First of 3 Blogs on this topic: Restaurant Sales and Use Tax Audits
The Minnesota Department of Revenue has dramatically increased the number of Sales and Use Tax audits in recent years. The audits are getting more sophisticated and focused on a few key areas that can really trip up business owners. In the next three blogs I will cover the top three areas where restaurants have found themselves on the wrong side of a sales and use tax assessment.
#1 – Use Tax for Restaurants
Use tax is a commonly neglected tax that catches most business owners, regardless of industry. According to MN Revenue “Use tax applies when you buy, lease, or rent taxable items or services used in your business without paying sales tax to the seller”. This most commonly occurs from out-of-state and online purchases, although it can still happen with purchases from just down the street.
The specific use tax traps that restaurants must keep a close eye on are Free employee meals and giving away meals or drinks to customers.
Employee Free Meals
If an employee gets a free meal, the restaurant is required to pay use tax on the cost of all the taxable items involved in that meal. If the employee gets a discounted meal, simply charge tax on what the employee actually pays.
Free Meals or Drinks to Customers
If a restaurant offers promotions such as free appetizers, drinks or dessert on a birthday or special occasion, the restaurant must pay use tax on the cost of the taxable items (and liquor tax on drinks). This however does NOT apply if there is a requirement to purchase something else such as “buy one get one free” or a free kids meal with the purchase of adult entrée.
If you have any questions please contact Nick Swedberg, CPA at: firstname.lastname@example.org.