Rachel RespondsSeptember 27, 2018

Adding value to your farm products.

Question:

Do I need to collect sales tax of my value-added products?

Answer:

In most states, the food items a farmer makes, including value-added products, are not subject to sales tax. In 31 states, groceries (including farm products sold directly to the consumer) are exempt from sales taxation, which means both raw agricultural products and value-added agricultural products are not subject to sales tax. But foods sold ready-to-eat, like prepared sandwiches, may not fall under your state’s grocery exemptions, making them subject to sales tax.

A quick call to the state taxing authority should be enough to determine whether you must collect and pay sales taxes on products sold from your value-added operation. Also, most states publish easily understood guides that outline how sales tax applies to food items.

FOR MORE INFORMATION: Read pages 24–25 of Farm Commons’ Adding Value to Farm Products: The Legal Issues. Call your state taxing authority, and ask other farmers and home-based sellers about their experiences creating tax accounts and collecting and paying sales taxes.

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