A Word to Accountants Regarding Sales Tax in Restaurants
I take every opportunity to share with accountants and tax professionals my experiences from tax audits. Our tax return preparers and accounting professionals cannot be expected to know every detail about their clients. And so we share knowledge, best practices, and horror stories.
Many times those “counsel” sessions are not planned but occur during lunch or over a beer. We’ve found that a 5-10 minute with one of our tax lawyers often saves their clients thousands, even ten of thousands, every month.
Here are a few sales tax items that are overlooked:
Tips: Illinois has unfairly benefitted from a large portion of bars and restaurants paying taxes on its revenue receipts, which includes tip proceeds. I was not shocked to learn that many accountants never considered the tips that were recorded as taxable sales were actually not taxable. All tip proceeds belong to the servers, bartenders, and supporting staff. And they are not intended to be subject to sales tax. So please deduct tip proceeds from your taxable sales totals.
Delivery Service Sales: Depending on how the account is established with services such as Door Dash, Uber Eats, and Grubhub, these services must be collected, reported, and pay sales taxes that your clients are then duplicating on their Form ST-1 sales tax returns. It is a simple tweak for the accountant to review the food service’s monthly statements or reports and identify whether sales through those services are unknowingly (and unnecessarily) being paid twice.
Cash Sales: If Illinois suspects that a restaurant is failing to report its cash sales, then it will “impute” its own calculation for sales conducted in cash. Accountants should help their clients create a system in which the business can accurately account for its cash sales. Otherwise, the state of Illinois may increase the reported sales by 23% to 39%. Of course, that does not account for deductions like Tips and other items. Not only does this result in increased sales tax, but the business does not receive the business deduction for the payments it made in cash because there was no reliable record of the cash from the beginning. (Also, there is the whole thing about tax fraud and related tax violations. But that’s a different article.)
If you have a client that needs sales tax help, contact Tax Law Offices. We can help!