New York Sales Tax Guide for Restaurants and Bars

Whether you're a seasoned restaurateur or just starting out in the food and beverage industry, understanding New York sales tax is essential to avoid unwanted surprises, like New York sales tax audits. So, let's dive in and ensure your business complies with New York sales and use tax laws as you keep the good times flowing!

What’s on the Menu for Sales and Use Tax?

"Restaurant-Type" Food: The Golden Rule

Generally speaking, any food or drink sold ready-to-eat falls under the taxable "restaurant-type" umbrella. This includes:

• Dine-in Delights: Whether a sit-down meal at a fancy restaurant or a quick bite at a food court, anything consumed on-premises is subject to sales tax.
• Sandwiches & Salads: Those grab-and-go sandwiches, self-service salad bars, and pre-made meals? Taxable, even if enjoyed off-site.
  • But wait… What is a Sandwich?: Sandwiches (ny.gov) The New York Department of Tax and Finance provides that sandwiches include hot and cold sandwiches of every kind that are prepared, and ready to be eaten, whether made on bread, bagels, or rolls and regardless of the number of fillings or layers. Which makes us wonder… what about a bagel, that is not cut, but rather infused with cream cheese? See our thoughts: A New York Sales Tax Lesson from H&H Bagels’ Cream Cheese-Filled Bagel (salestaxhelper.com)
• Heated To-Go: If it's served warm, it's likely taxable. Think hot coffee, a toasted bagel, or that slice of pizza fresh from the oven.
• Unheated To-Go with a Twist: Unheated to-go items are generally tax-exempt, but only if they're sold in the same form, condition, quantities, and packaging as you'd find in a grocery store. So, that unopened bag of chips is safe, but a single serving in a to-go container is taxable.

The Grocery Store Exception

Remember, the key is how the item is typically sold in a grocery store. If it's pre-packaged and unheated, it's usually exempt. But if it's prepared, heated, or repackaged, New York sales tax applies.

Sales for Resale: A Tax-Free Zone

You can often skip the sales tax collection if you sell food or beverages to another business for them to resell. Just be sure to obtain a valid resale certificate from the purchaser. This exemption applies to various items, including:

• Cooked dishes (meat, pasta, vegetables)
• Deli platters and pre-made sandwiches
• Hot coffee
• Soups
• And more!

If you’re wondering how a restaurant can avoid taxation in this situation, the purchaser will collect tax on the item when they resell it.

The Sales Tax Shuffle

Whether your customers are savoring their meal within the cozy confines of your establishment or grabbing a quick bite on the go.

Dining In? No Doubts. It’s Likely Taxable

Dine-in is a straightforward affair: if your patrons enjoy their food or drinks on your premises or designated areas, like tables, food courts, or even outdoor picnic spots, sales tax is a must. Hot meals, cold beverages, that morning cup of joe—it's all taxable when consumed on-site.

Takeout Orders and The Grocery Store Exception

On the other hand, takeout orders can be trickier to navigate.

Generally, unheated items sold in their original, grocery-store-like packaging are exempt from sales tax. Think of a sealed bag of chips, an unopened bottle of soda, or that whole, uncooked chicken. However, the moment food is prepared or heated, even if destined for takeout, it crosses over into taxable territory.

This "grocery store exception" hinges on the item's form, condition, quantities, and packaging—not where it's purchased. If you're ever in doubt about an item's tax status, err on the side of caution and collect sales tax.

Beyond the Bill: Extras, Gratuities, and Coupons - Oh My!

While the main course and drinks might be the stars of the show, the supporting cast of extras, gratuities, and discounts can sometimes create sales tax confusion. Let's clear the air!

Compliments of the Chef

Are you offering complimentary snacks or even a full meal to your valued customers? That's a grand gesture, and thankfully, it doesn't trigger sales tax for them. However, remember that you'll need to pay use tax on those complimentary items.

Gratuities

Those generous tips left by happy customers go directly to your hardworking staff and are blissfully free from sales tax. Things get more complex with mandatory gratuities. To avoid sales tax on these, ensure they are:

• • Clearly shown as a separate line item on the bill.
  • Explicitly labeled as a "tip" or "gratuity."
  • Paid out entirely to your employees.

If any of these conditions aren't met, the mandatory gratuity becomes part of the taxable sale.

Other Charges: Taxable Territory

• Service Charges: Whether it's a corkage fee for BYOB or a general service charge, these extras are subject to sales tax.
• Cover Charges & Minimums: Do those cover charges for live music or drink minimums on a busy night? You bet.
• Delivery Fees: If you're charging for delivery, that fee is also included in the taxable amount for any taxable food and drinks being delivered.

Coupons & Discounts: The Fine Print

Coupons and discounts can offer a welcome break for your customers, but how they impact sales tax depends on the details:

• Restaurant-Specific Coupons: If you're offering your own coupons or discounts, you can generally subtract their value before calculating sales tax.
• Third-Party Coupons: If you're reimbursed for a coupon by a third party, like a coupon book company, you'll need to calculate sales tax on the total price before applying the discount.

Navigating these additional charges and discounts might seem like a lot to digest. Still, with a bit of knowledge, you can ensure your business remains compliant while offering those extra touches that keep your customers coming back for more!

Behind the Scenes

While the focus is often on serving your customers, it's crucial to remember that your employees and record-keeping practices also contribute to the sales tax equation. Let's explore these behind-the-scenes aspects!

Employee Meals: A Tax Break with Conditions

Providing meals to your staff during their shifts can be an incredible perk and offer a sales tax advantage. As long as:

• No money or other compensation is exchanged for the meal
• The meal's value isn't considered taxable income for the employee

...then you don't need to charge sales tax on those employee meals.

However, be mindful that any taxable components of those meals are subject to use tax. And, if you charge your employees for their meals, even at a discounted rate, sales tax applies.

Gift Certificates: A Tax-Free Present

Gift certificates and gift cards are popular ways to share the joy of dining, and the good news is that their initial sale is tax-free! Sales tax only applies when the certificate or card is redeemed for taxable food or beverages.

Record Keeping

Maintaining meticulous records is crucial for any business, but it's imperative regarding sales tax. Keep those guest checks, cash register tapes, and POS transaction records organized and easily accessible. Remember, you need to prove the taxability of each sale and the amount of tax collected.

Tax Collected, but not Remitted Issues

Cash-intensive businesses, such as restaurants and bars, are susceptible and frequent targets of New York sales and use tax audits, primarily because of its cash-intensive nature. In an audit, auditors often conduct thorough reviews of cash register logs, sales records, and bank deposits to confirm that all sales are properly recorded and reconciled. Because of the increased risk of sales and use tax audits, restaurant owners should prioritize daily reconciliations and establish strong cash management practices and procedures to ensure compliance and mitigate the risk of discrepancies.

Additionally, the New York restaurant and bar are also notorious for tax collected, but not remitted. The ramifications of tax collected, but not remitted are very serious. In New York and in accordance with Tax Bulletin TB-ST-805 a responsible party for a New York restaurant and bar may be subject to fines and criminal implications if such person willfully fails to remit sales tax collected. If your New York restaurant and bar has a sales tax collected but not remitted issue, it is of vital importance to get in touch with our team immediately.

The Bottom Line

Keeping your records in order will prepare you for potential audits and ensure your business stays on the right side of the tax law. If you have questions or need further guidance, resources like Tax Bulletin TB-ST-806 are available to help you navigate the intricacies of record keeping.