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NC Department of Revenue Ruling Actually A Bigger Problem for Farmers?

There’s a new twist to the sales tax issue. It seems the new ruling by the North Carolina Department of Revenue (DOR)  just increased the complexity for farmers to qualify for the sales tax exemption on sales at farmers markets.

As it now stands, farmers will be required to have at least $10,000 in gross revenues as documented on their Federal tax filings. While this is most likely inadvertent, nonetheless things are much murkier than they were before all these new regulations.

Here’s what appears to have happened. In legislation passed last summer (North Carolina Tax Simplification and Reduction Act), the state of North Carolina instituted a requirement that farmers must have “annual gross income of ten thousand dollars ($10,000) or more from farming operations for the preceding calendar year” to qualify for sales tax exemptions on purchases. Prior to this, there was no bottom threshold for farmers for gross income (farmers only needed to have reported “farm income” of any amount on their Federal tax filing). The form for this exemption is Form E-595EA. This is a straightforward form and most farmers probably already have their exemption number. Farmers will need to renew when the $10,000 requirement kicks in (but it is unlikely that the form has been updated yet to reflect the new requirement). It is my understanding that the DOR is currently working on clarifications on compliance for this that should be released soon.

Another new law, N.C.G.S. 66-255, had required all vendors, even farmers exempt from paying sales tax, “to exhibit a valid certificate of registration for visual inspection.” The DOR in a ruling issued last week, has now determined that: “A farmer that only sells farm products produced by the farmer is not required to obtain a Certificate of Registration.” So farmers who are exempt from paying sales tax are also now exempt from being required to obtain and display a certificate.

The problem is that in order for exempt farmers to comply with the DOR rule they must “provide a written statement attesting that the items were produced by the farmer and provide the agricultural exemption number issued to the farmer by the Department (emphasis mine)” to the farmers market manager. Unfortunately, the “agricultural exemption number issued to the farmer by the Department” turns out to be the same number that requires $10,000 in gross farm revenues. The DOR has in their recent ruling lifted one small burden on farmers but replaced it with a $10,000 bar for exempt farmers to overcome.

The DOR is aware of this issue and, as I understand it, they are looking for a new interpretation of the law that would not force qualifying farmers to have $10,000 in gross revenues to be exempt from charging sales tax. My advice for farmers is to get your exemption number right now, before the new $10,000 requirement goes into effect. I am sure things will continue to change, and ASAP will continue to try to stay on top of this issue, but the safest advice at this juncture is to get your number now.

Charlie Jackson, Executive Director