Since 2001, California has provided a partial sales and use tax exemption for farm equipment, farm machinery, and the diesel fuel—including both clear and red diesel—lubricants, oil, grease, and other qualifying liquids used in that machinery and equipment.  There is also an exemption for California excise taxes and a potential refund for Federal excise taxes on clear diesel fuel used off-road on a farm. Are you taking advantage of these exemptions?

Partial Exemption Certificate

The partial sales and use tax exemption applies to qualified agricultural businesses, as well as those providing agricultural services such as soil preparation, or crop harvesting, for those who are in a qualified agricultural business.

An item is considered farm equipment or machinery under the law if it is used “primarily or exclusively in commercial agricultural production or harvesting”, but more restrictions apply.  Please consult your Tax Professional to determine if part or all your activities qualify for this exemption.

This exemption applies only to the state general fund portion of the sales and use tax rate (which is currently at 5.00%.) You are still responsible for local and district taxes on these transactions.

Click here for the application. Once completed, turn it into Greg’s Petroleum Service and it will remain in effect until you rescind it or submit a new one.

Certificate of Farming Use & IRS Form 8849 for Our Clear Diesel Users

In addition to the partial sales tax exemption explained above, the purchase of undyed (clear) diesel fuel used off-road on a farm for farming purposes is exempt from California excise tax and subject to a Federal excise tax refund. However, diesel fuel used in on-road vehicles on public highways is subject to this tax, so you must pay the tax when purchasing diesel fuel for on-road use.

To qualify for the State excise tax exemption, the buyer must indicate that they use the clear diesel fuel for one of the following purposes:

  • On a farm, with the buyer being the owner, tenant, or operator of the farm on which the fuel will be used.
  • On a farm related to cultivating, raising, or harvesting, with the buyer not being the owner, tenant, or operator of the farm on which the fuel will be used.

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

Click here for the application. Once completed, turn it into Greg’s Petroleum Service. This certificate must be completed and resubmitted each year or whenever the information changes.

To qualify for the IRS refund, the buyer must indicate that the clear diesel was used on a farm for farming purposes.

Click here for IRS Form 8849, and click here for IRS Form 8849, Schedule 1.  This certificate must be completed and submitted to the IRS for a refund.

How to Properly Document for These Exemptions

To apply for these exemptions, it’s crucial to properly document the percentage of each product purchased that qualifies for each exemption. Here’s how:

  1. For the Partial Exemption Certificate:  Assess the percentage of the products you purchase from us are used in qualified farm equipment and machinery.  Exemptions for both fuel and lubricants can be requested using one form; however, the percentage of eligible use may vary by product. For example, 100% of your lubricant purchases may be eligible because you use all of it in farm equipment, but only 50% of your fuel is used in a way that is eligible for an exemption. If it is not 100%, please indicate the percentage(s) on the Partial Exemption Certificate when you or your tax professional complete it.
  2. Certificate of Farming Use:  Determine the percentage of the clear diesel fuel you purchase from us that is used on a farm (off-road) for agricultural purposes.  Please indicate that percentage on the Certificate of Farming Use when you or your tax professional complete it.
  3. IRS Form 8849 – Claim for Refund of Federal Excise Taxes:  Determine the number of gallons of undyed (clear) diesel you used on a farm (off-road) for agricultural purposes.  Indicate that number of gallons on Schedule 1 of IRS Form 8849 when you or your tax professional complete it.
  4. Accurate Record Keeping: Maintain detailed records of your fuel and lubricant purchases, along with the calculated usage percentages. These records should clearly differentiate between the quantities used for off-road agricultural activities, on-road agricultural activities, and any other uses.
  5. Use the Correct Certificates: Complete the appropriate exemption certificates based on your documented usage. Ensure that your usage percentages are accurately reflected in these documents, for all qualifying products purchased (clear diesel, red diesel, and lubricants).
  6. Consult with a Tax Professional: To ensure compliance and maximize your tax savings, consult with your CPA or a tax professional. They can help verify your eligibility and ensure that your documentation meets all legal requirements.

Properly documenting your usage is essential to receiving the correct tax benefits. For more detailed information, please refer to the California Department of Tax and Fee Administration’s publication.

Next Steps:

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

Click the links below to download the following forms:

For more information on CDTFA’s tax programs, visit the CDTFA website or call 1-800-400-7115.

*All information provided in this document was gathered from the CDTFA & IRS websites and forms. Greg’s Petroleum Service is not responsible for customer tax decisions. Again, please consult with your tax professional to determine your eligibility.