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New Sales Tax Law May Not Apply to Most NC Farmers Markets (updated 3/18/14)

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Getting to the bottom of this new tax law and how it applies to farmers markets and their vendors has been a long strange trip. Though I think we are far from the end of this saga, recent information and conversations lead me to conclude that we can reasonably interpret that the new tax laws (NCGS 66-255) do not apply to most farmers market managers in NC.

Over the last couple of weeks I have talked to legislators, the NC Department of Agriculture, The NC Farm Bureau, the Mountain Tailgate Market Association, the House Committee on Food Desert Zones, the NC Legislature Research Division, chambers of commerce, county commissioners, reporters, farmers, market managers, and more. I am in agreement that, as stated in a recent story in the Asheville Citizen Times on the issue, “it’s remarkable how a group of individuals can look at the same state law and interpret its impact in completely different ways.” I go further and say not only do people disagree on the impact, there is not even agreement on who the law applies to.

I anticipate that the law itself will continue to be reinterpreted by the North Carolina Department of Revenue (NCDOR) and it will very likely be addressed in the NC Legislative short session in May (thanks to everyone who contacted their representatives). My suggestion to the legislators (and anyone talking to them) is to clearly exempt farmers markets and farmers market managers from the requirements of section 66-255. Ironically, it was originally written with an exemption for farmers markets, an exemption that was removed during the sausage making process (my apologies to sausage makers – you guys do a great job) between passage of the legislation and the final version.

I’ve now come to the conclusion that for most farmers markets and market managers section 66-255 does not apply. Though some people looking at the language of 66-255 interpret it to redefine “specialty market operator” for that section, the NC Department of Agriculture is interpreting it to not override the definition of specialty market operator spelled out in the first section of the revenue bill – “66-250. Definitions”. In that section there are 6 subsections of definitions for markets, operators, and vendors. The pertinent one for farmer market managers is section 5. Section 5 of 66-250 defines a Specialty market operator as “A person, other than the State or a unit of local government, who rents space, at a location other than a permanent retail store, to others for the purpose of selling goods at retail or offering goods for sale at retail.” The NC Department of Agriculture is hanging their hat on the “other than the State or a unit of local government.” In the spirit of hitching our wagon to theirs, I suggest that any market operator (manager) that does not “rent” space is, by definition, not a specialty market operator and therefore is not covered by this section of the Revenue law.

So this now boils down to the definition of “rents space” (for operators, section 5) or “space is rented” (for Specialty market, section 4). To my mind, if a market or market operator does not own their location, or have a legal lease on their location space, then they have no space to rent. If a market does not charge any dues they are not renting space. Most markets do have fees to join a market, and even fees for market days, but I am unaware of any markets having legal agreements to provide specific spaces for specific times for a specific amount of money (that is, renting). I’ve tried to reach the NC Department of Revenue to see if they will give me a definitive definition (there is no definition in the legislation) but only get a busy signal when I call.

There is one other place that NCDOR might try to catch independent farmers markets and that is if they define farmers markets as events. 66-255 describes two market categories to which it applies – one is a specialty market and the other is an “event.” As noted above, section 66-250 defines a specialty market, but nowhere is there a definition of “event” or “event operator.” Again I think we stick with the NCDA’s interpretation that their farmers market managers are not operators of events but instead they are exempted because they are state government. If the NCDA farmers markets are not events then surely independent farmers markets are also not events.

I want to be clear here that I am not an attorney (and from my experience that would not help much because everyone that I talked to has a different read on this). As a market manager you need to decide for yourself. I am, though, instructing the market that is run by ASAP, the Asheville City Market, that they are not a specialty market as defined by this legislation and therefore the market manager is excluded from the requirements spelled out in Section 66-255.

Whatever markets decide to do, they should make all vendors aware that they may need to register and pay taxes (as well as comply with all applicable regulations), but that the market manager will not be enforcing NCDOR regulations. You can find some of the laws and regulations governing markets, farmers, and other vendors, as well as contact information for regulatory agencies, in ASAP’s The Regulatory Environment for Farms in Western North Carolina as well as other resources for farmers markets at the Farmers Market section of our website.

I do urge our representatives to clear this up by specifically exempting farmers markets and farmers market managers. If you want to let your representative know how you feel you can find them at http://www.ncga.state.nc.us/representation/WhoRepresentsMe.aspx.

Charlie Jackson, Executive Director

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  • http://www.healthyfoodcoalition.org Harry Hamil

    To me, Charlie’s analysis is a good example of how our bias and desire for a loophole can lead us into great danger. During the last 30 years, I have watched the NC Department of Revenue (NCDOR) assert its interpretations twice causing major damage to those it went against.

    The first was a tax on those selling securities that almost none of us had ever heard of. In my case, I had specifically asked the Secretary of State if there was anything else I needed to know about and been told they had told me everything. Then, several years later, I got a bill for delinquent taxes. I had to pay not only the tax but a substantial penalty for not having paid it on time. The tax was rescinded by the legislature at its next session.

    The second was when the original Black Mountain Music Festival learned that it had been subject to a head tax from its inception. There was no money to pay the thousands of dollars of past due taxes. The festival was “privatized” and its sponsoring non-profit closed.

    Please note that in both of this cases, it is not a coincidence that the
    actions by the NCDOR occurred when NC’s state government was facing a major shortfall between revenue and spending… just as it is now.

    Neither, am I an attorney. In this case, I don’t see that anyone needs to be. One needs only to understand how regulation works.

    Every regulation has an entity assigned to enforce it. In this case, it is the NCDOR; so it is the NCDOR’s interpretation that matters. The NC Dept. of Agriculture & Consumer Service has no authority in this area so its opinion ultimately doesn’t matter. And NCDOR has a lot more resources for this fight than any farmers market has.

    Were I still coordinating a farmers tailgate market, as I did jointly for 14
    years, I would follow the spirit as well as the letter of NCDOR’s instructions. Then, if I disagreed, I would protest against it.

    The local healthy food movement has plenty of detractors. We don’t need to give them ammunition that can be used to paint us as scofflaws and just another group trying for a special exemption.

    As always, I will happily discuss this further with anyone who will contact me at hhamil (at) buncombe.main.nc.us. It anyone would rather discuss it orally, I will happily call that person between 8 AM and 8 PM, Monday – Saturday, if s/he will send me a number to call.

    Thanks for reading my comment.

    • Charlie Jackson

      I rescind the word loophole and updated the post but still maintain that I think the law does not apply to most farmers market managers. Laws can be interpreted and this one has been by many people, including attempts at clarification by the NC Department of Revenue (which only made it murkier). Please do comply if you feel like it does apply to you as a market manager.

      I did call for clarity in the legislation and hope it will be addressed in the short session. A market manager of a market that occupies a parking lot and collects a few dollars from vendors to pay for advertising or incidentals is not charging rent in my book. The NC Department of Revenue has been far from clear on this and other issues regarding the tax laws. I expect that they will again examine the wording of the law but I don’t feel like rolling over just yet. Unfortunately an interpretation of member fees as rent could lead to markets ceasing charging any dues or paying their managers.

      I offered in my analysis that markets should make their own decisions. We’ve made ours for the Asheville City Market that the law does not apply to the market manager. I see now that I should have been more clear in my post (which I updated). The relevant aspect of this regarding rent is the responsibilities that are laid on the back of the market manager. Vendors still need to comply, I am interpreting this to be their responsibility and not the market managers.

      Please, markets, do what you think is prudent. I think this law regarding market managers is serious overreach and believe it is reasonable to not interpret market fees as rent.

    • Charlie Jackson

      And to your point that “Every regulation has an entity assigned to enforce it. In this case, it is the NCDOR; so it is the NCDOR’s interpretation that matters. The NC Dept. of Agriculture & Consumer Service has no authority in this area so its opinion ultimately doesn’t matter. And NCDOR has a lot more resources for this fight than any farmers market has.”

      I have not argued that the NC Department of Agriculture (NCDA) has any authority on this matter. What I say is that they have offered an interpretation of the law. Nowhere that I know of has the NCDOR defined farmers markets as specialty markets for this law (or anywhere for that matter). Because they have not, someone must. All I am saying that if the NCDA says they are not a specialty market by the definition of this article than who am I to argue with that? If you know something the rest of us don’t know please share or explain to me how regulation works in this context. Additionally, I’ve been told by council with NCDA that they have discussed this issue with council for NCDOR and that NCDA is sticking to their interpretation.

  • Robert Eidus

    I appreciate Charlies research and his call for this to be clarified. Being exempt does make a lot of sense to those in this grey area.