Do you have a great food business idea but want to test the waters before fully committing to the business? The Michigan Cottage Food Law could be a great opportunity for you to test the market, perfect your idea, and gain some business experience without necessarily having to commit to a full-scale licensed business operation.
Michigan’s Cottage Food Law, which was enacted in 2010, exempts certain “cottage food operations” that sell less than $20,000 worth of homemade food from licensing and inspection regulations contained in the Michigan Food Law. Still, a cottage food operation must comply with a variety of other rules and regulations, including labeling, adulteration, and other provisions in the Michigan Food Law, as well as applicable local ordinances, state and federal laws.
The Cottage Food Law is also very specific about which food items are exempt from the licensing and inspection regulations, and it is absolutely essential that you make sure your food item qualifies under the Cottage Food Law before beginning production. The Cottage Food Law’s specific and stringent regulation of permitted food items is meant to ensure that cottage food entrepreneurs are producing food items that pose low food safety risks, since the food items are being prepared in unlicensed and uninspected facilities.
Below are 5 of the most significant requirements of the Cottage Food Law that all food entrepreneurs should be aware of.
1. The food item you produce must be “non-potentially hazardous”. To qualify as a non-potentially hazardous food, the food item must not require time and/or temperature control for safety, meaning the item must be able to be safely stored at room temperature. Examples of non-potentially hazardous food include cookies, cakes, jams/jellies, vinegars, breads, and other similar baked goods. A full list of items that qualify as non-potentially hazardous foods can be found here. However, certain foods that seemingly meet these requirements are specifically exempt from the Cottage Food Law, including canned fruits or vegetables, canned pickled products, canned fruit butters, certain breads made with vegetables and cheese, and pet treats. It is strongly advised that you consult with an attorney familiar with the Cottage Food Law to make sure your particular food item qualifies.
2. The food item must be produced in a person’s “primary residence”. Cottage foods may be produced in an unlicensed kitchen, so long as that kitchen is in a single-family domestic home in which you live. A primary residence can be a house, apartment, condominium, or rental home. Second homes, vacation homes, and motor homes do not qualify. Communal residential settings, including group homes, fraternity and sorority houses also do not qualify.
3. The food item must be sold directly to customers. Cottage food items can be sold directly to consumers at farmers market, roadside stands, or other direct methods. However, the items cannot be sold in retail stores, restaurants, to wholesalers or other distributors, or online or through the mail.
4. Gross annual sales of the food item must total less than $20,000. It is your responsibility to maintain sales records and provide them to a Michigan Department of Agriculture and Rural Development food inspector upon request showing your total sales amount to less than $20,000. If you earn more than $20,000 in gross annual sales, you no longer qualify under the Cottage Food Law and will need to obtain all required licenses in order to continue operating.
5. Labeling requirements. There are specific and detailed labeling requirements with which cottage food operations must comply, including listing the name and physical address of your operation (not a P.O. Box), the name of the food item, the ingredients the item contains, and the item’s net weight or volume. You must also disclose allergen information in compliance with federal labeling requirements. Again, it is strongly recommended that you consult with an attorney to ensure you are complying with all applicable state and federal labeling requirements.
If your cottage food operation satisfies all of the requirements of the Cottage Food Law, it is important to recognize your business is only exempt from certain licensing and inspection requirements. However, there are still many other legal considerations you must keep in mind. Below is just a small sample of these important considerations.
1. Business Formation and Structuring. Before you begin to produce your cottage food item, you will want to determine the type of business structure that best fits your operation. For example, the county or local municipality in which you operate may require you file a DBA (Doing Business As). Also, you may wish to form an LLC (Limited Liability Corporation), which is handled by Michigan’s Department of Licensing and Regulatory Affairs for a multitude of reasons. Again, consulting with an attorney who is knowledgeable in this area and can advise you of the pros and cons of different business structures is strongly recommended before you even begin producing your food item.
2. Land Use and Zoning. Cottage food operations are not exempt from municipal land use and zoning regulations. It is highly recommended that you consult with an attorney to consider how a municipality’s particular zoning regulations might affect your business, and to make sure you and your business are complying with these regulations.
3. Taxes. Cottage food operations are also not exempt from tax regulations. Certain food products are considered taxable, and you may also be obligated to pay other taxes depending on how you organize and structure your business. Again, you should consult with an attorney or tax professional in order to be fully advised on the potential tax consequences of your business.
This is just a brief summary of the requirements of Michigan’s Cottage Food Law and other considerations a Michigan cottage food entrepreneur must consider. If you are thinking about starting a food business and are learning more about Michigan’s Cottage Food Law and how it affects your business, feel free to contact one of the attorneys at Dalton & Tomich to discuss your business idea.