Do you need to obtain a state or city business license for your Alabama farm?
The answer to the question really comes down to what you are selling and where you are selling it. This post is a general guide and, as always, should not be considered legal advice. Your facts and circumstances will determine the specific answer to your situation.
Crops You Grow, No Value-Added Products
If your farm business consists of growing crops and selling the produce of your crops without any “value-added” features or processing beyond washing, sorting and shelling, then you should not need to purchase a business license for your Alabama farm.
In fact Ala. Code § 11-51-105 (1975) actually prohibits cities and towns from requiring a business license to sell crops as harvested.
However, it’s common these days for sustainable and most small-scale farmers to sell value-added products in addition to their crops as grown. Here’s where it gets more complicated in Alabama.
Selling Value-Added Farm Products
If you are selling processed or value-added products like any of these:
- Juices from your fruits
- Lacto-fermented vegetables
- Cheeses and other processed dairy products
- Canned pickles, jellies and jams
- Wreaths and floral arrangements
- Boiled or roasted nuts
- Sausages and cured meats, jerkies, etc.
then you MAY have to purchase a business license to sell those products inside a municipality. I say “may” because it depends specifically on the details of value-added and where you are selling.
The first key in Alabama is whether the processed or value-added products “have been substantially processed or commercially bottled, packaged, or canned.”
If your farm’s produce HAS been “substantially processed or commercially bottled, packaged or canned” (more on what that means, in the question below about sales tax) then the exemption is not available. (See Attorney General Opinions AGO 2000-120 and AG No. 90-00296).
Value-Added Product Sales Inside the City Limits
The loss of the exemption means that a city could impose a business license requirement through its municipal licensing ordinance process for something other than crops as harvested. That will depend on the city.
So if you’re selling value-added products inside the city limits (such as at a farmer’s market) then you need to check with the City’s business licensing department and see if there is a business license requirement. If there is, you may still have an exemption for occasional sales or sales that only occur through a farmer’s market.
Value-Added Product Sales Outside the City Limits
If you are selling value-added products from your farm that’s outside the city limits of any municipality, you probably don’t need a business license to sell directly to your customers who come to your farm. You probably are required to collect sales tax, even if you’re selling on-farm outside the city limits but that’s a different question and not the focus of this blog post.
Other Farm Sales Activities That Might Require Business License
Two other factors might trigger a requirement that you purchase a municipal business license.
- One is related to deliveries of farm products into a municipality (separate from the direct sale of the farm products).
- The other comes up if you operate a farm “store” within the municipal limits.
Ala. Code § 11-51-194 (1975) provides that municipalities can impose an annual delivery license fee of up to $100 for businesses that deliver into a city but do not otherwise have a physical presence in the city.
If you regularly deliver value-added products to a reseller (like a grocery store or restaurant) located in a municipality you should check with each city to determine if there’s a delivery license that might be applicable.
If the city does have a delivery license requirement, most likely this would only apply to deliveries for products that have been “substantially processed.” That’s because the argument can be made that Ala. Code § 11-51-105 supersedes this provision about delivery licenses, for those same growers. [This statutory provision is the one that prohibits municipalities from requiring a business license for growers selling crops exactly as harvested.]
Farm Stores Inside the City Limits
If you set up a farm-owned/operated store that is located within a municipality, you may also run into business license requirements that are distinct from direct sales by a farmer. That topic is beyond the scope of this response.
If you are growing crops inside the incorporated area of a municipality for anything more than a backyard garden for personal consumption, make sure you’re in compliance with the town’s zoning ordinances and related regulations.
Zoning is a separate issue from business licenses, but you don’t want to run into zoning issues for your commercial growing operation if you are inside the city limits.
Health Department Regulations
If you’re selling processed food and/or beverage products, you also have to comply with Health Department Regulations and licensing procedures. This article does not address those health department rules, regulations or licensing requirements.
This post does not cover any issues related to sales of farm products through sales transactions conducted online, regardless of whether these are “raw” produce or value-added products. Those transactions get into issues of interstate commerce and “e-commerce” transactional law, which is beyond the scope of this article.
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