California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 17 - Allocation of Income › Article 2.5 - Uniform Division of Income for Tax Purposes Act › Section 25128-2 - Agricultural Business Activity

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) In general. Revenue and Taxation Code
					 section
					 25128,
					 subdivision (c), defines "qualified business activity" and includes
					 "agricultural business activity" in that term. This regulation defines
					 "agricultural business activity" and what constitutes gross business receipts
					 from such activity.
(b)
					 Definitions.
(1) Section
					 25128,
					 subdivision (d)(2), of the Revenue and Taxation Code sets forth the statutory
					 definition of "agricultural business activity." In general, the term applies
					 only to taxpayers engaged in "the business of farming" as defined in Treasury
					 Regulation section
					 1.175-3 and includes only
					 activities encompassed within "the business of farming" as so
					 defined.
(2) For purposes of
					 Revenue and Taxation Code section
					 25128,
					 subdivision (d)(2), and this regulation, the term "farm" is used in its
					 ordinary and accepted sense, and generally means land used for the production
					 of crops, fruits, or other agricultural products or for the sustenance of
					 livestock or poultry. The term "livestock" includes cattle, hogs, horses,
					 mules, donkeys, sheep, goats, and captive fur-bearing animals. The term
					 "poultry" includes chickens, turkeys, geese, ducks, emus, ostriches, and
					 pigeons. Thus, a farm includes livestock, dairy, poultry, fish, fruit,
					 fur-bearing animal, and truck farms, plantations, ranches, nurseries, ranges,
					 orchards, feed yards for fattening cattle, and greenhouses and other similar
					 structures used primarily for the raising of agricultural or horticultural
					 commodities. Greenhouses and other similar structures that are used primarily
					 for purposes other than the raising of agricultural or horticultural
					 commodities do not constitute farms, as, for example, structures that are used
					 primarily for the display, storage, fabrication, or sale of wreaths, corsages,
					 and bouquets. A fish farm is an area where fish are grown or raised, as opposed
					 to merely caught or harvested.
(3)
					 Wherever the definition of agricultural business activity in this regulation
					 refers to the production of a product, the term "production" means planting,
					 growing, breeding, raising or fattening one's own agricultural commodity.
					 Production includes processing activities which are normally incident to the
					 growing, raising, planting, breeding, or fattening of agricultural products.
					 For example, assume an apportioning trade or business is in the business of
					 growing and selling fruits and vegetables. When the fruits and vegetables are
					 ready to be harvested, the business picks, washes, inspects, and packages the
					 fruits and vegetables for sale. Such activities are normally incident to the
					 raising of these crops by farmers. The receipts from the sale of these fruits
					 and vegetables are gross business receipts from a qualified agricultural
					 business activity. The term production does not include the processing of
					 agricultural products beyond those activities which are normally incident to
					 the production of such products according to industry practice.
Example 1: The processing of grain that a company has
						grown and harvested in order to produce flour, breads, cereals, and other
						similar food products, and the sale of the processed products do not constitute
						agricultural business activity.
Example 2: The processing of grapes into wine, regardless
						of the source of the grapes, and the sale of such wine do not constitute
						agricultural business activity.
Example 3: The processing of nuts by shelling and the
						sale of such processed nuts do not constitute agricultural business activity.
						Example 4: A farmer raises cattle, slaughters the cattle, and sells the
						carcasses. Slaughtering cattle and the sale of their carcasses do not
						constitute agricultural business activity.