§ 155.2. Family farm corporation exemption.
(a) General. A domestic or foreign corporation which qualifies as a family farm corporation is exempt from Capital Stock or Foreign Franchise taxation if the corporation is actually engaged in the business of agriculture.
(1) For the purposes of this exemption, the business of agriculture means commercially cultivating the ground to produce products in fields or in large quantities, including the preparation of soil, the planting of seeds, the raising and harvesting of crops, beekeeping and the rearing, feeding, breeding and management of livestock. The business of agriculture also includes aquaculture, which is defined as the raising of fish and other aquatic animals for direct commercial use as a food or food product.
(2) The following activities are not considered to be the business of agriculture:
(i) Recreational activities, such as hunting, fishing, camping, skiing, show competition or racing.
(ii) The raising, breeding or training of game animals or game birds, fish, cats, dogs or pets or animals intended for use in sporting or recreational activities.
(iii) Fur farming.
(iv) Stockyard and slaughterhouse operations.
(v) Manufacturing or processing operations.
(b) Conditions precedent. For a corporation to qualify for the family farm exemption from the Capital Stock or Foreign Franchise Tax, the following conditions shall be met:
(1) At least 75% of the corporation’s assets shall be devoted to the business of agriculture. The original cost of the assets is used in determining whether a corporation meets the asset test, unless the taxpayer can show by clear and convincing evidence that market value is different. To qualify as assets used in the business of agriculture, the assets shall be owned and used directly by the corporation claiming the exemption, be principally devoted to the business of agriculture and be property of the sort commonly utilized in the business.
(2) At least 75% of shares of stock issued by the corporation shall be owned by individuals who are members of the same family. Members of the same family include an individual, the individual’s brothers and sisters, the brothers and sisters of the individual’s parents and grandparents, the ancestors and lineal descendants of the foregoing and a spouse of the foregoing. Individuals related by the half blood or by legal adoption are treated as if they were related by the whole blood. Stock of the corporation owned, directly or indirectly, by or for a partnership, trust or estate are considered as owned proportionately by its partners or beneficiaries. Stock of the corporation owned by another corporation shall be considered owned by a family member in that proportion which the stock of the other corporation owned by family members bears to the stock in the other corporation, if family members own 50% or more of the stock of the other corporation. If more than one class of stock is issued, the 75% stock ownership test shall be met for each class of stock issued.
(c) Reporting requirements. In addition to filing requirements imposed upon corporations generally, a corporation claiming this exemption shall also file with the Department:
(1) A brief description of the agricultural business.
(2) A schedule of assets listing their original cost and designating which are and which are not used principally in the corporation’s agricultural business.
(3) A schedule of owners of stock including the number of shares of stock owned, the class of stock and the relationship of each stockholder within the family.
Authority The provisions of this § 155.2 issued under section 408 of the Tax Reform Code of 1971 (72 P. S. § 7408).
Source The provisions of this § 155.2 adopted January 16, 1987, effective January 17, 1987, 17 Pa.B. 273.
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