Sales tax on restaurant bills in the United States

Before you read

This guide is general information, not tax advice. Sales tax rules differ from state to state and change over time; each statement below links to the state's own page and the day we read it. Check your own rates and rules with your state's revenue department or your accountant.

Why there is no single answer

In the United States, sales tax rules are set state by state, and a local rate can come on top of the state's. Texas is a clear example: the state rate is 6.25 percent, and local taxing jurisdictions (cities, counties, special purpose districts and transit authorities) can add up to 2 percent, for a maximum combined rate of 8.25 percent.^[1] Two restaurants in the same state can charge different totals simply because of where they stand.

So the first job is to find the combined rate for your address — the state part, plus any county, city and district parts — from your state's revenue department.

Meals eaten at the restaurant

Food served to eat on the premises is taxable in the states we looked at.

• California: sales of food and beverages for customers to eat in the restaurant are always taxable, and sales of hot food are usually taxable whether sold to go or eaten at the restaurant.^[2]
• New York: food or drink sold for on-premises consumption is taxable, whether it is sold hot or cold.^[3]
• Texas: ready-to-eat food is typically taxable even when it is sold to go.^[4]

Food to go

To-go food is where the states differ most. In California, sales of cold food products sold individually to go are usually not taxable, but putting hot food or a hot drink in a combination package makes the whole package taxable.^[5] In Texas, as above, ready-to-eat food is typically taxable even to go.

If your state treats some to-go items differently, your POS needs to charge a different rate on the same dish depending on whether it is eaten in or taken away. Keep a list of those items and test a few bills before you open.

Tips, gratuities and service charges

Whether a tip is taxed usually depends on whether the guest chose to pay it.

• California: an optional tip, gratuity or service charge is not taxable; a tip is generally optional when the customer adds it to the bill or leaves it in addition to the amount due, while a mandatory one is included in taxable gross receipts, even if it is later paid to employees.^[6] A charge is mandatory when menus or printed materials say a tip or service charge will or may be added (for example, to parties of 8 or more), and an amount the business adds as a tip to the bill it presents is presumed mandatory.^[7]
• New York: a mandatory gratuity is not taxable only if it is shown separately on the bill, labelled as a gratuity, and the whole amount goes to employees; service charges not specifically listed as gratuities are taxable; tips a customer chooses to leave are not.^[8]
• Texas: no tax is due on a voluntary gratuity, nor on a mandatory gratuity of 20 percent or less that is separately and clearly labelled as a tip or gratuity and given only to the employees who regularly provide the service; mandatory gratuities over 20 percent are taxable.^[9]

The pattern is the same in all three: a tip the guest freely adds is not taxed; a charge the restaurant adds may be, depending on how it is labelled and who keeps it. Name your charges carefully on the bill and the menu. Our guide to service charges and tips compares this with other countries.

What a clear bill shows

Whatever your state, guests and auditors both read the same few lines:

• the dishes and their prices;
• any discount;
• the sales tax, by its parts if you want to show them (state, county, city);
• any service charge, named as what it is, and any tax on it;
• the total, then any tip the guest added.

Setting it up in BillDine

BillDine does not decide your rate for you — in the US you type it, because it depends on your address. What it does:

• Your rates per outlet. In Settings → Billing rules → Taxes, under Ready-made taxes, type the State (%), County (%), City (%) and any District (%) rates for the outlet and click Add these taxes. BillDine makes one sales tax from those parts and sets it as that outlet's default. Each part shows by its name and rate on the bill.
• Tax added on top. A new US outlet adds tax on top of menu prices, as US menus usually read.
• A different rate to go. A dish can have its own Takeaway & delivery tax, so an item your state treats differently to go is billed at that rate on takeaway and delivery orders.
• Tips the guest chooses. In Settings → Billing rules → Payments, Enable Tips at checkout offers suggested tips (15, 18 and 20% in the US) and a largest tip you set.
• A service charge only if you set one. Add it under Settings → Billing rules → Charges with its own tax group, or no tax; staff can take it off a single bill.
• Your tax number. BillDine checks your EIN in its usual form and can print it on the bill.
• For filing. The tax report shows the tax your bills charged by part and rate for any period, and every report exports as CSV or PDF for your accountant. See reports.

A short checklist

1. Look up the combined rate for each outlet's address: state, county, city and district.
2. List the dishes your state taxes differently when taken away, and give them their own takeaway rate.
3. Decide whether you add any service charge or automatic gratuity, how you label it, and who receives it — then check how your state taxes it.
4. Print a test bill for dine-in, takeaway and a large party, and read every line.
5. Keep the tax report for each filing period.