I spent far too long researching this topic, so my hope in writing this post is that other North Carolina egg producers will be able to skip some of that research and answer their tax questions.
The most important point to take from this article is that it should not be considered tax advice! Ask your accountant. If your accountant doesn’t know, point your accountant to the resources below. Or, do like I did and call the NCDOR.
The answer comes from North Carolina General Statute 105-164.13, Retail sales and use tax. It says: The sale at retail and the use, storage, or consumption in this State of the following tangible personal property, digital property, and services are specifically exempted from the tax imposed by this Article:
Section 4b says: “Products of a farm sold in their original state by the producer of the products if the producer is not primarily a retail merchant…” and then carries on about ice used to transport those products. This seemed to indicate to me that we were not required to collect sales and use tax on eggs from our chickens.
One thing that seems strange to me is that North Carolina refers to us as “producers” when it comes to eggs. When I called the NCDOR to ask if my understanding of the statute was correct, the fellow on the phone said “Are you the producer of those eggs?” I said “Well, I didn’t lay them…” Once we determined that we were considered the producers, he agreed that our egg sales would be exempt from NC sales and use tax.
It is important to note that just because the egg sales are exempt from tax collection doesn’t mean that we can disregard sales tax. The correct way to account for the sales is to include them in line 1 of the E500, and then “back them out” on line 3. So if we have $100 in egg sales for the quarter, they don’t want to see a zero on line one, but rather 100 on line 1 and 100 on line 3, which will equal zero in the end.
Another important note is that the exemption does not apply if the producer is primarily a retail merchant. So the way I understand that, if we had a country store and happened to keep chickens in the yard behind the store, we would need to collect sales tax on the eggs that we sell, even though we would still be the producer.
And while we’re on the topic of compliance with NC laws concerning poultry, don’t forget to apply for your free poultry dealer license if you are going to sell any live birds in the state. Even though we don’t regularly sell birds, we keep ours current for the occasional flock thinning sale.