Sales tax: what restaurant owners need to know

Sales tax. Few topics elicit moans, dread and frustration like sales tax does. Whether it's struggling to have enough funds to pay the sales tax bill when it's due, keeping track of deadlines or calculating the amount of tax owed, many restaurant owners are overwhelmed by the hassle of managing sales tax. Read on as we break down the confusion with 4 things restaurant owners need to know about sales tax.

For many restaurant owners, sales tax management is not on their daily list of tasks. Therein lies the problem. Sales tax management requires a system and regularly checking in on the amount of sales tax collected – and thus, owed to the State. 

If you’re not carefully keeping track of what will be owed in your next sales tax bill, you may not have enough cash on hand to pay when it’s due. It’s easy to look at your funds available and mistake the sales tax you’ve collected as cash available for other needs. Getting behind on just one sales tax payment can spiral into months (or more!) of penalties and fees.

Many restaurant owners get behind on sales tax because they can’t pay the bill when it’s due. If you owe back tax, make a plan to pay it off and create a system to manage sales tax in the future. You may be able to automate the entire sales tax process through sales tax automation apps, like DAVO by Avalara, through your POS system. 

2) 27 states offer on-time filing discounts

27 states offer a discount or rebates on the amount of sales tax due when it is filed and paid on time. That means more for your bottom line to focus on other priorities or ways to grow your business. Many restaurant owners are leaving money on the table by missing deadlines and not filing on-time.

Sales tax automation software can calculate these discounts for you when it files and pays your bill. Depending on how much sales tax you collect and your state’s discount, your refund may cover the cost of sales tax automation (for reference, the DAVO app is $49.99/month per location).

3) 3rd party delivery apps can cause sales tax overpayments

It can be confusing to know who is responsible for paying sales tax on sales made through 3rd party orders, like Grubhub or Ubereats. A recent Supreme Court ruling has changed the laws around whether or not a state can require the 3rd party app to collect and pay sales tax. This means restaurants in the impacted states will or will no longer be responsible for paying sales tax on 3rd party app sales.

Because each delivery app contract is different – and each state is different – it’s important to review who is responsible for filing and remitting sales tax. Then, ensure those orders are set-up correctly in your POS. If you do not program your POS correctly, you may end up double-paying sales tax on these orders.

4) Sales tax automation saves time & hassle

With sales tax automation, taxes are automatically filed and paid on time and in full. Because the app is integrated directly with your POS, sales tax is calculated seamlessly – and accurately. The app sets aside the sales tax collected daily and puts it into a secure tax holding account until the funds are due. Save yourself stress and worry by being confident that you’ll never miss the deadline and get behind on payments.

When you decided to open your own restaurant, “sales tax collector” probably wasn’t one of the many hats you expected to wear, along with so many others. Consider sales tax automation to take a stressful task off your list, so you can focus on growing your business and other priorities. DAVO Sales Tax integrates seamlessly with your POS system and also offers a free month so that you can give it a try before you buy. The sales tax automation app also comes with a helpful and experienced team to walk you through any questions or concerns you may have, which will save you even more time. Learn more about how it works or schedule a meeting  with the DAVO Customer Success Team.

 About the author

As a former restaurant owner, David Joseph is no stranger to the struggles of restaurant sales tax. A self-proclaimed sales tax evangelist, David co-founded DAVO by Avalara, a sales tax automation platform that integrates directly with the point of sale.