Keep the Wolves at Bay—Know the
Rules About Business Tax When
Selling Fruits and Vegetables
Farmers Market Boot Camp Workshops
2014
Hal Pepper
Financial Analysis Specialist
Purpose of this session
-Increase awareness of business taxes
-Information provided is for educational purposes
Business License
Definition of business tax
Exemption from business tax
When a business license is needed
When a business tax return must be filed
How to get a business license
How to calculate business tax
Paying business tax
Misconceptions about Business Tax
“Farmers are always exempt from business tax.”
“As long as most of what I sell was raised by me, I don’t
have to get a business license and pay business tax.”
Exemption from Business Tax Exists for
Farmers
“Tennessee gross sales of livestock, horses, poultry,
nursery stock, and other
farm products direct from the
farm are exempt from the tax
, provided that those sales
are made directly by the producer, breeder, or trainer.”
Tennessee Department of Revenue’s Business Tax Guide
Tennessee Code Annotated Section 67-4-712
Exemption from Business Tax: Sales of Farm
Products by the Farmer Who Raised Them
“Products of the farm sold by the farmer who raised
them” are exempt
from business tax.
-Livestock
-Nursery Stock
-Fruits
-Vegetables
-Poultry
Exemption from Business Tax: Sales of Farm
Products by the Farmer Who Raised Them
The farmer who raises the
product may be a person or
entity (e.g., partnership, LLC).
When we talk about “sales of
farm products by the farmer
who raised them” we mean
that the person or entity who
sells the farm products to the
consumer is the same person
or entity who raised them.
When a Business License is Needed
Annual Sales $3,000 or less No business license needed
Annual Sales between $3,000 and $10,000 Minimal activity license required (new in 2014)
$15 each year
If located in a city, the city may require a
minimal activity license as well, for an
additional $15 fee.
Annual Sales $10,000 or more Business license required
$15 license fee for all new businesses
Renewed annually at no charge when annual
business tax return is filed
If located in a city, the city may require a
business license as well.
When a Business Tax Return Must be Filed
Businesses in a county or municipality with less than
$10,000 in annual sales do not have to file a business tax
return.
Businesses with annual sales of $10,000 or more must
file a business tax return.
Is There an Exemption From Business Tax on
the Sale of Products the Farmer Didn’t Raise?
There is no exemption from
business tax for a farmer’s
sale of purchased products.
If a farmer purchases farm
products, when he sells
those purchased products
they are subject to business
tax.
Example 1: Raised Farm Products
Farmer Brown raises 1,000 pumpkins
and sells them to consumers for $6.00
each for a total of $6,000.
Does Farmer Brown need a business
license? Does he owe business tax
when he sells the pumpkins?
Answer to both questions: No. The
sales are exempt from business tax
because Farmer Brown raised the
pumpkins.
Example 2: Purchased Farm Products Sold for
Less Than $3,000
In addition to the pumpkins
he raised and sold for $6,000,
Farmer Brown buys gourds
and other farm products used
as fall decorations and sells
them for $2,000.
Does Farmer Brown need a
business license? Does he
owe business tax when he
sells the purchased gourds
and farm products used as fall
decorations?
Example 2: Purchased Farm Products Sold for
Less Than $3,000
Answer: No. Farmer Brown does not need a business
license and there is no business tax to be paid. The sales
of the purchased gourds and farm products for $2,000
are not subject to business tax because Farmer Brown’s
sales of these products are less than $3,000.
Example 3: Purchased Farm Products Sold for
Between $3,000 and $10,000
In addition to the pumpkins he raised and sold for
$6,000, Farmer Brown buys gourds and other farm
products used as fall decorations and sells them for
$6,000
.
Does Farmer Brown need a business license? Does
Farmer Brown owe business tax
when he sells the
purchased gourds and farm products used as fall
decorations?
Example 3: Purchased Farm Products Sold for
Between $3,000 and $10,000
Answers:
Since the sales ($6,000) are between $3,000 and
$10,000, he must pay $15 to get a “minimal activity
license” from the local clerk. The city may require a
minimal activity license as well.
The sales of the purchased gourds and farm products are
not subject to business tax because Farmer Brown’s sales
of these products are less than $10,000.
Example 4: Purchased Products Sold for
$10,000 or more
In addition to raising and
selling pumpkins for $6,000,
Farmer Brown buys gourds
and other farm products and
sells them as fall decorations
for $12,000.
Does Farmer Brown need a
business license? Does Farmer
Brown owe business tax when
he sells the purchased gourds
and other farm products?
Example 4: Purchased Products Sold for
$10,000 or more
Answers:
Yes. Since these taxable sales total at least $10,000,
Farmer Brown is required to get a business license, file a
business tax return and pay business tax on $12,000.
The city may require a business license as well.
Who Administers Business Tax?
Business tax law allows local governments, by a local
ordinance or resolution, to levy business tax.
Local governments (counties and cities) issue licenses.
Effective Jan 1, 2014 businesses in all 95 counties are subject
to business tax; hundreds of cities also license businesses.
The State of Tennessee is responsible for return processing,
tax payments, audit and collection.
How to Get a Business License
County clerks and designated city officials (city tax collectors) issue
business licenses for a one-time registration fee of $15. There is no
additional fee for annual business license renewal.
You must contact the respective county or city official for
registration information and forms as required by that jurisdiction.
If the business is located in a city and a county that both have
approved a business tax, two separate tax returns must be filed.
If the business conducts sales in multiple counties, the business
must register with the respective counties and cities.
Paying Business Tax
Taxes are paid when the annual business tax returns are filed with
the Tennessee Department of Revenue. Tax returns for the county
and city (if the city has a business tax) should be filed. A list of the
tax returns for each business tax classification is available at
http://www.tennessee.gov/revenue/forms/business/index.shtml.
County clerks and designated city officials will renew the business
license annually after the tax return has been filed with the
Tennessee Department of Revenue.
Document Business Will Receive
Upon registering, a business will receive:
- Business License (for each county and municipality where sales
occur)
The taxpayer must exhibit the license in the taxpayer’s
place of business.
Threshold When Business Tax Becomes Due
-Taxable product sales are $10,000 or more in a
year
Business Tax Classifications
There are five classifications of businesses.
Each of these classifications is subject to a different rate.
Rates within some classifications also vary according to
whether the sales are made at wholesale or retail.
Your dominant business activity determines your
classification.
A farmer whose taxable sales
are sales of farm products are
in Classification 4.
In Example 4, Farmer Brown
had taxable sales of $12,000
from purchased gourds and
farm products used for fall
decorations. These sales are
in Classification 4.
Business Tax Rates
CLASSIFICATION RETAIL WHOLESALE TAX PERIOD DUE DATE
Class 1A 0.001 0.00025 Jan 1 – Dec 31 February 28
Class 1B & 1C 0.001 0.000375 Jan 1 – Dec 31 February 28
Class 1D – Fuel 0.0005 N/A Jan 1 – Dec 31 February 28
Class 2 0.0015 0.000375 April 1 – March
31
May 31
Class 3 0.001875 0.000375 July 1 – June 30 August 31
Class 4 0.001 N/A Oct 1 – Sep 30 November 30
Class 5 0.003 .003 Jan 1 – Dec 31 February 28
Figuring the Tax
The minimum tax for taxpayers in Classification 4 is $22.
In Example 4, the tax is computed by multiplying sales
by 0.001.
In Example 4, Farmer Brown’s business tax on taxable
sales of $12,000 would be the minimum tax of $22.
($12,000 x 0.001 = $12, but the minimum tax is $22).
Filing Return and Paying the Tax
Tax returns are filed annually, for the period that applies
to the Classification.
All businesses must file their business tax returns and
make tax payments to the Department of Revenue
electronically.
Farmers Markets
• The owner, manager, operator or promoter of a farmers market must
obtain a business license and collect and submit to local tax officials a
$1 fee per day per booth from vendors who do not have a business
license.
• Vendors have option of either obtaining a business license and remitting
the business tax, or remitting the $1 per day per booth to the farmers
market.
• If the city has a business tax, the fees will total $2 per day ($1 each for
county and city) per booth.
Note: This fee does not apply to farmers whose sales are entirely from
their raised products. They are not required to have a business license.
Take Home Messages
• Farms with annual taxable sales between $3,000 and $10,000 are
required to pay $15 each year to get a “minimal activity license.”
The city may require a minimal activity license as well.
• Farms with annual taxable sales of $10,000 or more must get a
business license from the local clerk. There is a one-time $15
license fee and business tax paid annually to the Tennessee
Department of Revenue. The city may require a business license
as well.
Special “Thanks” to
Tennessee Department of
Agriculture
Hal Pepper
Financial Analysis Specialist
https://ag.tennessee.edu/cpa
hal.peppe[email protected]
(931) 486-2777
