JLARC > JLARC Reports > 2015 Tax Preferences > Livestock Medicine

JLARC Preliminary Report: 2015 Tax Preference Performance Reviews

Livestock Medicine | Sales and Use Tax

The Preference Provides Tax Type Est. Beneficiary Savings in 2015-17 Biennium
A sales and use tax exemption for animal pharmaceutical purchases by farmers or licensed veterinarians. Sales & Use
$5.4 million
Public Policy Objective
The Legislature did not state the public policy objective.  JLARC staff infer the policy objectives were:
  • To make Washington farmers more competitive with other states; and
  • To encourage more animal drug purchases in local communities.
Legislative Auditor’s Recommendation: Review and Clarify

To provide a performance statement that includes a public policy objective and specifies metrics to determine if the objectives have been achieved.

Commissioner Recommendation: Available in October 2015

Purchases of animal pharmaceuticals (livestock medicine) by farmers or licensed veterinarians are exempt from sales or use tax when the pharmaceuticals are given to an animal raised by a farmer that becomes or produces an agricultural product.

The preference applies to all animal pharmaceuticals (both prescribed and over-the-counter medicines) approved by the United States Department of Agriculture (USDA) or Food and Drug Administration (FDA) and that are listed in either the FDA’s “Green Book” of approved animal pharmaceuticals or the USDA’s annually updated list of approved biotechnology products.

Pharmaceuticals purchased for pets or for animals not produced as agricultural products do not qualify for the preference.


Sales of animal pharmaceuticals (many of which are over the counter) as well as prescription and over-the-counter drugs for humans were subject to Washington sales or use tax.


The Legislature enacted a sales and use tax exemption for prescription drugs for humans when prescribed by a physician and for animals when prescribed by a veterinarian.  The Governor vetoed the exemption for prescribed drugs for animals, noting that a prescription drug exemption for humans was providing a “degree of equity in an area of basic human need” but that there was no such “compelling reason” for an animal drug exemption.

Over-the-counter human drugs, as well as both prescribed and non-prescribed drugs for animals, remained subject to sales tax.


The Legislature enacted this sales and use tax exemption for animal pharmaceuticals purchased by farmers or veterinarians for use in animals produced for sale as agricultural products.  The preference has not been modified since.

Statute does not specify the types of animals to be treated with qualifying drugs except to say they must be raised by a farmer for sale as an agricultural product.  “Agricultural product” is defined elsewhere to include broad categories of animals, birds, and commercially raised aquatic animals.  These may include any animal that is raised by a farmer as an agricultural product (chickens for sale as meat) or that produces an agricultural product (chickens for eggs to sell).  Other examples include cattle, dairy cows, sheep, goats, emus, turkeys, ducks, rabbits, fish, and shellfish.

What are the public policy objectives that provide a justification for the tax preference? Is there any documentation on the purpose or intent of the tax preference?

The Legislature did not state the public policy objective for this tax preference.

JLARC staff infer from testimony at 2001 committee hearings that the public policy objectives were to:

  • Make Washington farmers more competitive by “leveling the playing field” with other major animal production states.
    • Industry representatives stated that the cost of drugs could be substantial and that reducing these costs would help farmers be more sustainable.  They also noted that California, a prime competitor for animal production, had established an animal drug sales tax exemption two years prior, and other competitor states were doing the same.
  • Encourage more animal drug purchases in local communities as opposed to outside the state via the internet.
    • Testimony on the House floor and by industry representatives in committees noted the preference would greatly improve sales in local feed stores in Washington, noting that many Washington farmers purchased from online drug sellers to avoid paying sales tax and that they did not generally pay use tax.

What evidence exists to show that the tax preference has contributed to the achievement of any of these public policy objectives?

Leveling the Playing Field

All but one of the top livestock and dairy production states provide a sales tax exemption for animal medicines.  Thus, the preference meets this inferred objective.

Promote Local Purchases

It is unclear whether the inferred objective is being met.

No data is available to determine if the preference has had any impact on purchases by farmers or veterinarians of livestock medicine at in-state locations versus from out-of-state vendors.

Who are the entities whose state tax liabilities are directly affected by the tax preference?

Potential beneficiaries of the preference are farmers who raise animals for the purpose of producing an agricultural product for sale.  These include but are not limited to: cattle for slaughtering if the resulting product is sold; dairy cows or goats that produce milk for sale; sheep that produce wool for sale; cultivated fish or shellfish that are sold; and horses raised for sale or to produce foals for sale.

While there is no accountability reporting to determine the number of farmer beneficiaries, USDA data for 2012 shows 18,201 of the 37,249 farms in Washington (48 percent) produced some sort of livestock and might be a beneficiary of the preference.  The USDA noted that there may be some duplication in the 18,201 number, as a farmer who raises one kind of animal may also raise another.  Thus, the actual number of farmers using the preference is likely less than 18,201.

Veterinarians who purchase medicine that they administer in treating livestock may also benefit from the preference.  The Department of Health’s Veterinary Board of Governors notes that there are 3,161 licensed veterinarians in Washington as of December 2014.  It is not clear how many of these veterinarians treat livestock as part of their practice.

What are the past and future tax revenue and economic impacts of the tax preference to the taxpayer and to the government if it is continued?

There is no specific accountability reporting required for farmers or veterinarians using this tax preference.  JLARC staff estimated the beneficiary savings using USDA National Agricultural Statistics Service annual survey data for Washington farm expenditures on medical supplies, veterinary services, and custom services for livestock.

JLARC staff estimate beneficiaries of the preference for livestock medicine saved $2.7 million in Fiscal Year 2014 and will save $5.4 in the 2015-17 Biennium.  See Exhibit 1, below.

Exhibit 1 – Estimated 2015-17 Beneficiary Savings for Livestock Medicine Sales and Use Tax Exemption
Fiscal Year Livestock
Sales Tax Total
Beneficiary Savings
State Local
2012 $32,874,000 $2,137,000 $535,000 $2,672,000
2013 $32,874,000 $2,137,000 $554,000 $2,691,000
2014 $32,874,000 $2,137,000 $561,000 $2,698,000
2015 $32,874,000 $2,137,000 $573,000 $2,710,000
2016 $32,874,000 $2,137,000 $573,000 $2,710,000
2017 $32,874,000 $2,137,000 $573,000 $2,710,000
2015-17 Biennium $65,748,000 $4,274,000 $1,146,000 $5,420,000
Source: JLARC staff analysis of USDA Agriculture Resource Management Survey (ARMS) Washington state results for 2003-2013, averaged.  No growth was estimated due to the wide variance in survey data received in 11 year sampling.

If the tax preference were to be terminated, what would be the negative effects on the taxpayers who currently benefit from the tax preference and the extent to which the resulting higher taxes would have an effect on employment and the economy?

If the tax preference were terminated, farmers and veterinarians would pay sales and use tax on their purchases of pharmaceuticals used for treating livestock that produce agricultural products for sale.

The effect of these terminations on employment and the economy would depend on the extent to which the agricultural industry and veterinarians treating such animals could absorb the increased costs or pass them along to their customers.  Agricultural producers may be unable to pass along increased costs to their customers if the prices for their commodities are set in national or international markets.  The extent to which veterinarians may be able to pass along the increased cost to their clients is unknown.

Do other states have a similar tax preference and what potential public policy benefits might be gained by incorporating a corresponding provision in Washington?

JLARC staff reviewed sales tax treatment of livestock medicine in the neighboring states of Oregon and Idaho as well as in the top ten states ranked by the USDA in 2012 for livestock, cattle and calves, dairy, or meat production.  As noted in Exhibit 2, below, all but South Dakota exempt livestock pharmaceuticals from sales tax.

Exhibit 2 – All but One Major Livestock or Dairy State Exempt Livestock Medicine from Sales Tax
Major Livestock or Dairy Producing State Livestock Medicines Exempt from Sales Tax?
Washington Yes
California Yes
Colorado Yes
Idaho Yes
Kansas Yes
Minnesota Yes
Missouri Yes
Nebraska Yes
New Mexico Yes
New York Yes
North Carolina Yes
Oklahoma Yes
Oregon No sales tax
Pennsylvania Yes
South Dakota No, only supplements mixed with feed are exempt
Texas Yes
Wisconsin Yes
Source: JLARC staff analysis of various state statutes, rules, and tax publications.

RCW 82.08.880

Exemptions - Animal pharmaceuticals.

(1) The tax levied by RCW 82.08.020 does not apply to sales to farmers or to veterinarians of animal pharmaceuticals approved by the United States department of agriculture or by the United States food and drug administration, if the pharmaceutical is to be administered to an animal that is raised by a farmer for the purpose of producing for sale an agricultural product.

(2) The exemption is available only when the buyer provides the seller with an exemption certificate in a form and manner prescribed by the department.  The seller must retain a copy of the certificate for the seller's files.

(3) For the purposes of this section and RCW 82.12.880, the following definitions apply:

(a) "Farmer" and "agricultural product" mean the same as in RCW 82.04.213.

(b) "Veterinarian" means a person who is licensed to practice veterinary medicine, surgery, or dentistry under chapter 82.92 RCW.

[2001 2nd sp.s. c 17 § 1.]

RCW 82.12.880

Exemptions - Animal pharmaceuticals.

  1. The provisions of this chapter do not apply with respect to the use by farmers or by veterinarians of animal pharmaceuticals approved by the United States department of agriculture or by the United States food and drug administration, if the pharmaceutical is administered to an animal that is raised by a farmer for the purpose of producing for sale an agricultural product.
  2. The definitions in RCW 82.08.880 apply to this section.

[2001 2nd sp.s. c 17 § 2.]

Legislative Auditor Recommendation: Review and Clarify

The Legislature should review and clarify the livestock medicine preference to provide a performance statement that includes a public policy objective and specifies metrics to determine if the objectives have been achieved.

The Legislature has not identified an explicit public policy objective for this preference.  The preference is meeting the first inferred objective of leveling the playing field with other major animal production states that offer the same exemption.  It is not possible to assess whether the second inferred public policy objective of encouraging purchases in local communities is being achieved.

Legislation Required: Yes.

Fiscal Impact: Depends on legislative action.

Available December 2015.

Available December 2015.

If applicable, will be available December 2015.

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