Navigating Restaurant Sales Tax With The 80/80 Rule And Automation

Running a restaurant comes with its fair share of challenges, and one of the often-overlooked complexities is sales tax. Failure to navigate the intricacies of sales tax regulations can lead to costly fines and penalties. California Regulation 1603 and its 80/80 rule stands out as a key determinant in sales tax application for food establishments.

In this article, we’ll unpack the 80/80 rule when applied to sales tax, explain how it works, and how you can ensure all your bases are covered, with regard to your business’s compliance. Here’s what you can learn:

  1. Understanding the 80/80 Rule: Explains the 80/80 rule in restaurant sales tax, determining tax application for food sales.
  2. The Nuance of Restaurant Taxes: Discusses the complexities of restaurant tax compliance, considering factors like food temperature and sales method.
  3. The Role of Automation in Tax Compliance: Highlights the use of automation solutions, like Avalara, to manage sales tax compliance efficiently in restaurants.

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Texas Sales Tax | Real Property Services

The Texas Tax Code provides that sales of “real property services” are subject to Texas sales and use tax. [1] “Real property services” include the following:

  • Landscaping;
  • The care and maintenance of lawns, yards, or ornamental trees or other plants;
  • The removal or collection of garbage, rubbish, or other solid waste other than:
    • Hazardous waste;
    • Industrial solid waste;
    • Waste material that results from an activity associated with the exploration, development, or production of oil, gas, geothermal resources, or any other substance or material regulated by the Railroad Commission of Texas under Section 91.101, Natural Resources Code;
    • Domestic sewage or an irrigation return flow, to the extent the sewage or return flow does not constitute garbage or rubbish; and
    • Industrial discharges subject to regulation by permit issued pursuant to Chapter 26, Water Code;
  • Building or grounds cleaning, janitorial, or custodial services;
  • A structural pest control service covered by Section 1951.003, Occupations Code; or
  • The surveying of real property. [2]

However, there are exceptions to the above.  For example, the Texas Tax Code also provides that a service will not be considered a “real property service” if it’s purchased by a contractor as part of the improvement of real property with a new structure to be used as a residence, or another improvement immediately adjacent to the new structure and used in the residential occupancy thereof. [3] I’ve previously written about the rules applicable to contractors – that post can be found here.  Interestingly, Comptroller Rule 3.291 (which lays out the tax responsibilities of contractors) notes that in these cases, a contractor must issue a “properly completed exemption certificate or other acceptable documentation” to the service provider, but no such requirement exists in the Tax Code itself.

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How Practical Is Artificial Intelligence For Sales Tax? The Future of Sales Tax In The United States

The world of taxation is evolving rapidly, and artificial intelligence (AI) is playing a significant role in this transformation. AI is poised to make a substantial impact in the sales tax field. In the United States, sales tax has long been a complex, data-intensive, and ever-changing landscape for businesses and consumers alike. AI is affecting the way sales tax is collected, managed, and enforced, which will have practical implications for the future of businesses operating in the U.S. Here’s how… 

1. Enhanced Accuracy And Efficiency 

One of the most immediate benefits of AI in sales tax is the improved accuracy and efficiency it brings to the record-keeping tasks. Traditional manual methods of pulling recordings and searching for small details are time consuming and prone to errors, which can result in costly audits and penalties for businesses. AI-powered software can automate the process of pulling information from documents such as invoices and exemption certificates to streamline and speed up time-consuming record keeping tasks and pulling records for audits. This can also reduce the likelihood of errors and ensure that businesses are in compliance with sales tax regulations. But as always, we recommend that you double-check your work! 

 2. Assisting In Research  

So much of our time working in sales tax ends up being spent on research. Whether that is determining sales tax rates, economic nexus thresholds, taxability of different types of items, or one of the many other details relevant to staying compliant. AI can be helpful in this process! AI is best used to get leads in researching the taxability rules of different items. If you begin selling a new product in a new state, AI can set you in the right direction. Then you can continue your research built on that foundation. Think of AI as a guide that can set you in the right direction but does not complete the full journey for you.  

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Texas Taxes For Sales Of Alcoholic Beverages

In Texas, sales of alcoholic beverages can give rise to two types of taxes: Mixed Beverage Gross Receipts Tax, and Mixed Beverage Sales Tax.  There are several complexities in how these are computed and how they interact with other state taxes, including the normal Sales and Use Tax.  Additionally, the Comptroller’s audit methodology for these taxes often creates problems for taxpayers.  Below is a brief summary of these taxes and some of the more prevalent issues they present.

Mixed Beverage Gross Receipts Tax

 Texas Tax Code § 183.021 provides that a 6.7% tax is imposed on “the gross receipts of a permittee received from the sale, preparation, or service of mixed beverages or from the sale, preparation, or service of ice or nonalcoholic beverages that are sold, prepared, or served for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee.” [1]

In turn, the term “mixed beverage” is defined to mean:

“One or more servings of a beverage composed in whole or part of an alcoholic beverage in a sealed or unsealed container of any legal size for consumption on the premises where served or sold by the holder of a mixed beverage permit, the holder of certain nonprofit entity temporary event permits, the holder of a private club registration permit, or the holder of certain retailer late hours certificates.” [2]

This generally includes three primary categories of drinks: liquor (including mixed drinks), beer, and wine.

As noted, the 6.7% tax applies to the “gross receipts” of a permittee.  This term is not defined by statute or by regulation, but the Comptroller’s regulations do provide some insight by stating “[t]he tax may not be separately charged to or paid for by the customer and cannot be considered included in the gross receipts amount.” [3] This language suggests the amount must be computed as 6.7% of the total amount charged to the customer, and must be paid separately by the permittee to the Comptroller.

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Understanding Nexus Sales Tax Compliance

How do you know when you should collect sales tax? Do I have to collect sales taxes in states where I don’t have a physical presence? What is nexus, physical nexus, and economic nexus? In the wake of South Dakota v. Wayfair, the landscape for sales & use tax compliance has become more complex. A member of our team adapted our partner Avalara’s recent Understanding Where, When and Why Your Business has a Sales Tax Obligation webinar to give this quick guide to nexus compliance:

What’s Nexus? Starting With: Physical Nexus

A business is required to collect and remit sales taxes once the business has established nexus for sales taxes in a state. Prior to South Dakota v. Wayfair, physical presence (like buildings, facilities, or employees) in a state was the sole marker for sales tax obligations. Physical nexus is still important, and you can most easily think of physical nexus as anywhere your business has employees (including those “working from home”), buildings (including your home if you don’t have a formal office), or 1099 contractors that act in a sales/marketing role. While economic nexus, which we’ll discuss in a second, is important and more complicated, do not ignore where you have physical nexus! These states’ physical nexus compliance will require you to register and remit sales and use taxes.

Pro Tip: Travelling into a state for a conference where you’re making sales or soliciting customers can trigger physical nexus. This issue can be more complex as the size of the business gained, time spent in the state, and other factors can change whether we’d recommend registering, collecting, and remitting tax.

So, What Changed? Introducing: Economic Nexus

After South Dakota v. Wayfair, the Supreme Court made it legal for states to require businesses to collect and remit sales taxes if the business has enough of an economic presence in the state. While economic nexus compliance can be more complex, you can think of it most simply as the sales made based on the “ship to” address on your invoices. If you’re in IL and shipping candles to a customer in IA, you may have sufficient economic presence in IA to need to register for sales and use taxes and then to collect and remit those taxes. However, your business does not automatically trigger economic nexus by selling goods or services into a state. States have varying nexus compliance thresholds for how much economic activity triggers economic nexus. While the thresholds vary by state, many states have hovered around a common threshold of either 200 invoiced transactions or $100k in sales, whichever is hit first. More populous states like NY, CA, and TX have higher thresholds, but the 200 transactions/$100k rule is a good gut-check to see if your business is close enough to worry about triggering economic nexus. If you feel like you’re triggering nexus, have triggered nexus, or will do so this year, we’d recommend contacting one of our sales & use tax experts.
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Calculating And Collecting Sales Tax For Direct Sales: Best Practices

In the realm of direct sales, maintaining adherence to sales tax rules is paramount for the prosperity and expansion of your business. As a diligent business owner or manager, your primary objectives revolve around boosting sales, optimizing profits, and delivering exceptional products or services to your valued customers. And so, grappling with the intricacies of sales tax can prove to be a formidable task.

In this article, we’re going to explore some handy strategies for calculating and collecting sales tax accurately in direct sales. We’ll dive into the common challenges and pain points that many business owners or accounting professionals like you often come across.

So, let’s get started and make this sales tax thing a little less daunting!

Understanding Sales Tax for Direct Sales
Sales tax plays a crucial role in direct sales and should not be overlooked. It is a type of consumption tax that is imposed on the sale of goods or services, typically collected by the seller and then remitted to the relevant tax authorities. To ensure compliance and accuracy, it is important to have a clear understanding of the different sales tax rates and how they apply to direct sales.

Sales tax rates can vary depending on the jurisdiction and can be influenced by factors such as the location of the sale, and the type of product or service being sold. Each jurisdiction may have its own tax rates, which could include state, county, and city taxes. It is crucial to be aware of the specific tax rates that apply to your business operations.

Calculating Sales Tax for Direct Sales
Accurate calculation of sales tax is crucial to ensure compliance with tax regulations. Here is a step-by-step guide to help you calculate sales tax correctly:
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Five States Without Sales Tax And Everything You Need To Know

What is Sales Tax?

If you are a business owner, manager or decision-maker, it is in your interest to understand the nuances of your state’s sales tax laws (or lack thereof). Sales tax is often referenced in mainstream media yet rarely explained. Nearly every state collects sales tax, typically between 4% and 10%.

The purpose of collecting sales tax is to generate revenue for government services. However, the fact that five states do not collect sales tax presents an opportunity for those living in and near those jurisdictions to buy items and services without paying a penny in sales tax. However, those who buy products and services in states that collect sales tax pay at the point of sale. The retailer then passes on the collected sales tax dollars to the state government.

Which States Don’t Have Sales Tax?

If you detest the idea of paying sales tax to the government for simply purchasing goods and services, you are not alone. Those who live in the vicinity of the five states that sell items/services tax free and plan on spending a significant amount of money, should recognize that it is in their interest to consider making a shopping trip to a sales tax-free state.

The states with no sales tax are as follows:




-New Hampshire


Below, we provide an in-depth look at each of these states with no sales tax.
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Non-Fungible Tokens

As the 2021/2022 fiscal year ended on June 30, many states implemented sales tax legislation reforms. In this blog article, we share a few standout updates you should know about.

Washington State Department of Revenue & NFT Sales Tax

NFTs, or non-fungible tokens, have been around since 2014, but started gaining momentum in 2021 and have only risen in popularity since. As you can imagine, this has created some sales tax confusion.

Washington state is one of the few states to tackle the taxiblity of NFTs, and on July 1, 2022, the Washington State Department of Revenue published an interim statement on how sales tax applies to NFTs. The statement is “intended to provide general information related to the taxability of certain transactions involving NFTs and does not intend to address any exemptions, exclusions, deductions, credits or other incentives that may apply.” The interim statement functionally defines NFTs as a digital code.

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Wayfair Laws

It’s been nearly three years, but the Wayfair decision is still impacting businesses in unexpected ways.

For an in-depth overview of South Dakota v. Wayfair (2018) and its impact on states and retailers alike, please click here.

As a result of the decision in that case, almost every state with a general sales tax has implemented what many in the business refer to as ‘Wayfair laws.’ More specifically, economic nexus and marketplace facilitation legislation.

The speed at which these laws were implemented by states eager for additional sources of tax revenue meant that interactions between Wayfair legislation and other laws may not have been fully considered or understood at the time. Even now, as the last holdout states finally join the rest by implementing their own Wayfair laws, businesses are still feeling the effects in areas other than just online sales tax.

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How Will The Pandemic Impact Sales Taxes In The Long Run?

As states across the nation continue to struggle with immediate concerns related to the pandemic, lawmakers are turning their sights to the future and looking for ways to make up the massive budget shortfalls brought on by COVID-19.

One potential avenue is sales tax. There are a variety of ways that legislators could change or implement sales taxes to increase revenue. In the following article, we’ll examine these and other long-term changes that we may see over the coming months and years as a result of the pandemic.

Economic Nexus Legislation

For a breakdown of economic nexus and the impact it has had over the last two years,  please click here.

An ongoing theme of the pandemic has found states with robust economic nexus legislation faring (at least slightly) better than those without. While over 40 states have now enacted economic nexus laws, there are still two states with a general sales tax that have yet to do so: Florida and Missouri.

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Monika Miles: States Sales Tax Reliance

Have you ever gone to the store, bought something, looked at your receipt and said to yourself, “This item only cost $25, why did I pay $28 for it?” Well $3 was due to sales tax, which many people STILL fail to mentally figure in before going to the register. You may gasp and think to yourself, “Gosh, this amount is really high.” Well you were probably in a state that relies heavily on sales tax for revenue.

According to a study by the Tax Foundation in 2017, sales tax is the second largest source of state and local tax revenue behind property taxes .

Most states have a layered system of sales tax, which includes a state portion, a county portion, and then local sales taxes. Eight states administer a sales tax only at the state level, but not the local level: Connecticut, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan and Rhode Island. And of the 50 United States, there are 5 which do not levy a state sales tax at all: the “NOMAD” states of New Hampshire, Oregon, Montana, Alaska and Delaware. Note that Alaska does allow local sales tax to be levied.

In this article, we explore various states and how their sales tax rates compare. We also take a look at which states are most dependent on sales tax revenue. As many states are beginning to take stock of the toll the Covid-19 pandemic is taking in terms of sheer dollar cost at the state and local levels, it’s an interesting time to consider where funding is going to come from.
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Professor Annette Nellen

The sales tax, used by almost all states, is a consumption tax. Generally, consumption is what the final consumer does. For example, a company manufactures paper, a greeting card company purchases some of that paper to make greeting cards and sells them to the final consumer or to a distributor who sells them to the final consumer. As the paper or cards move through this supply chain, a sales tax exemption for items purchased for resale prevents sales tax from being charged. The final consumer is the only one who pays sales tax when the card is purchased (reaches the end of the supply chain).

Supply chains and tax systems are not always this “simple” though because not everything a business buys is directly for resale. A recent case in Kansas found that electricity purchased by Southwestern Bell Telephone, Co. LLC (No. 120,167 (2020)) to help in the delivery of telecommunications services was exempt from sales tax because it was used in this production. A lot of time and effort though went into the determination of whether Southwestern Bell owed sales tax.
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