Taxes and Tomatoes
Updated: Aug 2, 2018
Peaches so juicy you dare not eat one without a ready supply of napkins. Sweet corn fresh off the grill, slathered in butter. Vine-ripened tomatoes poised to become part of the ultimate tomato sandwich, regardless of where you stand on the Duke's/Hellmann’s debate.* One of the best things about summer is the fresh produce so readily available at farmers markets across our state.
Today’s markets provide shoppers with a wide array of products in addition to locally grown fruits and vegetables. Herbs and flowers, baked goods and honey, and even jewelry and home décor are available at many locations. If you are a vendor at one of these markets, there are some tax implications you should consider.
Most vendors will file a Schedule C with their income tax return. This form lists all income and expenses associated with the business. Because many transactions will involve cash, it’s important to keep detailed records of all income received. Equally important is keeping up with all expenses related to that income. The cost to produce or obtain the goods for sale, booth fees, advertising expenses, merchant services fees for those who accept credit cards, and the cost of packaging are common expenses for market vendors. Sellers who meet the somewhat stringent criteria for having a home office may get additional deductions for the office and for mileage to and from the market site.
In addition to paying income tax on net profits, vendors will owe self-employment tax if they make over $400. This is the Social Security and Medicare tax paid by anyone engaging in self-employed activities and is 15.3% of net earnings. This tax catches many first-time sellers off-guard come tax time. However, the new tax law includes a 20% deduction for pass-through businesses, including taxpayers with Schedule C enterprises. This new deduction, based on the net income shown on Schedule C, is certainly a welcome addition to the tax law!
Finally, vendors must be aware of sales tax requirements. Each state has detailed information for vendors in their jurisdiction (see this link for a great summary of North Carolina’s regulations for market vendors) since sales tax is regulated at the state and local levels. In North Carolina, producers who sell raw fruits and vegetables don’t have to collect the tax, but retailers reselling produce purchased from others do. Food that has been altered by cooking, seasoning, etc. is considered prepared food and is subject to sales tax, as are all cuts of meat.
Vendors selling their own personal property (holding yard sales or selling their old goods at a flea market) are not required to collect sales tax, but those selling new merchandise (jewelry, crafts, or goods purchased specifically to resell) are expected to collect it. Those who are not required to collect sales tax will find the necessary forms to register as exempt on the NC Department of Revenue website; likewise, those who are required to collect sales tax will find the forms to register and instructions on how to remit the tax on the NCDOR site.
As you can see, vendors go through a lot to be able to tempt you with their yummy food and cute goods. Make sure you drop by your local farmers market this summer to support these hard-working vendors while treating yourself to some great purchases!
* There’s really no debate … the best tomato sandwich uses neither! Top thick slices of those little orbs of deliciousness with a pinch of salt and pepper and pile between two slices of Wonder Bread. Best sandwich ever. Disagree? Tell us your version!