Product Taxability Sales Tax 101

A Spicy Sales Tax Landscape

by Kristen Cooper

california food tax

The food and beverage industry is changing rapidly, and as your business grows, so do your sales tax responsibilities. How do you keep up with how items are taxed differently within and between states? Do you need to charge sales tax? Are you charging the correct rate?

Food sales tax gets quirky

Food and beverage sales tax is not as straightforward as you’d hope, but what makes it so complex? Typically when you think about product taxability, you think about items being either fully taxable or fully exempt. But that’s not always the case with food and beverage items. Oftentimes you will actually see alternate rates at the state and local level, and this happens far more frequently with food and beverage items that you might generally see in other categories. Why would states do that? Many states offer lower taxes on necessities such as food or clothing to give people a break. 

There can also be a level of granularity or nuance depending on variations of a particular food or beverage item. Take Washington, DC as an example. DC has a regular sales tax rate of 6%, but have decided that they’ll charge a 8% sales tax rate on soft drinks, 10% on food for immediate consumption and 10.25% on alcoholic beverages. Soft drinks can also get even more nuanced – is it carbonated or not carbonated? What level of fruit juice does it contain?

You will often also see non-uniformity between state and local sales tax. Typically if a state decides that an item is exempt, it’s also exempt down at the local level. But that’s not always the case and you’ll often see that happen in Arizona, Colorado, Georgia, Louisiana, North Carolina, South Carolina and Virginia.

How do you comply?

Here’s a basic blueprint of the top items you’ll need to consider.

  1. Determine where you have liability and register in those states. To stay on top of where you have liability and therefore have to collect and remit taxes, you’ll need to understand where you have and where you are approaching economic nexus thresholds.
  2. Charge the correct rates. Establish rate tables and do your product taxability research, understand jurisdictional boundaries and where those rates apply, and keep up with any changes.
  3. Aggregate your sales channels. Make sure you’re compiling sales data from every sales channel and be aware of marketplace facilitator laws by state to properly collect and remit taxes.
  4. File your returns. In the states where you’re registered, be sure to know your due dates, submit your returns and remit any payments necessary. 

Where can I find out more?

Whether you’re managing a specialty food service, a purveyor of fine grocery items, or a restaurant chain crushing takeout orders, managing sales tax should be the last thing you’re worrying about.  Check out the OnDemand Keeping Up With Sales Tax webinar for more information on what’s taxable, how to comply with sales tax and reduce risk and what you should look for in a solution.

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