Introduction

Did you know you don’t have to pay sales tax as a farmer? Avoiding sales tax means you could be saving at least a few percent on the cost of all purchases for your business! Buying a $3,000 Quest commercial dehumidifier? If our farm is located in Durham, NC, we’d be paying an additional 7.5% or $225 for that machine. Sound too good to be true? It’s not. In this blog, I’ll walk you through how I got my farm, Piedmont Microgreens, to be sales tax exempt in NC.

Disclaimer

First, though, a disclaimer. This article will NOT be comprehensive. We will release future articles covering how to become sales tax exempt in other states. Different states have different tax schedules. For example, the property tax rate in Alabama is 0.39%, but it’s 2.21% in New Jersey. I can’t guarantee that your state offers sales tax exemption for qualified farmers.

Second, not everyone reading this will be able to leverage sales tax exemption. At least for NC, a qualified farmer must meet certain criteria. There’s a different application for conditional exemption, but we won’t be covering that variation in this article.

I shouldn’t have to say this, but third, this blog is in no way financial, tax, or business advice.

Let’s get into it.

Earning Sales Tax Exemption

Sales and use tax is one of the many ways a state generates revenue. However, sales tax exemption is provided as a benefit to farmers. Why? I don’t know. I couldn’t sift through enough legal articles about the intricacies of taxes and tax code to find the answer. My guess? Farming is hard enough and a stable food supply is a high priority for our government. If they can incentivize farmers to continue farming by reducing their tax burden, that’s what they’ll do.

For the purposes of this article, I’m going to assume you’re a microgreen farm operating in the U.S. I’m going to assume you only grow microgreens and you do NOT alter them in any way after harvest - dehydrate, pickle, or pesto. Yes, edible flowers are fine too. So long as you’re the farmer or grower of the product AND the product remains a raw agricultural product (RAP), this article will apply. Again, I want this to be as streamlined and straightforward as possible. You are the grower; you are NOT reselling someone else’s RAP. RAP simply means the product is in its original, unaltered state. Aside from harvesting it from the tray, you’re not seasoning, pickling, dehydrating, or otherwise changing its state.

Now I’ll explain how the process worked for my farm, Piedmont Microgreens, in North Carolina. Remember, each state will likely have different regulations. When applying for a QUALIFYING farmer exemption, as opposed to a CONDITIONAL farmer exemption, the Department of Revenue (DOR) will have certain criteria. The only criteria the DOR has for being a “qualifying farmer” is (i) that their annual gross income for the preceding tax year is at least $10,000 for farming operations. (ii) Alternatively, you meet the criteria if you averaged $10,000 or more in revenue from farming operations over the past three years. If you’re new to microgreen farming, you likely haven’t been in business for three years, which means we’re looking at the first version.

I can already predict your next question. “What is defined as “farming operations”? The screenshots below are directly from the NC application. You can see that a qualifying farmer includes a “farmer of crops.” Microgreens and edible flowers are crops. You can take my word for it or you can double check with your state’s DOR when you go through this process.

After you complete the application (E5959QF), mail it to the DOR along with proof! How will they know you’ve met the criteria if you don’t show them irrefutable evidence, like a tax return? The application details what you can send as proof, but it’ll likely be the Schedule F page of your personal tax return from the prior year. The Schedule F is “Profit or Loss from Farming.” Yes, this means you must have been growing microgreens long enough to both (i) make $10,000 in revenue and (ii) for that revenue to be reported on your tax return.

Send the application and Schedule F to the DOR address. Wait a few weeks for their response. Assuming they’re happy, they’ll send a letter with your new sales tax exemption ID. This ID is necessary for all future sales tax exemption forms with your vendors. Again, for NC, you’ll now use form E595E - Streamlined Sales & Use Tax Certificate of Exemption. You must fill out E595E for every single company you buy from. Start by talking to the companies where you spend the most money - seed, soil, packaging, tray, rack, and light vendors. Ironically, some of these items don’t include sales tax for anyone. I believe seeds are one of those items.

Complete E595E for each vendor according to the instructions below. You should only have to complete E595E once per vendor, not for every future purchase made from that vendor. Include your company’s information, along with the name and address of the vendor. You can ask them for the preferred address or you can pull a generic address from their website.

Each company handles sales tax exemption forms differently. For some companies, you can email it to their team. For other companies, there will be a dedicated place under your account or profile to submit a sales tax exemption form. Regardless, make sure you first have an account with the company so they can internally associate your sales tax exemption with your account. By doing this, the supplier can automatically eliminate sales tax from all future purchases. Wait for the company to confirm that they've received and APPLIED sales tax exemption to your account.

That’s it. Repeat the E595E and vendor submission process with any and all companies you buy from. At Piedmont Microgreens, we’ve submitted for sales tax exemption with at least 25 vendors.

Below is a step-by-step guide that includes links for how to apply for sales tax exemption in NC, and then submit E595E with a supplier.

Step-by-Step Instructions for NC with Screenshots

• Google “NC Sales Tax Exemption for Farmers”
• Click Top Link for NC Department of Revenue (NCDOR)
• Click “E595QF, Application for Qualifying Farmer Exemption Certificate Number for Qualified Purchases”
• Open Application
• Note Requirements for “Qualified Farmer”
  1. $10,000 or More in Gross Income for “Farm Operations” OR
  2. $10,000 or More in Average Gross Income for “Farm Operations” for Past 3 Years
• Complete Application
• Mail Application to NCDOR with Proof
  1. Schedule F Tax Return - “Profit or Loss From Farming”
• Wait for Response
• Receive Tax Exemption ID via NCDOR
• Use Form E595E - Streamlined Sales & Use Tax Certificate of Exemption with Your Vendors
  1. Complete for **EVERY** Vendor Individually
  2. Section #3 - Purchaser’s Type of Business: Select “02 Agricultural, Forestry, Fishing, & Hunting
  3. Section #4 - Reason for Exemption: Select “H - Agricultural Production #”
     1. Enter Sales Tax Exemption ID via Step #9 Above
• Include Vendor’s Address, Sign, Date, etc.
• Send Completed E595E Form to Vendor
• Wait for Vendor Confirmation
• Place Order
  1. Double Check for No Sales Tax