In 2013 the General Assembly passed changes to tax law that became effective January 1, 2014. These changes created questions as to how some farms qualified for sales tax exemption on farm inputs as well as, become subject to an expanded sales tax base or not on products they sell. House Bill 1050, passed by the General Assembly and signed by the Governor on May 29, 2014 provides clarification to some of these questions.
House Bill 1050 provides that qualifying farmers, in order to purchase farm inputs exempt from sales tax, must have $10,000 of gross farm income from the preceding tax year in order to qualify for the exemption or $10,000 of gross farm income as an average of the preceding 3 taxable years. This may affect operators of small farms, as gross farm income may be variable due to weather conditions. Qualifying farmers will use Form E 595 QF to apply for a new exemption certificate. These new certificates will need to be in force by October 1, 2014. The old exemption certificates are valid until October 1. This form can be downloaded from the North Carolina Department of Revenue Website. The link to Form E595QF is:
The bill also allows for a Conditional Exemption. The conditional exemption is useful to beginning farmers who have no history of farm production. To receive a conditional exemption, the beginning farmer must certify they intend to engage in farming. The conditional exemption certificate is valid for the taxable year in which it is issued and the next two years. The holder of the conditional certificate must provide the North Carolina Department of Revenue copies of applicable State and Federal income tax returns within 90 days of the end of each tax year the certificate covers. The conditional exemption certificate is not renewable. The link to the application form for the conditional exemption using form E 595CF is:
The final clarification is a farmer selling raised products (products the farmer grew or raised him/herself) from a farm road-side stand or at a farmer’s market is NOT REQUIRED to collect and remit sales tax to the North Carolina Department of Revenue but if there is any ‘value added’ done to the product then the seller must collect and remit sales tax. As of January 1, there is a requirement that the farmer certify that the products sold by the farmer, at the farmer’s market are his/her own production.
The bottom line is that farmers will need new agricultural exemption certificate numbers either as a Qualifying Farmer exemption or as a beginning farmer, allowed to use a Conditional Exemption.
If you have more questions about the new regulations or would like to pick up one of the forms, please call or stop by the Extension Office.
(Editor’s note: James Hartsfield is an Area Extension Farm Management agent serving Sampson and Duplin counties.)