Headaches for small farmers: Sales Taxes

This new series will look at different regulatory, liability, and governmental barriers small market farms like ours face in actually trying to do business. These kinds of things are rarely written or talked about, but are a far larger problem than weather, finances, or farming skill. I hope this series help customers and community members understand what it takes to actually be in business as a market farmer, and help potential new farmers understand what they have to pay attention to as they go into business. And if any government officials happen to read this, we would be deeply grateful if you could consider helping ease these sorts of burdens instead of just seeking grants or subsidies for us. I’d rather have a rational tax code and a citizen-friendly legal system than a subsidy or a grant any day.

SALES TAXES
Sales taxes are different in most cities and counties in Missouri, and also differ depending on product. For example, food is taxed at a different rate than regular items, and sales to restaurants or groceries are not taxed at all. This is annoying for any business, but is especially problematic for market farms, who travel to different locations to sell their items and don’t have a nice centralized cash register system that can track these things. For example, here are the relevant tax rates for us:

Items sold on-farm, in unincorporated Boone County:
food (produce, eggs, etc.): 2.55%
non-food (wood, flowers, blown eggs, gourds): 5.55%
to chefs (for use in restaurant): no tax

Items sold at Columbia Farmers Market, in Columbia city limits
food: 4.55%
non-food: 7.55%
to chefs: no tax
to EBT (food stamp) customers: no tax

Items sold at Hallsville Farmers Market, in Hallsville city limits
food: 3.55%
non-food: 6.55%
to chefs: no tax

So depending on where we make a sale of farm products, and what those products are, we might have to collect no tax, 2.55%, 3.55%, 4.55%, 5.55%, 6.55%, or 7.55%. To make matters worse, to qualify for the lower food tax rate, we have to pre-register all our sales locations with the Department of Revenue (DOR). This is because the system is set up for independent static businesses like brick-and-mortar franchises; DOR has no concept of a sales model in which the product is produced in one location but sold at many. So if I were to decide in the middle of the season to try out the Boonville, Moberly, or Ashland farmers markets, I would technically have to charge the full (non-food) rate at those locations because DOR hadn’t approved my new “location”. Or so I’m told by DOR staff.

In addition, most market farms aren’t set up to charge tax on top of their sales. Without a powered cash register capable of being programmed for different tax rates, it isn’t practical to add tax to purchases at the point of sale, especially when some sales combine items of different tax rates (purchasing produce along with a gourd, for example). It would take way too long in a busy marketplace and be a headache for everyone. Thus, most farmers have to “include” sales tax in their price, charging a nice round price that’s easier for everyone, then tracking their sales numbers and remitting the appropriate tax on whatever basis (monthly, quarterly, annually) the state requires based on their income.

So our market record sheets have a complicated table of tax rates in which we have to break down what kinds of products were sold where and to whom, so we can back out the appropriate tax bill to pay quarterly. Sometimes the work involved isn’t worth the effort of selling the product, if you consider the time it takes us to do this and/or the expense of an accountant.

This kind of system is unfortunate in so many ways. It creates a ridiculous burden on small businesses like market farms. This isn’t even something you can really pass off on an accountant, because you’d have to do most of the record-keeping in the first place so the accountant would know what to do. It doesn’t reflect the reality of this kind of business. It creates a misperception of price as compared to other sources like grocery stores, where tax is added at the register and thus the posted price in the produce aisle looks smaller. It creates a strong incentive to cheat or otherwise misuse the system; I suspect (without solid evidence) that many market farmers or roadside stands don’t go to all the trouble to break out their sales like this, just reporting sales based on farm location. That’s what we did at first until we realized how we were supposed to do it, and then filed an amended return with DOR. The resulting confusion on their end cost the state more in employee billable hours and postage costs than the extra tax we ended up paying just to be honest and ethical.

I believe pretty strongly that an unenforceable law, or a law which creates a strong incentive to break it, is at best counterproductive and at worst unethical. What systems like this do is punish the honest and reward the lazy/dishonest. Folks like us who spend hours attempting to learn the proper tax code in order to do the right thing are punished by paying the full amount of taxes, while those who throw up their hands or don’t bother to find out get away with far less payment, headaches, and time lost. And the state is likely cheated out of a fair bit of income, because the system for collecting it is so complicated and unenforceable that people don’t bother.

There are better ways to do handle such things, and it’s unfortunate that the repercussions of our current system fall most heavily on those who are most honest and ethical.

One thought on “Headaches for small farmers: Sales Taxes

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