Some of the biggest questions we get from chefs are around when and how to collect sales tax on purchases. Reporting and sending sales tax to your state is a huge part of staying compliant as a business, so here are some things to keep in mind and get you started.
As always, please consult your own accountant or business manager, as well as your state and county guidelines for collecting and reporting sales tax.
Knowing what’s taxable and what’s tax exempt
If you regularly shop for food items, you’ve probably noticed that you’re not charged sales tax on some things. That’s because many states have categories of goods that are exempt from sales tax. It’s important that you check with your local county and state, but this is what’s typical:
- Common taxable items:
- Restaurant meals
- Hot prepared foods
- Beverages
- Catering services
- Common exempt items:
- Raw/unprepared groceries
- Some basic food items
- Food purchased with SNAP/EBT benefits
- Individually packaged baked goods (in most states, be sure to check)
To find the full list of taxable items from your state, we recommend you Google something like “Sales and Use Tax Exemptions [NAME OF STATE]”. Look for a local government website that ends in .gov to get the most accurate, up to date information.
Collecting sales tax
Once you’ve determined if the goods you sell are taxable or exempt, you’ll need to apply the specific tax rates to all customer transactions. This is easy to do with Hotplate, and you can review our full guide on how to set up sales tax rates here. You may also need to apply a few different sales tax rates depending on where you operate and where you’re making the sale. The three to keep in mind are typically:
- State rate
- Local/county rates
- Special district rates
Most states have a tax rate lookup tool, like this example from California.
Documenting sales and tax collected
As a general business practice, it’s a good idea to keep detailed records of your sales, both taxable and non taxable. This will come in handy when it’s time to report quarterly and annual sales, or in the event that you’re audited.
Luckily, Hotplate will keep track of any sales that happen on the platform. Just download a report from your insights page to get the numbers you need
Reporting and paying sales tax monthly, quarterly, or annually
Every state will require you to report your sales and sales tax collected, but the frequency at which you do this is usually dependent on your sales volume.
These are the typical schedules, but be sure to consult with your state:
- Monthly: Usually for businesses with high sales volume (often >$100,000/month)
- Quarterly: Medium-sized operations ($50,000-$100,000/month)
- Annually: Small operations (<$50,000/month)
Where to report: your state’s tax authority
Where to report your business’s sales and tax income will vary by state to state. As a starting point, you can Google “Report Sales Tax [STATE]”. The most common names are:
- Department of Revenue (most common)
- Department of Taxation
- State Tax Commission
- Department of Finance
- State Board of Equalization (California)
Registering with your tax authority and getting a permit
Most states will allow you to report and pay any balances online. Be sure to register with your state’s tax authority and keep track of your account credentials so logging in is never a problem. You will also likely need to obtain an initial sales tax permit or license for your business.
Sending (remitting) sales tax to the state
The purpose of collecting sales tax from customers is ultimately to pay it back to the state. If you fail to charge sales tax on your sales, you’ll be required to calculate and pay the owed amount out of your own pocket. When you log into your state’s portal, you’ll be required to report the total sales – often separated into taxable and nontaxable items – the tax collected, and then make a payment of that amount.
Calculating sales tax totals with Hotplate
Before you file your sales tax report, you’ll need to calculate your taxable and non taxable sales. That means going into your bookkeeping software, or your POS system and exporting a report. With Hotplate, you can export your Sales and Tax reports from your Insights dashboard.
Glossary
- Remit – To send money. States will often require you to “remit” payment, which just means send money.
- Taxable Item – An item on which you are required to collect sales tax. This varies from state to state.
- Tax Exempt Item – An item on which you do not need to collect sales tax. This varies from state to state.