Before we get started, keep in mind that sales tax laws vary by state and municipality. While this guide serves as a general rule of thumb, be sure to check on the specific laws governing your area before making any changes to your restaurant’s operations or accounting.
Restaurant owners face many complicated rules and regulations when it comes to running their business, and sales tax is no exception. This simple guide is designed to help you understand how sales tax works and what you need to do to be prepared and stay compliant.
What is a sales tax?
Sales tax is a consumption tax imposed by Uncle Sam on the sale of goods and services. In other words, it’s a fee the government requires you to pay in order to sell your delicious food.
Sales tax is paid by your customers to you so that you can, in turn, pay this amount to the government every month or quarter. Unlike a federal tax, sales tax is a sort of “pass-through” from your customers to the government.
Does my restaurant have to pay sales tax?
You’re required to pay sales tax if your restaurant has what is known as a “nexus” in a given jurisdiction. So if your restaurant has a physical presence, like a brick-and-mortar location or a food truck, you will definitely be required to pay. If you have a food business that is strictly online, you may not have to but should double-check with your local jurisdiction. Having an employee, an affiliate, or some other type of presence may make you liable to pay.
So when do I pay sales tax exactly?
Think of it this way: your customer is the end-user of the food you sell – after it hits their stomach, it isn’t going anywhere else (sort of). But before it got there, you purchased ingredients from suppliers. The tax was not due at that time, because that was not the end of the food’s journey.
It may seem for a moment like you’re getting a break, but there’s no such thing as a free lunch. You don’t pay taxes on the purchase of food supplies because you will be collecting taxes on the final product. It is your responsibility to correctly calculate the amount of sales tax due by your customers (more on that later) – you’ll be required to pay it whether you remembered to collect it at the time of sale or not.
So it sounds like I’m probably required to pay sales tax…how do I do that?
- If you haven’t done so yet, you’ll want to file for a sales tax permit with your local agency. A quick search online should help you find those forms.
- Determine your sales tax rate – they vary by state and municipality.
- Distinguish between taxable and non-table items in your restaurant – certain carryout items may not be taxable. Be sure to check on the particular laws of your area.
- Set up sales tax in your POS – charging customers correctly means you won’t be liable for sales tax payments out of your own pocket
I’m already charging customers sales tax and have collected the funds. What do I do with them?
First, make sure you’ve collected the correct amount of sales tax – because if you don’t, the government sure will!
Tally up the sum total of all taxable items sold in your restaurant during the month.
Multiply that number by your sales tax rate.
For example, your tax rate is 5% and you sold $1,000 in total taxable meals and beverages, the sales taxes due that month is $50.
The final step is to complete the sales tax forms for your state, due monthly, or quarterly at a minimum. Xendoo’s sales tax experts prepare and file your sales tax accurately and on time so you don’t have to (you probably have a lot on your plate as it is). They also give you plenty of advance notice to ensure you have the funds available for payment.