Talk with others about the cottage food industry in California
Sales Tax/ Sales Permit
- July 10, 2020 at 10:20 am #72778
Does anyone understand the necessity/ circumstances for when a sales permit is needed, and when we charge sales tax? I’m seeking to understand whether we are selling direct to consumer (fulfilling online orders, doing delivery and pickup) and events like farmer’s markets, if we have to include sales tax in our pricing. If so, how do we separate this tax collection? etc any clarification on this process would be helpful. Thank you!July 10, 2020 at 4:42 pm #72781
If you are only selling direct to consumers (cottage food operation class A) and your product is served at room temperate (baked good, nuts, chocolate, etc) and no one is eating on site as in like a restaurant space, then you don’t need to charge sales tax. So no sales tax for online orders, delivery, pickup, or farmer’s markets.
You would charge sales tax if your food is hot and people are eating in rented space that you pay rent on (in which case you wouldn’t be able to sell hot food with a cottage food operation permit, you’d need a regular health permit and would have to rent a commissary (shared) commercial kitchen space).
Depending on the county you live in, you will more than likely have to apply for a seller’s permit, which is free. It’s part of the requirement for getting a cottage food operation permit at least where I am in Los Angeles County. They also required me to have a business license and seller’s permit before issuing the cottage food operation permit. Even though you won’t be collecting sales tax, you will still have to file what your quarterly gross income is to cdtfa.ca.gov and report your income as nontaxable food sales, which will show that you owe zero 0. CDTFA is super helpful with filing the forms online if you call them, they will walk you through it over the phone when the time comes, it’s pretty straight forward.
Hope that helps!!July 10, 2020 at 7:39 pm #72782
Thank you so much for your thorough reply- your explanation provides clarity and makes total sense. I will be applying for my Cottage B license, but even so, the same logic still applies. I will go ahead and get a seller’s permit anyway, as I believe my county requires it as well. Thank you again and take care.July 10, 2020 at 11:04 pm #72784
You’re welcome. Yes, the same knowledge applies for class B as well, which is the permit I use to have. It will also be nice for you to be able to buy supplies wholesale with the sellers permit. Good luck with your business :) Take care!July 11, 2020 at 9:05 am #72786
Yes, great call on the sellers permit. I kind of assumed I’d need that anyway. I looked into it and it appears you need both a federal EIN and state EIN first, and the state EIN requires a business license with the city to obtain one. So many legalities! haha Thanks againJuly 12, 2020 at 12:17 am #72789
Yes, indeed lots of paperwork to file…will drive you crazy, but you got this!!
Do you plan on having an employee? EIN numbers are generally used if you have employees. If you have no employees you won’t need an EIN.
If you’re just starting without employees (only you and family members) it’s best to start as a sole proprietor and use your own social security number to apply for the seller’s permit. And, pay for the Doing Business As (DBA) for the name of your business. This is what I did. I think you’re only allowed to have 1 non family member employee as a cottage food operator anyways, but that depends on your city. And, in the event that you go bigger, you can get an EIN and change your business type to an LLC, but of course that cost big bucks $800 in taxes.
July 12, 2020 at 9:20 am #72792
- This reply was modified 3 years, 7 months ago by Marlyn.
haha I appreciate the support ;)
I did actually create an LLC to remove personal liability, but if I find after a year that I don’t need it, I’ll switch to save money.
Next steps are getting FBN validated, then getting a federal EIN, business license, state EIN and then a seller’s permit… I think that covers everything, for now haha
Thank you againOctober 5, 2021 at 12:53 pm #86639
Just want to chime in that having a seller’s permit will also allow you to purchase some items with tax exemption. Make sure to ask the places you purchase packagings and equipment from to see if they have something like that. A good place to keep costs down.
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