purchase is still subject to local and district taxes. For example, in a location with a total sales tax rate of 9.00%, a qualifying agricultural purchase would be taxed at a reduced rate of 4.00%. The CDTFA cautions that the state tax rate is subject to change and businesses must apply the rate in effect at the time of the sale. To qualify for this partial exemption, three primary conditions must be met. The purchaser must be engaged in a qualifying agricultural business, as defined by the Standard Industrial Classification (SIC) Manual codes 0111 to 0291, or perform qualifying agricultural services under SIC codes 0711 to 0783. The property purchased must be used primarily—or in some cases, exclusively—in producing and harvesting agricultural products. Finally, the purchaser must provide the seller with a valid and timely exemption certificate. Proper documentation is a cornerstone of compliance. The guide and related CDTFA forms emphasize the need for businesses to use the correct certificates for each type of transaction. Key forms include the CDTFA-230D for qualified sales of farm equipment and machinery, and the CDTFA-230G, which covers both diesel fuel and farm equipment. Other specific certificates exist for transactions involving animal life, feed, and medicines, such as the CDTFA-230T. According to the agency, a certificate is considered timely if it is provided before the seller issues a bill, within the normal billing cycle, or at or before the time of delivery. Diesel fuel exemptions are particularly nuanced. Farmers can claim an exemption from the diesel fuel excise tax for fuel used directly for farming purposes on a farm in California. To do so, they must provide their fuel vendor with a completed CDTFA-608, Certificate of Farming Use, which must be renewed annually. However, this excise tax exemption does not cover all uses. The CDTFA explicitly states that fuel used for transporting agricultural products from the farm to a buyer is not an exempt use and remains subject to the excise tax. Not all equipment and vehicles used in agriculture are eligible for the partial sales tax exemption. The regulations specifically exclude vehicles whose primary design is for highway transportation, such as standard pickup trucks, unless the vehicle is otherwise classified as an “implement of husbandry” under the California Vehicle Code. Furthermore, the exemption for parts and fluids is limited to those used directly in qualifying equipment. General supplies such as shop towels, cleaning agents, and hand cleansers do not qualify for the tax reduction. The new Publication 66 serves as a central resource, directing business owners to the relevant regulations and specific exemption certificates available on the CDTFA website. It also covers broader topics such as sales for resale, district taxes, internet sales, and procedures for filing a claim for a refund. With the release of this updated guidance, agricultural businesses in California are advised to review their current tax compliance practices. Operators should ensure they are using the correct and most current exemption forms, maintaining adequate records to support their tax positions, and properly training staff on the specific requirements for different types of equipment and fuel purchases. The CDTFA continues to update its online resources, including its tax rate lookup tools, to assist with compliance.