Sales Tax Slice: Food, Glorious Food! – Where You Shop for Summer Produce Might Affect Your Tax Bill


 

strawberries

Summertime is finally here (unofficially at least), after a grayer and cooler May than usual in many parts of the U.S. For many people, the arrival of summer means evenings spent at baseball games and long weekends at the beach. I, however, inevitably get excited about one thing once warmer weather rolls around – food. From roadside peach stands to farmers markets and Community Supported Agriculture (CSA) subscriptions, summer means an explosion of produce and other straight-from-the farm items. And although berry picking at a local farm may be a relaxing way to spend a sunny June afternoon, it is worth wondering whether getting your fruits and veggies directly from the source instead of from the supermarket affects your tax bill.

In many parts of the country, the answer is no. A majority of states provide sales tax exemptions for staple food items not prepared for immediate consumption (see chart below). This will generally include the types of items sold at farmers markets and roadside stands, like fresh produce, eggs, honey, meat, and poultry. These items will remain exempt, regardless of where they are purchased. In the same vein, items that are generally taxable in retail stores will usually remain taxable when purchased from a farmers market or other vendor. Such taxable purchases common to farmers markets could include cut flowers, decorative plants, baked goods sold for immediate consumption, and processed items like candy, juice, and ice cream.

In a few states, tax-exempt sales of food are limited to specific types of retailers. In New Mexico, for example, the exemption for food sales is limited to sales in “retail food stores,” as determined for purposes of the federal food stamp program. While some farmers markets do qualify as retail food stores and accept SNAP benefits for purchases, many roadside stands, pick-your-own enterprises, and CSA programs will not meet the eligibility requirements. This means that certain food purchases in New Mexico may come with a higher tax burden than buying the same items at the corner store.

Many states, including New Mexico, do offer a special exemption for certain items purchased directly from a farmer or other agricultural producers, however. Thus, in New Mexico, amounts collected from sales of vegetables through a CSA program aren’t taxable, even if the CSA does not qualify as a SNAP retailer, provided that the CSA share is sold by the producer of those vegetables. In states that do not have a general exemption for food purchases, the exemption for items purchased directly from a farmer is particularly advantageous. In Alabama, for example, you will pay sales tax on the tomatoes you purchase at the grocery stores, but tomatoes sold by a tomato grower will be tax-exempt. Similarly, you will usually pay sales tax in Oklahoma when purchasing the state’s official vegetable, the watermelon (really), at a store. However, agricultural products, including watermelons, are not taxable when sold by a farmer at the farm where the products were grown or produced.

Regardless of how your state taxes sales of food, summer is the prime season to get out there and enjoy many types of produce at their peak. If you are looking to save a few dollars, however, it may be worth doing a little research before choosing where and how to shop for groceries this season.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How does your state treat sales made at farmers markets or through CSAs? Should more sales tax exemptions be available for sales made directly by agricultural producers?

 

A more in-depth version of the chart below, including references, is available with a free trial to Bloomberg BNA Tax & Accounting's State Tax solution, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.

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