The restaurant landscape has certainly changed amid the current pandemic. More than ever, restaurants are using third-party delivery services to give customers more options and access to a restaurant’s products.
Like many major shifts in how different industries operate, this shift has come with material tax consequences, especially pertaining to sales tax. The biggest issue is whether the taxable sale for sales tax purposes occurs between the restaurant and the third-party delivery service or between the third-party delivery service and the customer. Different states appear to handle the situation differently.
In the past, Mississippi third-party delivery services have been required to provide their sales tax numbers to the restaurants and purchase the food for resale. They would then be required to collect the tax from the customer and submit it to the state. This treatment is no longer applicable as of July 1st, 2020.
Mississippi House Bill 379 was passed just over a month ago and changed that requirement moving forward. House Bill 379 provides that sales facilitated by third-party food delivery services that deliver food from an unrelated restaurant to a customer are not considered retail sales. These third-party food delivery services should pay sales tax to the restaurant on the cost of the food purchased from the restaurant and not charge the customer sales tax on the delivery.
This is a substantial change to the law in Mississippi and restaurants should take note.
Another issue that is relatively new in the industry is that the third-party delivery services are now informing restaurants that the third-party delivery services will collect and remit all state sales taxes, however, local sales taxes are still the responsibility of the restaurants. This presents several issues for restaurants.
This could cause coding issues with the restaurants’ point of sale systems as they are typically coded for both taxes. This could also raise questions from local jurisdictions when the taxable sales in that jurisdiction don’t match the taxable sales for state purposes. In addition, some states specifically require that the restaurant collect the sales tax. The terms in some of the delivery service contracts are contrary to the laws enacted by certain states, including the recent changes to Mississippi law. In most cases, states will not care what the contract says and may hold the restaurant liable for the taxes.
When a restaurant is faced with this scenario, they have several options. They could require a resale certificate for both state and local jurisdictions in areas where they are not required by the delivery service contract to collect the tax themselves. If the restaurants are receiving only the local portion of the taxes from the delivery service, they would be required to submit that to the relevant jurisdictions themselves. The other option would be to insist that all state and local taxes be collected and submitted to the proper jurisdictions by the restaurants.
HORNE is here to provide the guidance necessary to ensure that your company stays ahead of these changes.