How to Start a Cottage Food Business in Texas: SB 541 Rules for Home Bakers

Texas home bakers have more opportunities than ever. Senate Bill 541, effective September 1, 2025, reformed the state's cottage food law by raising the annual income cap to $150,000 and expanding the types of foods you can legally produce from your home kitchen. If you want to start a small baking business, you need to understand the Texas cottage food law and how it works. This guide walks you through the specific requirements, restrictions, and steps to launch your operation legally.

What Is a Cottage Food Operation Under Texas Law?

A cottage food operation is a home-based food business. Texas law allows certain individuals and entities, including nonprofits, to produce specific foods in a residential kitchen and sell them without a commercial license or permit from state or local authorities. The Texas Department of State Health Services (DSHS) oversees these operations.

Before SB 541, the income cap was $50,000 annually. Under the new law, you can gross up to $150,000 per year. However, you should confirm the current threshold with the DSHS, as this figure may have been adjusted for inflation. A key protection in the law: local health departments cannot require you to obtain a permit, license, or fee to operate. This is a state-level preemption that removes local barriers.

What You Need to Get Started

Before you begin, gather and understand the following:

• A residential kitchen: You will use your home kitchen for production. Certain items you produce may require registration with DSHS if they need refrigeration (called "TCS foods" or temperature control for safety foods).
• Clear knowledge of what you'll make: Know your product. Allowed items include breads, cakes, cookies, jams, granolas, dried goods, and most non-refrigerated baked items. Prohibited items include anything containing meat, poultry, seafood, ice cream, low-acid canned goods, CBD or THC products, and raw milk. Do not attempt to produce prohibited items.
• Labels (if required): Cottage food labeling rules are set by DSHS, so confirm the current label requirements for your products before you sell. TCS foods require special labeling.
• DSHS registration number (optional but valuable): You can register with the DSHS Online Licensing Registry to obtain a registration number for your labels. This allows you to print that number instead of your home address on labels, protecting your privacy.
• Business structure decision: You can operate as a sole proprietor under your own name, or you can form an LLC or corporation for liability protection and professionalism as you scale.
• Business name (if not using your legal name): If you operate under an assumed name, you will file an Assumed Name Certificate with the Texas Secretary of State for $25, or with your county clerk (fees vary by county) if you operate as a sole proprietor or general partnership.

Step-by-Step: Starting Your Texas Cottage Food Business

1. Determine your product type and classification. Decide what foods you will produce. Baked goods are popular and widely allowed under SB 541. Check DSHS guidance for your specific product. Ask yourself: does this product need refrigeration to prevent spoilage? If the answer is yes (like a cheesecake or cream pie), it is a TCS food. If no (like bread or cookies), it is non-TCS. This classification determines your registration requirements and where you can sell.
2. Verify your product qualifies under SB 541. Not all foods are allowed. Cross-reference your intended products against the DSHS list of permitted foods. If your item is on the prohibited list, you cannot legally produce it as a cottage food operation. This step is non-negotiable for compliance.
3. Register with DSHS if your product is TCS. If you produce foods that require refrigeration, you must register with the DSHS Online Licensing Registry before you sell anything. Non-TCS foods do not require registration. However, if you produce non-TCS foods and want to use a DSHS registration number on your labels instead of your home address, you can register optionally. Registration is free and filed online.
4. Design your labels. Labels for TCS foods must include your name or registered business name, your address (or your DSHS registration number if you registered), a complete ingredient list, allergen warnings if applicable, and any required handling or storage instructions. Keep labels simple and factual. Note that samples do not require labels under SB 541.
5. File an Assumed Name Certificate if needed. If you want to operate under a name other than your legal name, file an Assumed Name Certificate. File with the Texas Secretary of State for $25, or with your county clerk if you operate as a sole proprietor (county fees vary). This creates a paper trail and adds professionalism to your brand. If you use your own name, skip this step.
6. Consider forming an LLC if you want liability protection. For a small operation just starting, operating as a sole proprietor is simple and legal. As your gross income approaches $150,000 or if you want liability protection, form an LLC. An LLC in Texas costs $300 to file. File the Certificate of Formation with the Texas Secretary of State using SOSDirect at https://direct.sos.state.tx.us/acct/acct-login.asp. An LLC is optional for very small operations but recommended as you grow.
7. Understand your sales channels and restrictions. Non-TCS foods can be sold directly to consumers (retail) or wholesaled to registered cottage food vendors (retailers who buy from you to resell). If wholesaling non-TCS foods to a retailer, that retailer must post a private-residence disclosure sign. TCS foods can only be sold directly to consumers; they cannot be wholesaled. Samples of any product type can be distributed anywhere without restriction.
8. Obtain a sales tax permit from the Texas Comptroller. Most food sales are subject to Texas sales tax. You likely need a sales tax permit even if you are a cottage food operation. Visit https://comptroller.texas.gov/taxes/permit/ to determine your requirements and apply if needed. The permit is issued at no charge and typically takes two to three weeks to process. Having this permit before you start selling is advisable.
9. Set up record-keeping systems. From day one, document what you produce, when, quantities sold, where you sell, and gross income. Track your total annual gross revenue carefully to ensure you stay under the $150,000 income cap. If you exceed this cap, you no longer qualify as a cottage food operation and will need a commercial license. If DSHS requests documentation, you must be able to provide it quickly.
10. Begin production and sales with confidence. Once you have completed the required registration (if applicable), designed your labels, and understand your sales restrictions, you are legally permitted to produce and sell your foods. Remember: you are not required to obtain a local permit or license, and local health departments cannot levy fees or regulations beyond what state law allows. You have the legal right to operate as a cottage food business.

Tips and Common Mistakes to Avoid

Tip: Get the product classification right. Many new bakers assume all their items are non-TCS. Double-check each product. Cream-filled pastries, refrigerated frostings, pies with cooked egg custard, and certain fruit fillings may be TCS. Dry cookies, breads, jams, and granola typically are not. When in doubt, check with DSHS or assume the more conservative classification.

Tip: Register for a DSHS number even for non-TCS foods. While not required for non-TCS items, obtaining a registration number is free and protects your privacy. You can print the number on your label instead of your home address. This is a simple step that builds credibility with customers.

Tip: Invest in clear, professional labels. Whatever the DSHS labeling rules require for your products, clear labels build customer trust and protect you by documenting ingredients and allergen information. A professional label signals that you take your business seriously.

Common Mistake: Ignoring or miscalculating the $150,000 income cap. This is your hard ceiling for operating as a cottage food business. Track your gross revenue carefully throughout the year. If you hit this cap, you must stop selling or transition to a commercial license. Exceeding it without proper licensing is a violation.

Common Mistake: Attempting to produce prohibited items from home. Do not try to make meat products, canned goods, ice cream, raw milk, or items containing CBD or THC. These are explicitly prohibited under SB 541 and pose food safety or legal risks. If these are your desired products, pursue a commercial license instead.

Common Mistake: Wholesaling TCS foods. TCS foods can only be sold directly to consumers. You cannot wholesale them to retailers. If you want to wholesale, stick to non-TCS products, and ensure your retail partners post the private-residence disclosure sign.

Common Mistake: Failing to register TCS foods before selling. If you produce a TCS product and skip the DSHS registration, your operation is not legally compliant, even if you follow all other rules. Determine your product type first. If it is TCS, register before you sell a single unit.

Common Mistake: Not tracking sales tax obligations. Assuming you do not owe sales tax because you are small is risky. Obtain your sales tax permit and comply with reporting requirements. Failure to do so can result in penalties.

What Results Can You Expect?

Compliance with SB 541 does not guarantee sales or profitability, but it does provide legal protection for your operation. Once registered (if applicable) and operating within the law, you may lawfully produce and sell your foods within Texas without fear of enforcement from local or state health authorities, provided you stay within the annual income cap and product restrictions.

Your professionalism, labeling, and product quality will influence customer perception and sales volume. Clear, informative labels and compliance with state rules build confidence in your product. As your customer base grows, repeat business and referrals are common outcomes. Whether your venture becomes supplemental income or grows into a full-time business depends on market demand, your marketing effort, your product quality, and how much time you invest.

Many home bakers find that beginning with non-TCS items (breads, cookies, granola, preserves) provides a lower-friction entry point. These products have fewer restrictions on sales channels and do not require DSHS registration. As you gain experience and build customer relationships, you may consider expanding to TCS products if desired and registered.

Legal and Tax Disclaimer

This article is informational only and does not constitute legal or tax advice. Texas cottage food law is specific and evolving. Before you begin production, consult the Texas Department of State Health Services official guidance to confirm current requirements. The $150,000 annual income cap may be adjusted for inflation; verify the current threshold with DSHS for your business year. If you form an LLC or corporation, consult a Texas business attorney for formation and liability protection questions. Consult a certified public accountant (CPA) or tax professional regarding sales tax obligations, income reporting, self-employment tax, and any other tax implications of your cottage food business. Local requirements may vary by city or county; confirm with your city or county that no additional restrictions apply in your jurisdiction.