Sales Tax Slice: Beneficial Insects? Will They Bee Taxable?



It’s spring, and you know what that means: pests. Bugs are back and some of them are causing problems in the agricultural industry. Indeed, bugs can “decrease [agricultural] yields, blemish the produce, and transmit plant diseases,” according to the National Pesticide Information Center. Is there a sales tax exemption to save our crops? Maybe.


While some insects are associated with crop and plant devastation, other, so-called beneficial insects, can be a farmer’s best friend. Beneficial insects are those insects that are effective pollinators of plants or insects that are parasites or predators of pests. Examples include ladybugs, bees and also praying mantises, which control harmful insects (and as a result are the official state insect of South Carolina).  Other aptly named beneficial insects include the minute pirate bug, the assassin bug, the mealybug destroyer and the soldier beetle. (No, I didn’tmake those up.)


While many states offer sales and use tax exemptions for agricultural products used for farming purposes, the states differ in their tax treatment of beneficial insects. In California Tax Publication 66, the California Board of Equalization specifies that sales of beneficial insects and earthworms are taxable. However, people who raise such organisms may purchase feed for these creatures tax-free. Conversely, in New Mexico, sales of insects “used to control [the] populations of other insects” to people in the farming and ranching business are exempt from tax.


Any sales and use tax exemptions for beneficial insects will usually only apply to those insects used in commercial agriculture. So that’s good news for organic farmers. But if you’re buying praying mantises and lady bugs to protect the rose bushes in your yard, you’re likely going to pay sales and use tax on those purchases.


What if you’re a farmer and the idea of bringing in more bugs to eradicate bugs doesn’t appeal to you? Most states have a sales and use tax exemption for pesticides or insecticides used in agricultural production. However, these exemptions generally are not available for individuals trying to keep their yard pest-free.


Whatever the tax implications, we can bee (pun intended) sure that farmers will do their best to keep their crops bug-free. In states where sales of beneficial insects to farmers are tax-exempt, farmers may be more inclined to consider beneficial insects as yet another tool in their arsenal of pest-control products.


Continue the discussion on LinkedIn: Should more states provide exemptions for sales of beneficial insects to farmers?


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