Tax Department Responds to Dog Breeder

In recent weeks, the Office of Counsel at the New York State Department of Taxation and Finance has had to address tax issues relating to some of the most tangled part of state tax law: the QETC capital tax credit, investment products and nexus. But that doesn't mean that the tax department lawyers don't have to occasionally address more pedestrian topics.

In recently issued Advisory Opinion TSB-A-13(14)S, the department addressed sales tax and dog food. It was a simple enough question, but even for CPAs who don't have professional breeders on their client lists, it throws some interesting light on the limits of tax exemptions and the need for a close reading of both law and regulations.

Some petitioners take several pages to explain the facts of their case, but this petitioner needed only three sentences to say that he's a professional breeder who sells puppies bred at his facilities to the general public at retail prices and to dealers at wholesale prices. He buys dog food for the breeding animals and the puppies. Is this dog food exempt from sales tax?

Deputy Counsel Deborah R. Liebman pored over state tax law to see if anything, either specifically or generally, would exempt dog food. She first looked at Section 1105-B, which granted an exemption from sales tax for "tools and supplies for use or consumption directly and predominantly in the production of tangible personal property…." However, she explained that this section is "quite clear" in defining the production activities that qualify for the exemption—and the breeding and raising of animals is not among them.

Liebman next viewed section 1115(a)(6)(A), which exempts tangible personal property "for use or consumption predominantly either in the production for sale of tangible personal property by farming or in a commercial horse boarding operation, or in both." That didn't mention dogs specifically, but it looked promising. However, New York had already taken that into account in section 528.7(b) of the New York Codes, Rules and Regulations (NYCRR): "The breeding of dogs, cats and other pets or laboratory animals is not farming."

No other exemption presented itself, so the petitioner’s purchase of such dog food remains subject to sales tax, said Liebman.

Like all advisory opinions, this one applies only to this petitioner in this situation. But even with its brief facts and relatively simple resolution, it's an instructive lesson in looking at the exact wording of relevant laws. Particularly interesting is the language that specifically removes dog breeders from the farming exemption. The lesson there is that if you think you've found yourself a nice loophole in the law, there's a good chance someone in Albany thought if it before you and plugged it in the NYCRR.