Operating a successful restaurant is not an easy feat by any stretch of the imagination. You must ensure that your establishment remains clean, keep track of your expenses and inventory, all while ensuring that your customers receive the dining experience they deserve. On top of all of this, you must fulfill complex tax reporting requirements depending on various aspects of your business. If you require assistance managing your tax liability for your restaurant, you should consult with an experienced Sacramento restaurant accountant today.
At Cook CPA Group, we acknowledge the stress of managing a successful restaurant, and we are here to help you deal with the tax consequences that accompany the restaurant industry. Let our accounting firm handle the reporting requirements for your restaurant while you focus on keeping your customers happy.
California Sales and Use Taxes
The California Department of Tax and Fee Administration (CDTFA) states that all sales in California are taxable unless you meet the requirements of a certain exemption. The majority of taxable sales include the sale of tangible personal property. Tangible personal property is defined as an object that can be seen, held, weighed, or measured.
As expected, food and beverages are the primary sources of taxable sales at a restaurant. It is important to understand when you must charge sales tax in California. For example, if your restaurant sells combination packages, you must charge a sales tax for these transactions. A combination package is when a restaurant sells two or more food items in a to-go package for a single price. The need for a sales tax may vary depending on the type of food or beverage sold in the combo package. Other instances where sales tax may be applied include:
- Preparing food or beverages that a customer provides (uncorking wine or cooking food)
- Providing employees with meals that they must pay for
Under certain circumstances, you may need to collect sales tax from other transactions like mandatory tips.
Use tax must also be considered when calculating your tax liability. This tax applies when you buy taxable goods from an out-of-state vendor to use in California without paying the California sales tax. Additionally, if you use an item from your inventory in California and you did not pay taxes on that item when you purchased it, this will also trigger the use tax. To report taxes on goods that triggered the use tax, you must document the purchase price of that item when filing your sales and use tax return.
To learn more about managing taxes for a restaurant, you should continue reading and consider speaking with an experienced Sacramento certified public accountant.
Tax Tips for Restaurant Owners
There are various scenarios that can trigger tax consequences for a restaurant. That is why it is important to know when a simple transaction can result in tax liabilities. For example, you should understand when tips should be taxed and when they are nontaxable.
Generally, voluntary tips and other gratuities cannot be taxed if you divide them among your employees. A tip is optional if a customer adds more money to their bill voluntarily. For example, if you place suggested tip numbers on a customer’s receipt, but you leave the tip section blank, any amount entered will be considered as an optional tip. It is important to note that if you do not distribute an optional tip between your employees, this will result in the tip becoming taxable.
Alternatively, mandatory tips are taxable. A mandatory tip is when you factor in gratuity into a customer’s bill without notifying the customer first. You can also expressly or impliedly agree to a mandatory tip with your customer prior to delivering the bill. That is why it is important to keep thorough records of all restaurant transactions, including tips.
It is important to note that your tax liability is subject to change depending on the type of restaurant you operate. For example, if your restaurant allows customers to dine-in, you will have different tax reporting requirements than a restaurant that only allows customers to pick up food.
Our Roseville Restaurant Accountants are Ready to Work with You
You do not have to manage the tax issues associated with running a restaurant by yourself, contact a Roseville restaurant accountant today. The diligent accountants at Cook CPA Group possess decades of combined accounting experience, and we would be proud to use that knowledge to represent you. The restaurant industry has several federal and state tax distinctions that a restaurant owner should know about.
