Ag Exemptions for Sales Tax and Excise Tax on Clear and Red Diesel

Since 2001, California has provided partial sales and use tax exemption for farm equipment, machinery, diesel fuel used in farming and food processing, off-road timber harvesting equipment and machinery, and racehorse breeding stock. Agricultural operators also have the ability to save on clear diesel with the Certificate of Farming Use. Are you taking advantage of these exemptions?

Partial Exemption Certificate for our Red Diesel Users

The partial sales and use tax exemption on farm equipment and machinery applies to “qualified persons” who are farmers or ranchers as well as those providing custom services such as soil preparation, crop harvesting, or farm labor and management that use red diesel.

Red diesel is also commonly referred to as off-road diesel, alternative fuel, red fuel, off-highway diesel or farm diesel. And, it’s not intended to be used for vehicles driven on the road. Red dye is only for use off-road. For example, tractors, loaders, cranes, forklifts and any other heavy-duty equipment your operation uses.

An item is considered farm equipment or machinery under the law if it is used “primarily or exclusively in commercial agricultural production or harvesting.” The biggest exception would be any vehicle or trailer designed to carry persons or property on the road, so pickup trucks, flatbed trucks, goose-neck trailers and tires and parts of these vehicles do not qualify. Also, all-terrain vehicles must be used exclusively for agricultural purposes.

This is an exemption only from the state general fund portion of the sales and use tax rate. You are not relieved from your obligations for the local and district taxes on this transaction. Once the application is completed, it will remain on file at all times.

Certificate of Farming Use for our Clear Diesel Users

Only the purchase of undyed diesel fuel used on a farm for farming purposes is exempt. Diesel fuel used in your on-road vehicles on public highways is subject to tax. Therefore, you must pay the tax when you purchase diesel fuel for on-road use.

To qualify for exemption, the buyer will need to indicate that they use the undyed or “clear” diesel fuel for one of the following:

• On a farm AND buyer is the owner, tenant or operator of the farm on which the fuel will be used
• On a farm relating to cultivating, raising or harvesting and Buyer is not the owner, tenant or operator of the farm on which the fuel will be used

If buyer uses the diesel fuel for a purpose other than stated in the certificate, the Buyer will be liable for the state excise tax.

For this certificate, you will need to complete and re-submit each year or whenever the information changes.

We want to make you aware of these options but final determination as to your eligibility for these exemptions should be made by your CPA or by calling or emailing the state board. If eligible, we encourage you to complete the applications and start taking advantage of these savings.

For information on CDTFA's tax programs, see CDTFA's website at https://www.cdtfa.ca.gov/ or call 1-800-400-7115.

About Us:

If you need additional information, please know that the team at Greg’s Petro is here to help. As your commercial fuel delivery provider in the San Joaquin Valley and beyond, we are available to help answer any questions you might have. Visit us online or give us a call to learn more.