Producer or a Retail Merchant?

Did you know that selling more resale items than your own items could change how much tax you need to charge?

Say what?

In NC, someone selling food and agricultural products is either a PRODUCER or a RETAIL MERCHANT.

PRODUCER - 50% or more of your gross sales receipts (in dollars) are farm goods you produced sold in their original state

RETAIL MERCHANT - 50% or more of your gross sales receipts (in dollars) are from products purchased for resale from another vendor.

Now, if it was just one quarter of the year that income from resale items exceeded your own items, that’s fine, you’re still a producer. But resales regularly become half or more of your sales income, then you’re considered a retail merchant and even your own goods are subject to additional sales tax.

I know. So not fair.

As a producer, you generally charge 0 tax on goods you sell in their original form. Yay! But if you’re a retail merchant, then you charge food tax even on the goods you grew yourself. Not yay.

Regardless of being a Producer or a Retail Merchant, any goods that were bought from someone else for resale must have sales tax charged on them by the re-seller as if they are a retail merchant.

I know, I know. Examples please.

Example 1:

Farmer A is a producer who grows strawberries.

Farmer A also buys blueberries from Farmer B.

Farmer A sells strawberries tax exempt (0%).

Farmer A sells blueberries at 2% food tax.

Farmer A sells a packaged mix of half blueberries, half strawberries at 1% tax, because they must charge 2% tax on the portion of the mix that is blueberries. 2% tax on 50% of the mix is 1%.

In case of an audit you must keep clear records of what was produced by you and what is resale. Otherwise it will be assumed that it all should be retail and you do not want that.

Example 2:

Farmer A is a retail merchant who grows strawberries.

Farmer A also buys blueberries from Farmer B.

Farmer A must sell the strawberries, blueberries, and any packaged mixes of the two all at the 2% food tax, even though they grew the strawberries themselves.

In summary,

As a producer, you sell

• your own goods at producer tax rates

• other people’s goods at retail merchant tax rates

As a retail merchant, you sell

• your own goods at retail merchant tax rates

• other people’s goods at retail merchant tax rates

If you want the nitty-gritty from the NCDOR’s mouth, see their page on Understanding Sales and Use Taxes on Agricultural Products.

Also, in case you don’t know, different types of items are taxed differently. 

Farmer’s generally sell produce and raw/live goods at 0% (tax exempt), raw meats and secondary dairy items at 2% (food tax) or full retail (~7% depending on your county) on items that have been heated, combined or assembled into a new product.

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