Operating a restaurant in California has more tax implications than you might believe. This can mean being you concerned about charging the right taxes for certain types of food or worried about your tax liability as a whole. However, understanding the tax consequences of your restaurant will allow you to deal with these issues and continue to grow your business. If you own a restaurant and you need assistance handling taxes associated with the food service industry, you should consult with an experienced Sacramento tax lawyer.
At the NewPoint Law Group, our tax attorneys possess years of experience handling a variety of issues stemming from restaurant and hospitality industries. We understand that complicated tax regulations can take valuable time away from running your business and we are here to streamline your filing process. To schedule a confidential legal consultation to discuss your tax situation, call NewPoint Law Group at 1-800 358-0305, or contact us online.
California Restaurant Taxes
In California, every sale of tangible personal property is a taxable transaction. Tangible personal property is defined as any object that may be touched, measured, and weighed. While there are some transactions that are exempt from taxation, they are uncommon.
If you operate a restaurant, the majority of your taxable transactions will involve food and beverages. However, there are other transactions in the restaurant industry that will be taxed. For example, you may have to collect sales tax on a mandatory tip.
Another tax that restaurant owners must be aware of is the use tax. The use tax comes into play when you buy a taxable good without paying California taxes, and you purchased the good from an out-of-state vendor to use in California. Additionally, if you pull an item from your inventory and to use in California and you did not pay a tax on that item, you will a use tax.
These are just two tax scenarios that you must look out for when running a restaurant business in California. The following is a list of additional tax-related issues that could arise when you operate a restaurant in California.
Allowing Customers to Eat at Your Restaurant
If you sell food and beverages at your restaurant and you allow patrons to consume the food at the restaurant, this transaction is taxable. To determine whether you qualify as a business that allows guests to dine-in, you must look at:
- Whether you outfitted your restaurant with tables and chairs or provide dishes and other eating utensils
- You maintain a parking lot for the benefit of customers
- You operate a restaurant in the food court of a mall that provides tables and chairs for visitors
80/80 Tax Rule
The 80/80 tax rule states that if more than 80% of the sales at your restaurant are food and more than 80% of the food sold is taxable; you must track sales of cold food. If you fail to differentiate cold food from other types of food, you must pay taxes on 100 % of your sales. It is important to note that the 80/80 rule is applied to restaurants on a case-by-case basis. This means if you have more than one location, you must test for the 80/80 rule at every one of your locations.
Food Prepared To-Go
If you offer cold food that is sold to-go, these sales are typically not taxed. For example, if you offer ice cream, salad, cold cuts, and other types of cold food, these transactions are not taxable. However, if you offer cold food in a combination package, this may affect your tax liability. It is important to note that if your restaurant sales meet the 80/80 rule, this can result in the sale of to-go food being a taxable transaction.
There are many other tax implications involved with running a restaurant that is not discussed above. For example, if you need to perform an internal audit of processes or a tax audit, this can bring up another set of tax issues. That is why it is important to work with an attorney that will examine your unique tax situation and provide you with solutions that are tailored to your situation.
Our Sacramento, CA Tax Attorneys Can Evaluate Your Restaurant’s Tax Situation
If you need assistance handling the taxes for your restaurant, you should consult with an experienced California tax attorney. The NewPoint Law Group can help you determine your tax liabilities and guide you through the process of filing taxes associated with your business. Our firm has represented residents of Sacramento, Roseville, Folsom, Huntington Beach, and across California and we would be proud to represent you. To schedule a confidential legal consultation to discuss your business, call the NewPoint Law Group at 1-800 358-0305, or contact us online.