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Davis Brown Tax Law Blog

Farmer's Markets May Not Be Tax Exempt Organizations - June 26, 2012

Summer is upon on and farmer's markets are popular attractions in many cities, including Des Moines. In addition to growing optimal produce and choosing the best location, farmer's market organizers also need to review tax laws before setting up their wares.


The IRS recently ruled, in Private Letter Ruling 201205014, that a farmer's market is not a tax exempt organization. 

The cited organization was organized by a group of vendors that had banded together to find a place to sell their produce and "stimulate interest in and demand for locally grown farm products."  The organization conducted the farmer's market and also contributed food to local food banks and operated an educational booth at the market. Members paid membership fees and vendor fees. 

The IRS first found that the organization was not qualified as a business league under Internal Revenue Code section 501(c)(6), because the association was not directed at the improvement of farmer's markets generally, but was rather directed toward the business betterment of the members of the organization.

The IRS also found that the organization would not qualify as a social welfare organization under Internal Revenue Code section 501(c)(4).  To be so qualified, an organization must be "primarily engaged in promoting in some way the common good and general welfare of the community." Again, the IRS determined that the organization was organized for the benefit of its members, not the community.

Not all farmers markets are subject to this treatment.  Other markets have been qualified as tax exempt organizations under several different provisions of section 501(c) of the Internal Revenue Code, depending on the identity of the sponsor and the activities undertaken.  It is very important, though, to avoid the characterization as a group that exists solely for the benefit of its members.