There is no tax on non-reusable items (paper napkins, plastic eating utensils, soda straws, and french fry bags, for example) given to customers as part of their meals. Restaurant owners can purchase these items tax free by issuing a resale certificate.
Kitchen processing equipment, excluding hand tools, used to prepare food or beverages for sale is not taxable. Qualifying equipment includes:
Repair labor and replacement parts for exempt processing equipment are also exempt, provided the equipment has not been incorporated into realty. If the equipment has been incorporated into realty, charges for labor are taxable, but charges for parts will be exempt provided they are separately stated on the invoice. If the parts charges are not separately stated, however, the restaurant owner can still provide documentation (purchase invoices, bid sheets, or schedules of values) supporting the exemption.
Rentals and leases of qualifying processing equipment are exempt if the contractual rental or lease term is for at least one year. Equipment rentals and leases for less than one year are taxable.
An exemption applies to items necessary to comply with regulatory requirements for public health or pollution control. Hairnets, gloves, and other work clothing required by law and worn during food preparation, for example, qualify for exemption, as do disinfectants applied in processing areas. There is no exemption, however, for employee uniforms or for work apparel sold to employees.
To claim an exemption, a purchaser must issue an exemption certificate to the seller.
Tax is due on most equipment and services used to operate the restaurant: tables, chairs, trays, glasses, dishes, serving utensils, reusable menus and placemats, silverware, tablecloths, and cloth napkins.
Also taxable are items such as office equipment, trash compactors, waste disposal systems and dishwashers, as well as equipment used to store or maintain ingredients or completed food. Examples include soup warmers, steam tables, heat lamps, and salad bars. Hand tools such as manual egg beaters, ladles, knives, garlic presses, and other similar utensils are taxable.
Tax is due on natural gas and electricity used to prepare food and operate the restaurant, and on services for pest control, security, janitorial cleaning, waste removal, landscaping, and real property repair and remodeling.
Use tax is due on taxable goods or services bought from an out-of-state seller. If the seller does not collect the use tax, the buyer should report and pay the tax on the next sales tax return.
For more information about the taxability of specific items, email us at Tax Help.
Ready-to-eat food is typically taxable even when it is sold “to go.” Tax is not due, however, on bakery items (regardless of size, whether whole pies, for example, or individual portions) when sold without plates or eating utensils.
While complimentary meals and drinks are not taxable, tax is due on the taxable ingredients used in their preparation. For example, the raw meat and vegetables used to prepare a complimentary meal are not taxable, but a restaurant should accrue tax on soft drinks and other taxable items that are given away.
When two meals sell for the price of one, tax is due only on the amount actually charged the customer. The “free” meal is not taxable.
Tax is not due on the sale of a gift card or gift certificate. The tax is to be computed on the sales price of the meal and collected at the time the gift certificate is redeemed.
A coupon for a meal should be treated as a discount, as long as the restaurant owner receives no reimbursement for the amount of the discount. For instance, if a restaurant owner places a $5 coupon in a newspaper ad and redeems the coupon toward the price of a $15 meal, then tax should be charged on $10 only.
No tax is due on any voluntary gratuity that the customer pays in addition to the price of the meal. No tax is due on a mandatory gratuity of 20 percent or less, provided it is separately and clearly labeled “tip” or “gratuity” on the customer’s bill and distributed only to employees who regularly provide the service. Mandatory gratuities exceeding 20 percent are taxable.
Meals furnished to restaurant employees immediately prior to, during, or immediately after a work shift are not taxable, if the meals are provided for the convenience of the restaurant owner and the employees are involved in preparing or serving food.
The purchase of a meal with a Lone Star Card is not taxable if the meal is permitted by law to be purchased with food coupons (including a Texas Lone Star debit card) under the food stamp program (7 U.S.C. Chapter 51).