HOSPITALITY: Food delivery ‘marketplace facilitators’ may complicate restaurants’ sales tax collection
“Marketplace facilitators” are entities that work with other businesses to promote or sell their tangible and digital goods or services, such as through an online platform or a mobile app. As these types of business services have grown in popularity, more and more states have enacted laws that require the facilitator to collect and remit sales tax on sales conducted on sellers’ behalf, if they exceed certain thresholds.
Food delivery service companies may meet the classification of “marketplace facilitator” if they coordinate sales through their platforms for restaurants and other sellers, and so both these service companies and the sellers they work with should be mindful of these laws and their tax implications. Some delivery service companies, such as DoorDash, GrubHub, and Uber Eats, are already collecting and remitting sales tax on menu items in certain states.
What does this mean?
It’s important for restaurants to know that sales, any collected state sales tax, and certain locally administered taxes may already be being reported to the taxing authority by the food delivery service company. Restaurants may very well be double-paying taxes and/or overstating their sales on their sales tax returns depending how they are extracting data from their point of sale systems.
On the other hand, restaurants may be responsible for remitting certain local taxes even if the state taxes are remitted by the delivery company.
Marketplace facilitator food delivery companies began collecting sales tax as early as July 2019 and are currently collecting sales tax in over 30 states. Below are some of the states for which marketplace facilitators have said they are collecting sales tax on delivery orders; however, there are variations by company, so check with your provider and be aware of your state’s laws.
- Illinois (beginning 1/1/21)
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
Considerations for planning
To best prevent unexpected future tax liability, penalties, or other concerns, restaurants should review their delivery service partners’ data reports to determine where they are collecting and remitting tax. Furthermore, it will be important for restaurants to determine how their POS system is capturing sales from these food delivery service companies in order to distinguish which sales need to be included on their return or, conversely, which should be excluded to ensure they are not paying sales tax on these transactions.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Coronavirus Resource Center
InsightAccounting for non-public franchisors’ pre-opening services: An overviewCindy McLoughlin, Monica PebordeASU 2021-02 is intended to simplify certain aspects of identifying performance obligation in revenue recognition, but other aspects of Topic 606 still apply.
InsightPrepare to apply quickly for New York’s Restaurant Return-to-Work Tax Credit programYelena Belaks, Stan SolomonRead which businesses are eligible, how and when to apply, and other key information for New York businesses impacted by COVID-19.
InsightCapital Markets Insights – June 2021Explore timely insights for fund managers, investment teams, and portfolio executives. This issue features topics that include infrastructure, SPACs, and hospitality value creation.
InsightHospitality Quarterly: Strategic insights for transforming your businessCindy McLoughlin, Stephen ManciniOur Q2 2021 report explores data strategy, ERP, opportunistic acquisitions, maximizing transaction value, SPACs, and more. Find current and past issues on this page.