This publication is designed to help you understand California’s Sales and Use Tax Law as it applies to businesses that sell meals, or alcoholic beverages,
234 KB – 28 Pages
PAGE – 2 ============
OCTOBER 2020 | DINING AND BEVERAGE INDUSTRY PREFACE This publication is designed to help you understand California™s Sales and Use Tax Law as it applies to businesses that sell meals, or alcoholic beverages, or bothŠsuch as restaurants, bars, hotels, and catering operations. You will also find information on complimentary food and beverages provided to guests at lodging facilities.If you cannot find the information you are looking for in this publication, please call our Customer Service Center at 1-800-400-7115 (CRS:711). Customer service representatives are available to answer your questions Monday through Friday between 8:00˜a.m. and 5:00 p.m. (Pacific time), except state holidays. This publication complements publication 73 , Your California Seller™s Permit, which includes general information about obtaining a permit; using a resale certificate; collecting and reporting sales and use taxes; buying, selling, or discontinuing a business; and keeping records. Please also refer to the website or the For More Information section of this publication for the California Department of Tax and Fee Administration (CDTFA) regulations and publica- tions referenced in this publication. We welcome your suggestions for improving this or any other publication. If you would like to comment, please provide your comments or suggestions directly to: Audit and Information Section, MIC:44 California Department of Tax and Fee Administration PO Box 942879 Sacramento, CA 94279-0044Please note: This publication summarizes the law and applicable regulations in effect when the publication was written, as noted on the cover. However, changes in the law or in regulations may have occurred since that time. If there is a conflict between the text in this publication and the law, the deci-sion will be based on the law and not on this publication.
PAGE – 3 ============
OCTOBER 2020 | DINING AND BEVERAGE INDUSTRY CONTENTS 1Some of Your Sales May Not Be Taxable Restaurants, Bars, Hotels, and Similar Establishments 2Food sold for consumption at your place of business 2 Parklets 2Food sold to go 3Nontaxable sales 5Banquet charges 5 Cater ers 7Places Where Admission Is Charged 11Complimentary Food and BeveragesŠ 12Hotels and Similar Lodging Facilities Other Tax Issues 15Employee meals 15Sales from hotel mini-bars 15Facility fees charged by retailers other than restaurants 15or hotels Facility fee when retailer (facility) provides food and beverage 15Facility fee when customer provides food and beverage or 16 contracts with a caterer Tips, service charges, and cover charges 17Two meals for the price of one 17Sales tax reimbursement 17Deal-of-the-Day Instruments (DDI) 18Inventory controls 18 Recordkeeping 19 Online ordering service 20California seller™s permit 20Sales suppression software programs and devices 21For More Information 22Appendix: Testing for the 80/80 Rule 24
PAGE – 4 ============
OCTOBER 2020 | DINING AND BEVERAGE INDUSTRY ˜SOME OF YOUR SALES MAY NOT BE TAXABLE Although food products sold by restaurants, bars, hotels, catering operations and similar establishments are generally taxable, there are some food sales by those establishments that are not subject to tax. For information on these establishments™ nontaxable food product sales, please see Regulation 1603 , Taxable Sales of Food Products, visit our website or call our Customer Service Center . This regulation explains the availability of tax exemptions for the following: Ł Student meals Ł Sales of meals by religious organizations Ł Meal and food sales by such institutions as hospitals Ł Meal programs for low-income elderly persons Ł Meals delivered to homebound elderly or disabled persons Ł Meals and food products served to condominium residents age 62 or older Ł Sales to air carriers engaged in interstate or foreign commerce In addition, Regulation 1597 , Property Transferred or Sold by Certain Nonprofit Organizations, and publication 18 , Nonprofit Organizations, explain how tax applies to sales of food by nonprofit youth organizations and parent- teacher organizations.
PAGE – 5 ============
˚ DINING AND BEVERAGE INDUSTRY | OCTOBER 2020 RESTAURANTS, BARS, HOTELS, AND SIMILAR ESTABLISHMENTS This section includes information on the taxability of food and beverage sales in restaurants and similar establishments. See Other Tax Issues, for information on:ŁEmployee meals ŁSelf-consumed and complimentary food and beverages ŁItems that are not reuseable sold with meals ŁTips, service charges, and cover charges ŁTwo meals for the price of one If you would like information on the taxability of other types of sales, such as greeting cards, coffee mugs, promotional items, please refer to publication 73 , Your California Seller™s Permit .Introduction The discussion of the taxability of food and beverage sales is divided into two categories: ŁFood and beverages sold for consumption at your place of business, which are generally taxable (see below), andŁFood and beverages sold to go, which may or may not be taxable (see Food sold to go ).See Nontaxable sales for information on sales to the U.S. government, sales for resale, and sales of cold food products that are not suitable for consumption at your place of business. Food sold for consumption at your place of business Tax generally applies to sales of food and beverages if those items are served for consumption at your place of business. You are considered to have a place of business where customers may consume their purchases if, for example: ŁYou provide tables and chairs or counters for dining, or provide trays, glasses, dishes, or other tableware; or ŁYou are located in a shopping mall and are near dining facilities provided by the mall. In this example, you are located in or near a food court or near an area where tables and chairs are provided for dining. Food and beverages are considered served if they are intended to be eaten at your place of business or if they are provided on, or in, an individual returnable container from which they can be eaten. It does not matter whether a food product or beverage is sold à la carte or as part of a meal. If it is sold for consumption at your place of business, it is generally subject to tax. A meal is a combination of food products, or a combination of food products and edible nonfood products (such as carbonated or alcoholic drinks), sold for a single price. Parklets A parklet is a small park created by converting one or more parking spaces into a park that may provide amenities such as seating, planting, bicycle parking, and art. Parklets are generally open to all members of the public. Some parklets are designed with built-in bench seating with large butcher blocks to use as tables or counters, and others allow for tables and chairs provided by the restaurant. Some cities allow parklets to be private, while others require parklets to be open to the public, not just customers. Certain cities do not allow the retailer to serve food within the parklet and customers must purchase food inside the restaurant and take the food to the parklet for consumption. In other cities, restaurant staff provide full service at the parklets.
PAGE – 6 ============
OCTOBER 2020 | DINING AND BEVERAGE INDUSTRY ˛When the parklet is maintained by the restaurant it is considered to be ﬁfacilitiesﬂ of the business and, as such, any sales of food and/or beverages for consumption within the confines of the parklet are taxable. It makes no difference that the customer is required to pick up their food and/or beverages inside at the counter or whether full service is provided; nor does it make any difference whether the restaurant offers additional tables and chairs within the parklet, because the parklet itself is considered ﬁfacilitiesﬂ when it is maintained by the restaurant. How do I obtain more information? For more information, please call our Customer Service Center at 1-800-400-7115 (CRS:711) Monday through Friday from 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays. Food sold to go When food is sold on a to go or take-out basis, the taxability of the sale will depend in part on whether your sales meet the requirements under the 80/80 rule. 80/80 ruleThe 80/80 rule applies to your business if: Ł More than 80 percent of your business™s gross receipts come from the sale of food products ( please note: alcoholic and carbonated beverages, while taxable, are not considered food products); and Ł More than 80 percent of your retail food product sales are taxable because they constitute: Ł Sales of food products that you furnish, prepare, or serve for consumption at your place of business (see Food sold for consumption at your place of business ); orŁ Sales of meals or hot prepared food products (see Hot prepared food products other than beverages); or Ł Sales of food products by a ﬁdrive-in.ﬂ ﬁDrive-insﬂ generally offer food products ordinarily sold for immediate consumption at or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products, even though they may be sold to go. It is especially important to test for the 80/80 rule if you have just acquired a food service business or started a new food service business. It is important to also test for the 80/80 rule if you have recently changed the product mix in an ongoing business or if there has been a change in how you serve food. For example, you may have started selling more hot prepared food products or extra seating is being provided to customers outside in good weather, thereby increasing the percentage of food served for consumption at your place of business. Evaluation for the 80/80 rule is done on a location-by-location basis. Thus, if you own multiple locations, one location may fall under the 80/80 rule and another location may not. Each location must be considered separately. Combination locations such as restaurant-bakeries may be treated differently. (See the Appendix , for more information on how to test for the 80/80 rule.) To-go sales that come under the 80/80 rule Although both criteria of the 80/80 rule may be met, you may elect to separately account for the sale of to-go orders of cold food products. You must report and pay tax on all food and beverages sold to go unless: Ł The sale is nontaxable, see Nontaxable sales , orŁ You make a special election not to report tax on to-go sales even though your sales may meet both criteria of the 80-80 rule. Such sales include: Ł Cold food products, and Ł Hot bakery goods and hot beverages that are sold for a separate price. Sales of those products must be separately accounted for and substantiated by supporting documents, such as guest checks and cash register tapes. The cash register should have a separate key for cold food sold to go or some other way of denoting such sales. Without adequate documentation, you are liable for tax on such sales. If your
PAGE – 8 ============
OCTOBER 2020 | DINING AND BEVERAGE INDUSTRY ˙Packages that do not include hot items If a combination package sold to go includes cold food and a carbonated beverage, the portion of the selling price that represents the carbonated beverage is subject to tax. If a combination package sold to go includes cold food and a cold beverage other than a carbonated or alcoholic beverage, the sale of the package is not taxable. Examples: You sell a value package of a cold sandwich, chips, and iced tea for a single price to goŠthe sale is not taxable. You sell the same package with a carbonated sodaŠthe portion of the selling price representing the charge for the soda is taxable. ExceptionŠreturnable containers. If you sell a combination of cold food products in an individual returnable container from which the individual serving is intended to be eaten (for example, a glass plate), the sale is subject to tax. In this instance, the sale is considered a sale of a served meal, which is generally taxable. Nontaxable sales Do not report tax on: Ł Sales of cold food products sold in a form that is not suitable for consumption on the premises and not eaten on the premises. A cold food product is not ﬁsuitable for consumption on the premisesﬂ if it requires further processing by the customer, or is sold in a size not ordinarily consumed by one person. For example, the sale of a frozen pizza is not taxable because it requires further processing by the customer. The sale of a quart of potato salad, a quart of ice cream, or a whole pie would not be taxable because those amounts would not ordinarily be consumed by one person when sold without eating utensils or dishes for consumption on the premises. See Regulation 1603 , Taxable Sales of Food Products, for more examples of food not suitable for consumption on the premises. Ł Sales that are not subject to tax, such as sales to the U.S. government and sales for resale. Banquet charges Facility usage Please note: The following information applies to restaurants, hotels, and similar establishments. Charges by restaurants, hotels, and similar establishments for the use of premises where meals, food, or drinks are served are taxable, whether or not the charge is separately stated on the invoice. For example, if you charge a $100 fee for the use of a banquet room for a holiday party, the fee is taxable. Charges for serving customer-furnished food and beverages Charges for cutting and serving customer-furnished food and beverages are taxable. For example, a ﬁcorkage feeﬂ for opening customer-furnished wine is taxable. Dance ˆoors, podiums, stage equipment If you charge customers, who are staging an event where food and drink are being served, for the use of property that is not used in connection with the furnishing or serving of meals, food, or drinks, you are considered a lessor of the property. Examples are, charges for the use of special lighting for guest speakers, sound or video systems, dance floors, stages, and decorative props related solely to optional entertainment, etc. As the lessor of the property, you may or may not be required to report and pay tax on charges to your customers for the use of that property. If you paid California sales or use tax on the purchase or rental of the property, tax does not generally apply on charges made to your customer for the use of the property. If you did not pay California sales or use tax on the purchase or rental of the property, the rental charges to your customer are generally taxable. Please see Regulation 1660 , Leases of Tangible Personal Property-In General, and publication 46 , Leasing Tangible Personal Property .
PAGE – 9 ============
ˇ DINING AND BEVERAGE INDUSTRY | OCTOBER 2020 Items used to serve meals, food, and drinks You are considered a consumer of tangible personal property normally used in the furnishing and serving of meals, food, or drinksŠsuch as tables, chairs, glasses, eating utensils, dishes, and linens, etc. As a consumer, you cannot issue a resale certificate to purchase or rent such items. In this example, you are considered to be using those items in connection with the sale of meals, rather than renting them to your customer.
PAGE – 10 ============
OCTOBER 2020 | DINING AND BEVERAGE INDUSTRY ˘CATERERS This section includes information on the taxability of food and beverage sales made by caterers. Under the Sales and Use Tax Law, you are considered a caterer if you serve meals, food, or drinks on the premises of your customer, or on premises supplied by the cust omer. You are not considered a caterer if you sell food to go or merely deliver food . That is, you do not provide any dishes, flatware, etc, to serve food. See Restaurants, Bars, Hotels, and Similar Establishments for information on the taxability of such sales. Please note: This section does not apply to sales of food and beverages to guests at hotels, bed and breakfast inns, and other lodg ing facilities if the food and beverage charges are included in the price of the room. See Complimentary Food and BeveragesŠHotels and Similar Lodging Facilities , for information on the taxability of such sales. Application of tax for catering Food and drinks Charges by caterers for food and drinks are taxable. Tableware, table linens, and tables Tableware includes items such as dishes, cutlery, and glassware used for serving and eating meals at a table. If you charge a lump-sum amount for meals that includes charges for the use of tableware, table linens, tables, and other items used in connection with preparing and serving meals, your total lump-sum charge is taxable.* In addition, you may not issue a resale c ertificate to purchase or rent tableware, table linens, tables, etc, because you are considered to be using these items in connection with the sale of the meals, rather than renting them to your customer. However, upon instances when you do not furnish and serve meals, food, or drinks to your customer and instead you rent or lease items such as dishes, linen, silverware, glasses, etc. from a third-party to provide to your customer, you are not acting as a caterer, rather you are considered the lessor of such items. If you paid sales or use tax when you purchased or rented those items, tax does not apply to the rental to your customer. If you did not pay tax to your supplier when you purchased or rented the property, the itemized rental charges to your customer are taxable. Please see Regulation 1660 , Leases of Tangible Personal Property-In General, and publication 46 , Leasing Tangible Personal Property .Please note Šdisposable items: Charges for disposable tablewareŠsuch as paper plates, napkins, plastic utensils, glasses, cups, and place matsŠare taxable . This is true whether or not your billings are itemized. Disposable tableware is considered sold with meals, food, or drinks, and may be purchased with a resale certificate. * ﬁOther tangible personal property used to serve food and beveragesﬂ includes tents, canopies, subflooring, generators, air compressors, lighting, electrical fixtures, etc, which provideŠor are an integral part ofŠtemporary shelter for the service of meals, food, or drinks. Labor charges and preparation charges Charges for the serving and preparation of food and drinksŠwhether performed by you, an employee, or a subcontractorŠare taxable. Tax applies even if you do not provide the food and drinks. Charges for serving customer-furnished food and beverages Charges for cutting and serving customer-furnished food items, such as wedding cakes, are taxable. Similarly, charges for opening and serving customer-furnished beverages are taxable. For example, a ﬁcorkage feeﬂ for opening and serving customer-furnished wine is taxable. Dance ˜oors, stage equipment, etc. If you paid sales or use tax on the purchase or rental of a dance floor, podium, sound/video system, or other such equipment; that is, items unrelated to serving or furnishing meals, food, or drinks, tax does not generally apply to the rental of such property to your customers. However, if you did not pay tax to your supplier when you purchased
PAGE – 11 ============
DINING AND BEVERAGE INDUSTRY | OCTOBER 2020 or rented the property, the rental charges to your customer are taxable. Please see Regulation 1660 , Leases of Tangible Personal Property-In General, and publication 46 , Leasing Tangible Personal Property .Parking attendants, checkroom attendants, security guards, and entertainment Charges for the above personnel are not subject to tax, provided those persons do not also participate in the service of food and drinks. Miscellaneous tangible personal property Separately stated charges for miscellaneous items such as printed programs and menus, floral or balloon decorations, ice sculptures, pads of paper, pens, flip charts, etc, are subject to tax. Charges for photographs are also taxable without deduction for the photographer™s hourly charges. For more information, please see publication 68 , Photographers, Photo Finishers, and Film Processing Laboratories .Coordinator fees Charges for professional planning or coordinating of events are taxable if the fees are charged in connection with the sale of tangible personal property. For example, if the main purpose of planning a wedding reception is the preparation and furnishing of food and beverages, fees charged for coordinating the reception are taxable. Other considerations Sales for resale Tax does not apply if you prepare or serve food, meals, or drinks to a buyer who will sell those items at retail and report tax on their sale. In such instances, the buyer should provide you with a valid resale certificate. Please see Regulation 1668 , Sales for Resale , and publication 103 , Sales for Resale .Sales to the U.S. government Sales to the U.S. government are exempt from tax. To support your exempt sale, you must keep a U.S. government purchase order showing that the sale was made directly to the U.S. government. If the purchase is paid by credit card, keep copies of the sales invoice and the credit card receipt to support your claimed exemption. The credit card must belong to the U.S. government. A sale paid with a personal credit card does not qualify as an exempt sale to the U.S. governmentŠeven if the person paying will be reimbursed by the government. For more information, see publication 102 , Sales to the United States Government. Meals served at a school Your sales are taxable if you are: Ł Hired by a school, school district, or student organization to sell meals and other food products to students at a school, and Ł Paid directly by the students or their parentsŠrather than the schoolŠfor the meals and other food products. However, your sales are not taxable if your contracts and records show that all of the following conditions are met: Ł The facilities you use to serve lunches to the students are routinely used by the school for other purposes, such as sporting events and other school activities during the remainder of the school day; Ł The fixtures and equipment you use to prepare and serve the meals are owned and maintained by the school; andŁ The students purchasing the meals cannot distinguish between you or your employees from the other employees at the school. For additional information on student meals, please see Regulation 1603 , Taxable Sales of Food Products, and Regulation 1506 , Miscellaneous Service Enterprises.
234 KB – 28 Pages