Producers That Qualify for Production Exemption

Businesses that qualify for the exemption

To be eligible for the production exemption, your business must:

  • Engage in a qualifying production activity
  • Own the goods you produce. (If you’re a custom farmer, custom rancher, contract miner, or an energy producer, you don’t have to own the goods that are produced.)
  • Sell the goods you produce. Either you or someone else must sell the goods at retail.
  • Be primarily devoted to qualifying production activities. One way many businesses satisfy this requirement is that they devote the majority of their business operations to qualifying production activities. Example: Spending more than 50% of the business’s working time and activities producing goods for sale.

A separately operated business segment can also qualify. It can be a division, branch, or even a cost center. You must keep separate accounting records for the business segment to qualify as a separately operated business segment. This includes recording income, expenses, wages, and assets of the business segment separately. You must also have employees dedicated to operating the separate business segment.

Businesses that don’t qualify for the exemption

Generally, retailers and other service-related businesses (such as restaurants and dry cleaners) don’t qualify. The production exemption is only for businesses that spend the majority of their time producing goods for sale.

Idaho law excludes the following businesses from the production exemption:

  • Utility companies delivering products through pipes, wires, or mains to the place where the customer will use the product
  • Publishers of tax-exempt literature
  • Contractors improving real property

The production exemption isn’t granted to individuals who don’t operate a business.