CA Ag Haulers
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Diesel Fuel Used in Farming Activities or Food Processing – Regulation 1533.2
Most sales and/or purchases of diesel fuel are taxable. However, a partial sales and use tax exemption exists for certain sales and purchases of diesel fuel used in farming activities or food processing.
The partial exemption applies to the sale or purchase of diesel fuel only if the diesel meets the following two requirements:
- Be a type of diesel that qualifies for the exemption
- Diesel fuel means any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle. A liquid meets this requirement if, without further processing or blending, the liquid has practical and commercial fitness for use in the engine of a diesel-powered highway vehicle.
- A liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the engine of a diesel-powered vehicle.
- Be used in qualifying farming activities or food processing, or related contract hauling.
You should identify diesel fuel accordingly on your sales invoices. It is important that you obtain a timely exemption certificate from your purchasers and maintain copies for your records to support exempt fuel sales.
Sales of diesel to farmers or ranchers will qualify for the partial sales and use tax exemption when they use the fuel to:
- Prepare land for planting
- Plant, protect, or grow crops
- Harvest crops
- Feed, water, or transport livestock
- Transport the harvested agricultural or horticultural products from the field or ranch to the buyers.
Sales of diesel to food processors will qualify for the partial tax exemption when they use the fuel for:
- Hauling a raw agricultural product to the processing plant. Raw agricultural product means an unprocessed product such as grain, vegetables, fruit, or livestock.
- Processing agricultural products. This includes using diesel to run processing equipment, backup generators, and equipment used to move the product during processing.
- Hauling supplies and materials to the processing plant. This includes only items used in producing the processed food product, such as cans, labels, and ingredients.
- Hauling partially processed food products between processing plants owned by the same company. For example, one division of a company processes tomatoes into tomato paste. Another division uses the paste to produce spaghetti sauce. Moving the paste between the two plants is a qualifying food processing activity.
Diesel used to move the product after processing is completed, does not qualify for the exemption.
The sale of diesel to persons who contract to haul agricultural products for a rancher, farmer, or food processor may qualify for the partial tax exemption. The contractor must use the diesel to:
- Transport to buyers or intermediate points for handling agricultural products produced and owned by a rancher, farmer, or a business wholly or partially owned by a rancher or farmer.
- Transport raw products, materials, and supplies for a food processor.
For more detailed information about diesel fuel used in farming, see Regulation 1533.2, Diesel Fuel Used in Farming Activities or Food Processing.
This information is general in nature and is not intended, and should not be considered, as legal, accounting, or tax advice by Rebel Fleet. Prospects and customers should consult their tax professionals.