Accounting and Taxes
Farmers markets accepting SNAP benefits encounter unique accounting challenges and tax rules. Accordingly, they should consult with accountants to ensure that their books and taxes are in order.
Please note: The authors of this Toolkit are not accountants and have highlighted select accounting and tax concerns below, after consultation with an accountant, primarily to illustrate the need for markets to take accounting and taxation seriously and hire expert assistance as needed.
- How should markets manage and track SNAP tokens/scrip?
- Are outstanding tokens accounting liabilities?
- Does SNAP present unique tax considerations?
- What other resources are helpful for SNAP accounting and tax?
How should markets manage and track SNAP tokens/scrip?
First, treat SNAP tokens (or other scrip used for SNAP currency) as money. SNAP tokens represent real money and should be treated as such for business, accounting, and tax purposes. Specifically, SNAP tokens should be:
- Stored in a secure location
- Provided to SNAP customers only when the customer’s SNAP transaction has been approved (as market personnel administering the market’s POS device can confirm in real time)
- Tracked carefully for accounting and tax purposes
- Accounted for through an electronic book-keeping system that’s reconciled against a separate ledger
Second, track tokens carefully to enable your market to account for its potential liabilities, avoid spending funds it will ultimately owe, accurately report revenue for tax purposes, and provide a detailed audit trail to FNS, if needed. Specifically, your market should track:
- How many tokens are on hand at any given time
- How many are distributed per market day
- How many are returned per market day
- How many remain outstanding or unredeemed at any given time
Farmers markets track and account for SNAP (and other) tokens (and incentive programs) through a variety of methods. For example, they:
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- Maintain token tracking worksheets and utilize electronic and paper ledger bookkeeping. For sample token tracking and accounting documents, visit:
- Maintain separate bank accounts for SNAP token funds.
- Prohibit vendors from paying stall fees with SNAP tokens to avoid confusion as to which tokens are liabilities needing reimbursement.
- Color-code (or otherwise mark) tokens to denote year of distribution.
- Establish expiration dates for SNAP tokens to limit the challenge of accounting for outstanding SNAP tokens. (As FNS views it, once a SNAP customer swipes his/her card at a market’s central POS device, FNS relinquishes ownership and control of those funds to the market.) Notably, even if markets set expiration dates on SNAP tokens, they must comply with the federal requirement that SNAP customers are entitled to refunds on their EBT cards for unused SNAP tokens/scrip (up to the expiration date). Finally, markets must count expired SNAP tokens as revenue for tax purposes.
Are outstanding tokens accounting liabilities?
Yes. When a SNAP customer purchases SNAP tokens from the market, the value of the tokens becomes an accounting “liability.” That is, the market must treat these funds as money that the market owes to third parties, as token recipients are entitled to either:
- Spend those tokens at vendors selling SNAP-eligible food items (in which case the market must be prepared to reimburse the vendors); or
- Seek and receive a refund from the market for unspent token amounts (unless the market has set a token expiration date and that date has passed, as discussed above).
The market should respond accordingly by keeping sufficient financial reserves to cover these anticipated redemptions and refunds.
Note: if, based on their experience, markets reasonably expect that a given percentage of outstanding tokens will never be redeemed (or submitted for a refund) and wish to reduce the amount of financial reserves they hold for these potential redemptions/refunds, the market may make an annual “allowance” for these “doubtful tokens,” count their value as revenue for tax purposes, and reduce their reserve for SNAP redemption and refund accordingly. (Markets should consult with an accountant before taking such actions.)
For these reasons, among others, tracking tokens enables markets to account for their potential liabilities, avoid spending funds they’ll ultimately owe, and accurately report revenue for tax purposes.
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Does SNAP present unique tax considerations?
Yes. As mentioned above, market leaders should consult with accountants to understand their tax obligations (including as they relate to SNAP). In the interim, five SNAP-related tax facts are worth noting:
- First, generally, farmers markets must file tax returns and pay federal, state, and local taxes.
- Second, SNAP authorized retailers may not charge state or local sales tax on SNAP purchases. This does not mean that food items that are subject to sales tax are ineligible for SNAP purchases. It just means that, when SNAP benefits are used to purchase SNAP items that are typically subject to sales tax, sales tax cannot be charged.
- Third, if a market fails to properly account for SNAP tokens, this may hinder its ability to file accurate tax returns. Notably, incorrectly reporting revenue can constitute tax fraud.
- Fourth, markets must count expired SNAP tokens as revenue for tax purposes, and may count annual allowances for doubtful tokens (discussed above) as revenue, as well.
Finally, if a market has 50 or more vendors accepting SNAP and credit/debit tokens, there may be an additional tax reporting requirement. The market must issue 1099-K forms to any of its vendors whom it reimburses over 200 times per year for a total of over $20,000. Both the dollar amount and the transaction thresholds must be met to trigger the 1099-K requirement for a particular vendor. Note that these thresholds refer to all debit, credit, and SNAP EBT transactions, not just SNAP. For further explanation, see the Farmers Market Coalition website here.
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What other resources are helpful for SNAP accounting and tax?
Accounting and taxes are complex arenas. To navigate them, please consult with a professional accountant. (Again, the authors of this Toolkit are not accountants.) In the meantime, accounting-related resources are available from the following organizations:
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