Running a restaurant means balancing food safety and hygiene requirements, customer service, overbooked holidays, and the complex laws regarding state taxes. But it also means handling lots of sales tax. Georgia sales tax laws are complicated, and different parts of a restaurant’s sales may be taxed differently.
The Department of Revenue may target restaurants for sales tax audits at high rates due to the volume of cash transactions they handle, the overall volume of transactions they have, and inconsistencies in their reports. That’s why, as a restaurant owner, it’s important that you understand what the DOR expects of you, what is and is not taxable, and what to do if you find errors.
Key Takeaways
- The majority of food and beverage sales by restaurants in Georgia are taxable.
- Common sales tax mistakes include those surrounding delivery fees, POS misconfigurations, and mandatory gratuities vs. voluntary tips.
- Failing to correctly collect or remit sales tax may lead to audits, penalties, and personal liability.
- Being proactive about your sales tax issue may allow you to seek resolution via the Voluntary Disclosure Agreement program, a payment plan, or another relief method.
The Basics of Georgia Restaurant Sales Tax
The base sales tax rate in Georgia is 4%, but jurisdictions throughout the state often charge their own local sales tax on top of that. For example, in Atlanta, the sales tax rate is 8.9%. In all other parts of DeKalb County, the sales tax rate is 8%.
In general, most sales made in a restaurant are considered taxable at the state and local level. Prepared food, per state law, is subject to state and local sales tax. This includes any food sold in a heated state or heated by the seller at their own location, food with two or more food ingredients combined at the seller’s location and sold as a single item, and food sold with eating utensils provided by the seller.
This gets complicated quickly, because some sales are subject to state tax but not local tax. For example, consider a food service restaurant that sells single-serving bottled beverages. These are not prepared at the seller’s location, and they are not served with utensils, so they are not taxed at the state level but may be taxed at the local level.
Food and food ingredients sold for consumption off-premises are typically subject to local sales and use tax, but not state tax. With such specific limitations, it becomes very easy for restaurants to accidentally collect or not collect tax when they should do the opposite. For example, a bag of chips sold for off-premises consumption would typically not be taxed at the state level, but if it were sold for on-premises consumption, it would be subject to state sales and use tax.
The law goes into further detail regarding employee meals, which are taxed on the sales priced charged to the employee; gratuities, which are taxable when negotiated ahead of time and added to the bill unilaterally but not taxable when given freely; purchases made by restaurants, which have varying taxation rules; and extra merchandise like t-shirts and branded goods, which is typically taxable.
How and When Restaurants Pay Sales Tax
Restaurants are required to remit sales and use tax on an annual, quarterly, or monthly schedule, based on their sales volume. The majority of taxpayers must remit sales tax on a monthly basis, but they may be able to change their filing frequency with a written request to the Department of Revenue.
You must file the return and pay the associated tax bill no later than the 20th of the month following the month in which the tax was collected. So if you pay monthly, you would need to pay all collected sales tax from January 2025, no later than February 20, 2025.
The Georgia Department of Revenue requires businesses to file sales tax returns and pay sales tax electronically if they owe more than $500 on any given return. In many cases, even if the amount owed is less than $500, you still have to file and pay online. In most cases, payments must be made via electronic funds transfer on the Georgia Tax Center. Taxpayers who aren’t required to pay via electronic funds transfer may pay via ACH debit.
It’s important to note that sales tax returns must be filed even if a restaurant does not have any sales to report or any tax due.
Errors to Avoid as a Restaurant Owner
Basic sales tax rates and schedules may seem straightforward when you’re getting started, but it’s easy to make small mistakes that lead to audits, penalties, and tax bills that can be prohibitively expensive for a small business. Watch out for these common mistakes:
- Forgetting delivery and service fees: Delivery and services fees are taxable, but failing to collect tax on that part of a transaction could leave you on the hook for money you never actually collected.
- Double taxation and redundant reporting: Miscommunication between your sales platform and your reporting platform can result in you paying more sales tax than you owe.
- Improperly taxing tips and gratuities: Service fees and gratuities that the customer either agrees to prior to a sale or has no say in paying are typically taxable. If a tip is paid voluntarily, it is typically not taxable.
- Mixing tax-exempt and taxable goods in a transaction and not accounting for both: A POS system that cannot properly calculate and collect tax on exempt and taxable goods in the same transaction can result in restaurants collecting the wrong amount of sales tax and then overpaying or underpaying.
- Failing to check POS errors and rates: Blindly trusting your POS system can result in preventable errors. While each error on its own may only cost you a few cents, when that same error multiples itself thousands of times over the course of months, it can have a dramatic impact on your tax bill.
- Late filings and payments: Filing or paying late can result in avoidable penalties and make it harder for you to seek relief from tax debt in the future.
How to Maintain Restaurant Sales Tax Compliance in GA
Whether you are trying to bounce back from sales tax errors or you are being proactive about avoiding them, strong systems and internal audits can help you prevent expensive mistakes.
- Invest in a quality POS system – Use a POS system that is capable of segregating taxable and non-taxable items—and test it extensively before you rely on it for sales tax accuracy. Occasionally, checking up on how different purchases are categorized within the system can also help you avoid unintentional errors.
- Keep your exemption and resale certificates on hand for the duration of the DOR’s mandatory retention period.
- Track items used internally – If any items are used for internal use, document that so you can pay any necessary use tax. For example, you may need to pay use tax on food that was used to make employee meals.
- Schedule time to file and pay on time every single month. After several filings, you should have a better understanding of your regular tax burden, which can help you decide whether or not to request less-frequent filings.
- Use the Georgia Tax Center to verify that returns and payments are on time and that they match your own records.
Also, check on your processes – develop and follow internal controls and policies, including frequent internal audits to identify potential issues and errors. You may also use a third-party auditing service to look for blind spots in your own reporting.
Special Considerations
Because the restaurant industry includes so many different types of transactions and classifications, paying special attention to how purchases and transactions are categorized in your system can prevent errors. Issues to discuss with your tax professional include:
- Alcohol sales
- Gratuities, service charges, and voluntary tips
- Catering and events
- Coupons, complimentary meals, and employee meals
- Restaurants with locations in different counties or cities that may have different tax rates
Sales Tax Audits: When, Why, and How
If the Department of Revenue decides to audit you, it’s likely because there are discrepancies between your reports and other data they’ve received, your reports are drastically different from comparable restaurants, or they’ve been tipped off that transactions are not being reported.
The DOR will send you a notice informing you of their audit. If it’s a minor issue, they may request more information or receipts to resolve the problem and verify their own records. If it appears to be a larger issue or your receipts do not settle the issue, they may move forward with a more in-depth audit. The auditor assigned to your case will contact you to schedule a date and time for your first meeting.
During the first meeting, they will ask questions about your business, record-keeping system, and similar matters. Well-maintained records can make this step as short and pain-free as possible. The auditor will then examine your records in detail, looking for instances where services or goods weren’t taxed correctly.
After the audit, the DOR may or may not make adjustments to your sales tax returns. If they do make adjustments, you may owe them money, or you may be owed a refund. You will be notified by mail of the results of your audit.
Consequences of a Poor Sales Tax Audit
A sales tax audit that uncovers extensive errors and inaccuracies can wreak havoc on your business’s financial stability. You’ll likely owe the past-due amount that was incorrectly calculated and collected, as well as interest and penalties for the underpayment.
If the DOR has any reason to suspect that the underpayment was the result of fraud, the audit could even lead to potential criminal charges. Continued failure to pay could lead to loss of your alcohol license, sales tax certificate revocation, and personal liability.
You’ve Made a Sales Tax Error, or You’re Facing an Audit—Now What?
Whether you discovered your sales and use tax errors on your own or you’re the target of an audit, this is the time to reach out to a sales tax audit attorney to discuss your next steps. If you’ve made errors, you may be able to address them proactively to limit your financial losses and ensure future compliance. The DOR has a Voluntary Disclosure Agreement program that limits the lookback period and the amount you pay in penalties.
If you’re being audited, your tax attorney can review your documents, look for red flags, and handle negotiations with the DOR on your behalf. While an audit can be stressful, it does not have to mean the end of your business. With the assistance of a tax attorney, you can work through the process, overcome past errors, and lay the groundwork for future compliance.
If you believe your restaurant has not been paying correct sales and use tax or you’ve received an audit notice, the team at Wiggam Law is here to help. Call us at (404) 233-9800 or reach out online to schedule a consultation right away.
Frequently Asked Questions
Are takeout meals taxable in Georgia?
Takeout meals are generally taxable in the state of Georgia.
Is our 20% large party gratuity fee taxable?
Yes. Because this is a mandatory gratuity, it must be taxed. Voluntary tips are not taxable.
Do we need to collect tax on delivery and service charges?
Yes. This is considered a taxable purchase under Georgia tax law.
What is a Voluntary Disclosure Agreement?
Georgia’s VDA program allows taxpayers who have not filed or paid certain taxes to disclose their errors, have their penalties waived, and limit the amount of time they need to pay back taxes for.
Sources:
https://dor.georgia.gov/sales-tax-rates-general
https://www.law.cornell.edu/regulations/georgia/Ga-Comp-R-Regs-R-560-12-2-.115
https://dor.georgia.gov/taxes/tax-faqs-due-dates-and-other-resources/tax-due-dates
https://dor.georgia.gov/sales-use-tax-due-dates
https://dor.georgia.gov/taxes/business-taxes/sales-use-tax/file-pay
https://dor.georgia.gov/business-tax-audits
https://dor.georgia.gov/voluntary-disclosure-agreements
