The food and Hospitality industry has undergone the most atrocious times during the strike of the COVID-19. Everyone considered these business sectors as one of the most booming areas worldwide. The United States is one of the countries in particular, where people are frequent visitors to restaurants and café throughout the week. Unfortunately, the Corona Virus has turned the tables now. Food Business is perhaps seeing one of its worst lows. The usual operations of restaurants have got stunted everywhere.
Many restaurants and hotels forced to remain shut during the Lockdown phase. They were dependent only on food delivery systems. People were avoiding outside food with the fear of the infection. It was painstaking to incur the rent and maintenance expenses for many centrally located restaurants and eateries. Salaries of the Kitchen and Waiting staff were hard to pay. Many workers got fired.
Even when the lockdown norms have loosened, there is a need for investment to make arrangements as per social distancing guidelines. Staff members must get trained to maintain food safety, and extra sanitation measures need to be in effect. Most restaurants have switched to takeaway and home delivery systems.
The US Government is not oblivious to the troubles and needs of the enterprises running restaurants. The Revenue department of the US Government and various State Tax Authorities across the United States have issued specific guidelines for all restaurant businesses impacted by the COVID-19 crisis. The guidelines aim to assist restaurant businesses to comprehend the tax applicability in the changed working system of restaurants.
Today, we shall discuss some of the Sales tax regulations that restaurant owners must keep in mind for better compliance with the tax laws. Sales Tax comes under the purview of the state authority. As we know, all sales except those specifically exempted are subject to sales tax. We have highlighted the various sales tax rules as per the specifications of the sale of service a restaurant makes.
General Registration Requirements
Most people who want to sell food and similar taxable items in a state of the US have to register under the respective state authority to obtain a seller’s permit. No restaurant owner can make sales in a state without a valid seller’s permit.
Applicability of the 80/80 Tax Rule to Restaurants
Restaurants need to follow the 80/80 Rule when more than 80 percent of the food sold is taxable, e.g., Hot Food. Any restaurant that needs to adhere to the 80/80 rule does not have to keep a separate track of the customers’ cold foods. 100 Percent of the food sold is taxable.
Restaurants undertaking Food Delivery to Customers Homes
A restaurant that offers delivery of their food to the customer’s doorstep may charge separate delivery charges from the customers. Tax can apply to the delivery fees charged. The restaurant needs to pay tax not just on the food served but also on the relevant delivery charges. Sales tax is especially applicable to hot food meals. In other instances, where the tax does not apply to cold foods, no tax is payable on the delivery fees. On the other hand, where food delivered is in a combination of hot and cold foods, the sales tax applies to the total food price and delivery charge.
Restaurants following Take-Out Ordering System
The restaurant that offers hot food prepared for takeaway is liable for the tax. The cold foods sold are generally not taxable. However, those business concerns covered under the 80/80 Rule are responsible for paying tax for all food sales (hot and cold) on a to-go basis.
There is an exception for distinct charges for hot beverages and baked goods like tea or hot pretzels. No sales tax is payable for such items when sold for take-out.
Special Tax Compliances for selling Alcoholic Drinks
Commonly, Cold Foods may not come under the sales tax purview. But, this does not cover Alcoholic Beverages. All alcoholic drinks sold by restaurants and pubs are subject to tax. Those selling alcohol-based beverages also need to acquire particular types of ABC Licenses (Alcohol Beverage Control) apart from the seller’s permit from the state tax department.
Restaurants collaborating with Online Food Ordering Service Providers
When the restaurants provide food through online food ordering service providers, it is essential to understand which party is liable to pay the sales tax. A detailed written agreement between the restaurant and service provider is needed. There are two possible situations. The first case is where the online ordering service provider acts as an agent of the restaurant. In such a case, the restaurant has to pay tax on the full price of the meals provided. No deduction is allowed for the service provider’s commission charged from the meal price. The second case involves a situation where the online service provider is not acting as an agent for the restaurant or when the ordering service entity resells the meal by purchasing from the restaurant. Here, the online service provider is responsible for tax payment as he takes the place of the retailer. Tax will apply to the full meal price inclusive of any service charges. The online service provider should get a seller’s permit. The restaurants selling food for resale to the online food ordering service provider must obtain a resale certificate from such an entity.
Tax Rules for Grocery Sales
The restaurants also sell grocery products apart from meals for the customers. They do need to obtain a separate seller’s permit for making the sale of grocery items. Yet, the restaurants must keep in mind not to treat some things like carbonated beverages, ice, and alcoholic drinks as grocery items for tax purposes.
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Stay in touch with all tax updates with Initor Global. Not just in the realm of federal tax, Initor Global can also assist in compliance with Sales Tax Requirements. Firms that need assistance in sales tax registration or return filing and related compliances must consult our team. Our tax experts are known for offering excellent and economical tax preparation outsourcing services. Contact us today!