Texas Sales and Use Tax for Restaurants

Staying tax compliant should be your number one responsibility as a restaurant owner. Restaurant operators in Texas need to familiarize themselves with the state’s tax laws and rates, and the procedure for collection and remittance. When you buy food supplies for resale in your restaurant, the purchase should be tax-exempt. Sales taxes are due when you sell prepared food items.

In Texas, the sales and use tax rate is 6.25%. On top of that, cities, counties and other local jurisdictions might impose an additional tax often not more than 2 %. That adds up to a maximum combined rate of 8.25 per cent. You first need to register to collect sales taxes

You cannot collect sales taxes from customers without a permit obtained from the state. The process for registering is quick—you can do it online on the Texas department of revenue site and get the certificate of registration. For this certificate, the law mandates that you place it at a visible place in your restaurant for customers to know that you are legally registered.

Sales Tax vs Use Tax

Sales tax and use tax are terms often used interchangeably, but they are mutually exclusive. Sales tax applies to when you sell taxable goods and services. The amount is added to the purchase price (paid by the consumer). The amount is calculated by multiplying the item’s worth by the state’s sales tax rate.

If taxable purchased items are to be stored, used or consumed out of the state from whence they are purchased, the term’ use tax’ is used in place of sales tax. A consumer can only pay use tax if no sales tax was charged on the item.

If for instance, you operate a mobile food truck whose physical presence is out of Texas, you won’t be required to collect sales tax from your customers in Texas. It will be the buyer’s responsibility to calculate this use tax and remit it to the state.

Tax-exempt restaurant supplies in Texas

Restaurant owners are not required to pay sales taxes on non-reusable items used when serving customers, such as soda straws, plastic eating utensils and French fry bags. You can often buy these items tax-free provided you present a resale certificate. Similarly, the kitchen equipment used in food preparation is not taxable, including coffee makers, coffee mills, bread machines, fryers, drink machines for mixing or freezing ingredients, slicers, electric ice cream makers, kettles, ovens, toasters, juicers, grills and many others. Replacement costs and repair labor for these items will also be tax-exempt if you haven’t incorporated them into reality. If you are renting or leasing the above equipment, you will also enjoy free taxes provided the contract is for at least a year. If it’s less than a year, sales taxes will apply. Then again, if you buy any of those items out of Texas, you will be liable to pay use tax to the states from whence you purchased them.

Taxable restaurant items in Texas

• Restaurant furniture, reusable utensils, silverware, table cloths and napkins
• Dishwashers, waste disposal systems, soup warmers and salad bars
• Natural gas, electricity, janitorial cleaning, property repair, landscaping and remodeling

Food Sale Taxes in Texas Restaurants

When you buy your restaurant’s food supplies for resale, the purchases would be tax-exempt. However, you are required to collect sales taxes on all ready to eat food items you sell at the restaurant, even the “to-go” orders. However, no fee is due on bakery items that are sold as packaged (not served on utensils).

Other Examples of Food Sales: 

• No tax is due on complimentary meals and drinks served at your restaurant
• When two meals are sold for the price of one, you should only collect sales tax on the one meal that the customer pays for.
• When it comes to gift cards and certificates, tax is only due when a customer redeems them
• On the issue of coupons, the tax due is on the final discounted amount and not the original price
• Tips and gratuities are not taxable provided you label them as such on the customer’s final bill
• Restaurant employee meals and all items bought by a Lone Star Card are not payable

For your restaurant in Texas, you are responsible for remitting sales tax to the Texas government for the taxable sales transactions in your establishment. You are also to pay use tax to the states where you buy your restaurant supplies and equipment (if you purchase them out of state). Failure to remit sales and use taxes can attract harsh penalties and interest.