About a week or so ago a person started selling cupcakes and cookies in the Mini mart next to my dance studio. I asked the clerk who was doing them and she didn't know, just some lady. Well today I went in earlier and saw the owner. I asked him if she was licensed and held a Food Manf. Lic to be able to sell to him. He said yes. So I asked him where her commercial kitchen is so I could contact her to see about renting time (lost my comm kitchen at the church...long story short, new trustees board, voted 5 to 4 against comm. use of the kitchen. And Jason don't start about them losing NP stat. The IRS code states that as long as income a church makes from renting facilities is less than 5% of their income commercial entity or not they will not lose their NP status.)
Wait for it...
He said she just does it out of her home. 
I said that is illegal. He said no it isn't. I said trust me, in the State of Texas it is illegal to produce any food product for sale from one's home.
Then he said it use to not be. I informed him it has always been that way.
I told him to ask her to produce her food manufacturers lic. because in our county/State you must have a FM lic. to sell wholesale or sell your products from another food establishment. I gave him my card and told him to have her call me to get her involved in changing the law in our State.
I mean here is a food store owner who has been in business for 35 years and he didn't even know that it is illegal for him to sell those items from his store because they are being produced in a home kitchen!
Luckily my cupcake bar is in the process of being opened in San Antonio. We were hoping before Valentines day but just can't swing it. Looks like end of March, beg. of April. So since I no longer have a kitchen to use until then, I am not doing orders for anyone but friends, family, and giveaways. Thank goodness God knew what he was doing, and my next cake on the books isn't until mid April. I was so bummed that I didn't have any orders in the new year except a friend's daughter's birthday. God knew the plan...I was just a little slow in discovering it 
Oh and if the lady who is selling her cupcakes and cookies in Minimart in Hancock is on here...CONTACT ME! We need to get you involved in changing this law once and for all!
lost my comm kitchen at the church...long story short, new trustees board, voted 5 to 4 against comm. use of the kitchen. And Jason don't start about them losing NP stat. The IRS code states that as long as income a church makes from renting facilities is less than 5% of their income commercial entity or not they will not lose their NP status.
Normally I wouldn't reply, but since you specifically called me out...
What's your source for that 5% number? I don't believe there is any limit to rental income that would jeopardize non-profit status as long as net earnings are not distributed to private individuals and political activity is limited. See IRS pub 1828.
http://www.irs.gov/pub/irs-pdf/p1828.pdf
Sorry to hear that you lost your commercial kitchen, but best wishes with your new venture!
Well, it might sound like I am hijacking this thread, but this reminds me of the person making tortes from her home kitchen (in Frisco, TX) for sale for the non-profit proceeds to go to a needy children's organization. I think it is great, but still don't know how she is getting away with it. If the law says, you can't sell home baked items, she shouldn't be able to do it either. I think what she is doing is very commendable, but it is still the law. Then I have heard that SOME of the proceeds go to the non-profit. What cracked me up, she is shown with the Mayor of Frisco at an event!! Maybe he doesn't know it is illegal. Please correct me if I am wrong. Sorry, if I have to stay within the law, everyone does. THAT IS Why THE BILL HB 1139 NEEDS TO BEEN PASSED.
LOL! I knew you couldn't resist...actually there is. The Treasurer of the church spoke with a friend of his who is an IRS agent after the question was posed at the first Trustees meeting regarding building use policies. The IRS agent came and spoke at the second Trustees meeting and explained it. Can't remember the lable of the income it is called IB something. But stated that for a church to lose their non-profit status income from property rentals or direct sales the amount would have to be more than 5% of their annual income to lose their NP status. He also stated that it did not matter if the entity they were renting the facility to was a commercial entity or not. The amount they got from me was less than 1/2 of a percent...LOL!
I am not a whistle blower, wouldn't dream of it, basicially because I think it is a stupid law, I know what could potentially happen to the person, AND there is that little thing called karma 
Besides we need allies in our fight NOT enemies...LOL! If I outed her and hurt her or the store owner my rent at the studio might just triple at lease signing time. No thank you! 
Let me clarify. She didn't have a table set up outside as a fundraiser. She has a display case that sits on the checkout counter..grab & go. Problem is she and the store owner aren't upholding FM practices. All grab & go products even donuts in grab & go case must have a bag that lists ingredients and manufacturers information. Her bags are just plain white little lunch bags. No logo, no name, nothing.
The IRS agent came and spoke at the second Trustees meeting and explained it. Can't remember the lable of the income it is called IB something. But stated that for a church to lose their non-profit status income from property rentals or direct sales the amount would have to be more than 5% of their annual income to lose their NP status.
I did a little research and the IRS agent was probably talking about the reporting requirement in Part VI of Schedule R (Form 990), which requires non-profit organizations to report income from "related organizations" if said income is 5% or more of total activities. As long as this net income is kept within the organization and is not distributed to private individuals or shareholders they have nothing to worry about even if it exceeds 5%, they would just need to tell the IRS about it.
Worst case, it would be subject to UBIT (unrelated business income tax). Rental income based on property with a mortgage would be considered taxable under UBIT, but only that rental income would be taxed and the church would remain a non-profit organization.
I am not a whistle blower, wouldn't dream of it, basicially because I think it is a stupid law, I know what could potentially happen to the person, AND there is that little thing called karma
Actually you did blow the whistle, just to the retailer instead of the govt. Personally I would have just anonymously contacted the health dept (or whoever is responsible for food safety), since it's unclear how the retailer will handle it. Things could get confrontational if he knows your profession and tells the vendor that one of her competitors came in and accused her of breaking the law, or he could not do anything about it if he's making a good margin on the items.
I appreciate that you wanted to give the unlicensed vendor a chance to make things right before you report her, but if the unlicensed items are still on the shelves by the time you open your business and you haven't heard from the retailer or the vendor, I would definitely contact the health dept. If the vendor's items have to be pulled from the shelves you may be able to sell your own items there wholesale, but your previous contact with the retailer may have jeopardized your future business relationship.
Unless the agent is higher up with a law degree, masters in accounting, etc., IRS agents are notorious for being wrong and the wrong advice does not excuse you from the interest and penalties. Google what percentage of advice given on the IRS hotline is incorrect. And local agents are not attorneys. You usually do not have contact with the higher up agents unless they get involved in evasion or fraud federal criminal cases. I know, I had to testify in one against a person who did business with me. They found his evasion in mine and other businesses' books (we recorded his transactions, he didn't). If you have an IRS question, it is best to do what jasonkraft does and research it yourself.
vtcake Not mad at all, if you re-read my post I wanted to know where in our remote area she was using a commercial kitchen or if she had one herself because I wanted to see about renting time from it. It was when the owner of the store said she did it from her home that my "huh" reaction came about. I told him that it was illegal because he can get in trouble if inspected and since it is something new, the agent would ask where those came from. He does not have a kitchen in his establishment. It is a convenience store with a gas station. So the agent would definitely know that they weren't produced at his store.
Oh and Jason you are exactly right. The funds they received from me went into the Hospitality fund as a donation to the church. Hospitality is the kitchen fund. It pays for the treats and beverages used each Sunday and midweek bible study groups.
My understanding is that it is possibe to be licensed in Texas in your home. Currently, you have to meet certain criteria such as hand sink, mop sink, wash sink, etc.
I guess that I am willing to give people the benefit of a doubt until you find out differently.
My understanding is that it is possibe to be licensed in Texas in your home. Currently, you have to meet certain criteria such as hand sink, mop sink, wash sink, etc
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Actually, crp7, it is illegal and they will not license IN your home. You can have a separate kitchen on your property, but it cannot connect with your residence in any way. There's a bill being introduced right now to allow cottage food operations. www.TexasCottageFoodLaw.com
Yes what Shannon said. You absolutely cannot in the State of Texas prepare any foods for sale to the public from your home kitchen. Like Shannon said. You can have a separate building with no connection to your house on your property built out as a commercial kitchen provided your property is in an area that allows commercial use on private property. Many subdivisions' HOA's do not allow in their deed restrictions business use of residential property. But in my area Comal county if you don't live in a neighborhood, and many don't you can build a separate building on your property.
So crp7 if you live in Texas you need to check with your local HD as to what is necessary. But ALL of Texas HD departments will tell you that an inhome kitchen cannot be licensed. Make sure you are contacting your local HD. Some counties have their own, if you live in a metro area they more than likely have their own HD to govern food businesses. You just have to find out if there is a local HD for where you live or if the State HD handles where you live.
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