This is the first in a series of articles meant to explore some of the legal requirements for starting a food related business. These articles are meant to be introductory in nature. The food service industry is extensively regulated at both the state and federal levels; more detailed consultation with an attorney before engaging in any business activity is strongly recommended.
Ever stood in your garden in the cool of a summer evening and thought to yourself “If only I had a dollar for every one of those zucchinis!” New Englanders have a long tradition of producing their own food and turning their gardens into extra income. In a down economy it comes as no surprise to find that this tradition has found recent momentum; today’s news frequently cites the resurgence of farmer’s markets, CSAs (“community supported agriculture”), farm to table/school programs and “locally produced food.” Growing your own food is a great way to stretch a household budget and controlling the quality of the food your family eats. For more and more people it’s also becoming a way to generate extra income.
But legally selling food you produce to the public is not quite as simple as planting seeds in the ground or baking up a batch of cookies. Both the state and federal governments have detailed requirements that must be met before your first sale can happen. The scope of regulation is directly related to the product you are selling. Meat, dairy and seafood/fish products are extensively regulated. Raw vegetables are generally at the other end of the spectrum and are not quite as heavily regulated- provided you are not selling across state lines.
For purposes of this article we will focus primarily on regulations related to “prepared foods”- defined in Vermont as “food that is heated, cooled, altered in any way from its original state or mixed with other foods for human consumption.” This broad definition covers a wide range of food products that a home producer might wish to sell, from canned dilly beans and pickles to soups, stews and sandwiches to baked goods. If your business plan is to sell a product within this definition there will be some level of regulation you need to become familiar with.
We will also narrow our focus by concentrating on those types of “food establishments” that home based businesses will most likely engage in: home/commercial catering, push carts and catering trucks, fair stands and farmer’s markets. We will not focus on opening or operating a restaurant, inn or bed and breakfast.
Generally applicable regulations:
There are some state regulations that are generally applicable no matter what sort of food establishment you plan to operate:
Regardless of which type of food establishment you are planning on operating you will probably have tax obligations. Responsibility for the taxes on income will depend on the business entity you choose to operate under. Operating as a sole proprietor means the income from your business will be taxed as your personal income; operating as a corporation could mean (depending on the type of corporation setup) that business income is taxed as corporate and not personal income.
Regardless of the business entity, however, the State of Vermont imposes a “meals and rooms tax” on any person engaged in “charging for a taxable meal.” Prior to beginning business an operator of a food establishment must register and obtain a meals and rooms tax license. It is unlawful to operate a food establishment without first having this license. The license is non-assignable and nontransferable and must be surrendered if the business is sold or transferred or if the person listed on the license ceases to do business.
For purposes of the types of “food establishments” we are discussing, a “taxable meal” is any nonprepackaged food or beverage furnished within the state for a charge, regardless of whether the food is intended to be consumed on or off the premises.
There are exemptions to the tax. Foods such as raw vegetables, candy, flour, nuts, coffee beans, etc. are not subject to the meals and rooms tax. A sandwich made from raw vegetables, however, is subject to the tax as are any heated food or beverage whether or not they are “prepackaged.” (So while the chili you plan to sell from a crockpot is not necessarily “prepackaged” it is still within the scope of the tax.) Foods and beverages sold by nonprofits as a fund raiser are exempted, as are foods sold on the premises of a school. But as a general rule, anybody planning to sell a food product should expect to pay meals and rooms tax to the State.
Under the law, responsibility for payment of the tax rests on the operator of the business. It is unlawful for the operator to “absorb” the tax or not add it to the item sale price. The operator is required to maintain records that show separately the charge for the item sold and the amount of tax paid. These records must be kept for three years and are open for inspection by the tax commissioner at any time. Returns showing the amount of gross sales and the amount of tax collected must be filed, along with the actual tax payment to the state either quarterly (if total annual sales are less than $500) or monthly.
Labeling and Packaging
Anybody selling a packaged product (including preserves, pickles, baked goods, etc.) must comply with Vermont’s “Packaging and Labeling Law” and regulations. Some products such as meat, seafood, poultry and dairy must also meet federal label and packaging requirements.
Vermont’s law imposes three primary requirements:
1. The label/package must clearly identify the product. In some cases a generic name can be used (ie. Bob’s “beef stew”) but the label cannot be misleading or deceptive;
2. Quantity- the label must specify accurately the weight/volume of the product in the package. Quantity cannot be qualified or exaggerated as in “one JUMBO pound” or “one FULL gallon.” A pound is a pound and a gallon is a gallon.
3. Declaration of Responsibility: this is the name and address of the person/company who manufactured the product. If you are selling something that was manufactured by someone else, it must say so on the label. State law mandates minimum letter and number size for this information.
Much has been made recently about nutritional labeling. This is a requirement imposed by federal law. An exemption for small businesses is contained within the law, and most food producers in Vermont will qualify for this exemption.
Federal law also requires that any product containing two or more ingredients list those ingredients. Small producers are not exempt from this requirement. An accurate listing of ingredients is particularly important when your product contains an ingredient known to cause allergic reactions (milk, peanuts, shellfish, eggs, tree nuts, etc.)
“Organic” is a term found on many Vermont produced products and it is a term that more and more consumers are looking for. Federal law allows for the use of the term organic provided the food and its primary ingredients, have been grown, produced and handled as required by the Act. In Vermont the Northeast Organic Farming Association (“NOFA”) promulgates rules and oversees the use of the term “organic” on food labels and packages. More information can be found at the NOFA website.
In the next article we will begin to consider the legal requirements for operating specific food establishments.