Producers That Qualify for Production Exemption

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

• Engage in a qualifying production activity
  • Farming – including custom farming
    See our Farming and Ranching: Production Exemption guide 
  • Ranching – including custom ranching
    See our Farming and Ranching: Production Exemption guide 
  • Mining – including contract mining
    See our Mining: Production Exemption guide 
  • Fabricating
  • Manufacturing
    See our Lumber Manufacturing: Production Exemption guide 
  • Processing – including processing tangible personal property for use as fuel to produce energy
  • Raising or maintaining wildlife or fish for taxable hunting and fishing activities
• 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.