Be Aware of These Sales Tax Pitfalls for Restaurants
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by Stacy Smith
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ales tax seems straightforward, right? If you know your sales tax rate, you simply multiply it by the amount of sales for the period, fill out your return and send off the money. Easy peasy! Not so much. Here are three challenges our sales tax experts have identified as particular issues for our restaurant clients:
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2022 Issue 2
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Marketplace Facilitators A “marketplace facilitator” is a business that facilitates the sale of another company’s products. One of the responsibilities of a marketplace facilitator might include remitting sales tax on its sales. Or maybe not. It depends on the state’s rules (each state is different) and the vendor. How does this affect you? Many restaurants use delivery services such as DoorDash, Grubhub and Uber Eats. These companies may be considered marketplace facilitators, which is where the challenge starts creeping in. If the delivery service does remit sales tax on its orders, a common problem is that those sales are often also counted by the restaurant when calculating its sales tax. That means both parties paid the sales tax on the same orders, resulting in an overpayment by the restaurant. Multiply that by many delivery orders over many months and you start to see how this problem can mushroom very quickly into some significant dollars. Then imagine how hard it might be to go back to recalculate
the correct amount of sales tax and then retrieve the overpayment from the state and local taxing jurisdictions. Once the government has your money, it’s reluctant to give it back. Even if your state requires marketplace facilitators to remit sales tax, not all delivery services take on that responsibility. It’s up to the restaurant to know which services are remitting sales tax and which ones aren’t. How do you know? You need to do the research. Start with the vendor contract, which should outline who’s responsible … but as you know, people don’t always follow through on their contractual obligations. Your next step is to contact the vendor to confirm whether they’re keeping up their end of the bargain. And recognize that just because they’re remitting sales tax this month doesn’t mean they’ll still be doing it a few months from now, so you need to check back in regularly to confirm. Look at the billings you receive from delivery services – in detail – to ensure you’re not overpaying or underpaying your sales tax. As mentioned above, different states treat marketplace facilitators in different ways. Some states specifically exclude restaurants and food sales from these rules, meaning only the restaurant is responsible for remitting sales tax. Some states have a specific threshold – either a certain dollar amount of sales or number of transactions – that triggers the sales tax responsibility
