Cottage Industry Guide

Cottage Industry Overview

The cottage industry refers to small-scale production of goods and services conducted at home or in small facilities. For entrepreneurs, artisans, and food producers, understanding the applicable laws is essential to operating legally and successfully.

What is a Cottage Industry?

Cottage industries encompass a wide range of home-based businesses, including:

Home-based food production (baked goods, jams, honey, etc.)
Handmade crafts and artisan goods
Small-scale clothing and textile production
Personal care and beauty products
Agricultural products sold directly to consumers

California Cottage Industry Laws

California Homemade Food Operations (AB 1616 – California Homemade Food Act)

California's Cottage Food Law (Health & Safety Code §§ 114365–114365.7) allows individuals to produce and sell certain non-potentially-hazardous foods from their home kitchens.

Class A Permit: Direct sales only (farmers markets, roadside stands, home sales). Annual gross sales limit: $75,000.
Class B Permit: Indirect sales through third-party retailers. Annual gross sales limit: $75,000.
Approved foods include: baked goods, candy, dried fruit, jams & jellies, honey, roasted nuts, and more.
Potentially hazardous foods (meat, dairy, refrigerated items) are not permitted under cottage food law.

🔗 California CDPH Cottage Food Operations Guide

California Microenterprise Home Kitchen Operations (MEHKO – AB 626)

AB 626 allows home cooks to operate a small restaurant-style business from their home kitchen with a permit from the local county environmental health department.

Meals may be sold directly to consumers for immediate consumption.
Up to 30 meals per day and 60 meals per week.
Annual gross sales limit: $75,000.
Must obtain a MEHKO permit from the county (not all counties participate).

🔗 AB 626 – MEHKO Legislation

California Sales Tax

Most food products sold for home consumption are exempt from California sales tax. However, prepared foods intended for immediate consumption may be taxable. Contact the California Department of Tax and Fee Administration (CDTFA) for guidance.

Local Permits and Zoning

In addition to state law, you may need:

A Home Occupation Permit from your city or county
A local business license
Compliance with local zoning ordinances for home-based businesses

Federal Rules and Regulations

FDA Food Safety Modernization Act (FSMA)

The Food Safety Modernization Act (FSMA) is the primary federal food safety law. Small and very small businesses may qualify for modified requirements or exemptions.

Qualified Facility Exemption: Facilities with annual food sales under $1,000,000 (adjusted for inflation) that sell primarily to consumers, restaurants, or retailers in the same state or within 275 miles may qualify for a modified exemption.
Cottage food producers selling directly to consumers are generally exempt from FDA facility registration requirements.

🔗 FDA FSMA Preventive Controls Rule

FTC Rules for Home-Based Businesses

The Federal Trade Commission (FTC) regulates advertising and marketing practices. Home-based businesses must:

Avoid deceptive advertising claims
Disclose any material connections in endorsements
Comply with the CAN-SPAM Act for email marketing

IRS / Tax Considerations

Income from a cottage industry is generally taxable. Key federal tax considerations include:

Schedule C (Profit or Loss from Business): Report business income and expenses on your personal tax return.
Home Office Deduction: If you use part of your home exclusively for business, you may deduct a portion of home expenses.
Self-Employment Tax: Net earnings over $400 are subject to self-employment tax.

🔗 IRS – Home-Based Business Resources

Labeling Requirements

California cottage food products sold to consumers must be labeled with:

The name of the product
The name and address of the cottage food operation
The lot number or date of production
The ingredients listed in descending order by weight
Net weight or volume
Allergen information as required by federal law
The statement: "Made in a Home Kitchen"

Additional Resources

Note: Laws and regulations change frequently. Always consult with a licensed attorney or your local government agency before starting a cottage industry business.