Changes to sales tax law creates market confusion

During the months when most farmers and tailgate markets were on seasonal hiatus, a new state law caused a stir in the local food community — with many alarmed at the potential for a negative impacts on farmers markets. But despite months of discussion and a market season now in full swing, the implications of the legislation still remain unclear.

On Aug. 23, 2013, Gov. Pat McCrory signed into law a rather cumbersomely named bill (“An Act to Make Technical, Clarifying, and Administrative Changes to The Revenue Laws and Related Statutes, As Recommended by the Revenue Laws Study Committee”).  As originally presented, the bill made a modification to N.C. General Statute 66-255 — by requiring that vendors at specialty markets display a certificate of registration from the N.C. Department of Revenue. The certificate would show either the vendor’s exemption from sales tax collection or proof that NCDOR had records of the vendor’s existence. The law would also require operators of specialty markets to create daily registration lists of vendors for inspection by law enforcement or NCDOR agents upon request.

Central to the ensuing confusion was the definition of a “specialty market operator” — stated by the General Statute to be “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.” Market operators were left struggling to answer an essential question: “Do farmers markets count as specialty markets?”

In an email circulated to local food advocates across the state, Jake Parker, state legislative director to the N.C. Farm Bureau, wrote that it did appear that the law was applicable to local farmers markets and their vendors, regardless of their tax-exempt status.

However, Charlie Jackson, executive director for Appalachian Sustainable Agriculture Project, says that the definition fails to respect the nature of farmers markets, which he credits with having a more complex relationship with their vendors than the simple provision of space. Often farmers markets operate from spaces they do not own and provide their vendors with space under agreements too vague to be considered “rental,” Jackson notes.

The ambiguity also left many market operators concerned about how they would meet the paperwork burden that complying with the law entailed.

“Our market is a nonprofit with an all-volunteer board,” says Linda Britain from the Mills River Farmers’ Market. “We have volunteers acting as manager, and this changes weekly, [with] no paid market manager. How could a volunteer be held legally responsible for keeping the records they requested we keep?”

As discussion of the bill continued and the markets opened for the season, little clarification became available. And though the Research Division of the N.C. General Assembly issued a clarification on the law, Jackson says it didn’t exactly clear things up.

“The NCDOR representative replied in a way to make things even more confusing,” Jackson says. “I’ve also been in private conversations [by email] with other state representatives, the NCDOR, and the ​Legislative Research Department. I am unable to find any concrete and clear presentation of what the law means in practice.”

So how is it playing out? The Asheville City Market has informed its vendors that it will not be requiring sales tax documents or enforcing the certification display, given the ambiguity of the law.  Other markets are divided, with some markets interpreting themselves as outside the purview of the legislation and others choosing to adhere to the new standard.  A number of the markets expressed concern that the additional paperwork would place a burden on their volunteers, as well as divert their attention from the day-to-day tasks of managing the markets — effectively putting volunteers into the role of enforcement agents for NCDOR.

“A farmers market’s simple budget goal is to keep the market organized and advertised,” said Christa Tolson, manager of the Montford Farmers Market. “I can hardly prioritize that sort of micromanagement of individual businesses. The implementation of Sale and Use Tax laws should be overseen by government employees — not volunteers or very part-time paid folks like me.”

Leslie Logemann, market manager of the Transylvania Farmers Market, says she is working to find the best way to teach her volunteers about the new regulations. “We’ve spent hours wading through the information from the state and then getting that information to vendors, answering questions, getting tax certificates from over 60 vendors, recording all that information, putting it into a spreadsheet and keeping a weekly roster,” Logemann says, adding that the market received assistance from the Cooperative Extension Office.

None of the markets approached reported any interaction with the NCDOR regarding their adherence to the new rules. Jackson continues to advocate a clear exemption for farmers markets and their managers from the provisions of the law, and says he believes there will be some changes during the current session, which convened May 14. Rep. Nathan Ramsey, R-Buncombe, says that he and Rep. Jonathan Jordan, R-Watauga, are planning to introduce revisions to the N.C. General Statutes that would clarify the definition of a specialty market.

But NCGS 66-255 isn’t the only sales-tax rigmarole affecting growers this season. On May 29, the state legislature passed a second adjustment to  N.C. House Bill 1050. The bill, part of the governor’s tax reform measures, originally passed in 2013 and is scheduled to go into effect on July 1. However, the Carolina Farm Stewardship Association raised concerns that the bill was doing little to relieve the tax burden of startup farmers.

The bill provided a sales tax exemption to farmers grossing more than $10,000 per year.  The Stewardship Assocation hoped to see changes in the law to account for growing season volatility and a “ramp up” period for new farmers.

Revisions to the law, as passed in an adjustment to the bill on May 20, protected farmers from income losses during a single year by basing the $10,000 requirement on an average income over three years.

The Stewardship Association asked individuals to contact their legislator requesting the bill be amended again to allow startup farmers a sales tax exemption for the first five years of their business — allowing the farmers time to meet the $10,000 threshold.

The bill, as passed May 29 in its third edition, granted a three-year conditional exemption from sales tax to startup farmers. According to the Stewardship Association, the law will allow beginning farmers to receive the same tax treatment as more established farms during the critical early years of their business.