The Side Dish

Finance to Table Education for Operating Your Restaurant

Food delivery businesses and sales tax issues

Not long after the decision in Wayfair gave states the ability to enact “economic nexus” laws, marketplace facilitator laws started to rise. Generally, a “marketplace facilitator” is a business that has a marketplace and contracts with third-party sellers to promote the sale of certain tangible property, digital goods and services through the marketplace. The well-known examples are Amazon, eBay and Etsy. These laws offer a more convenient and effective way of collecting sales tax for each state by shifting the burden of sales tax from many smaller businesses or individuals to fewer larger businesses. As a result, food delivery businesses such as Grubhub, UberEats and DoorDash may be classified as a marketplace facilitator for third-party sales facilitated through their platforms and mobile apps.

Don’t miss: Experienced an operating loss? Consider impairments of long lived assets.

Marketplace Facilitators

Marketplace facilitator laws shift the sales tax collection and remittance obligations from a third-party seller like restaurants, to the marketplace facilitator. If the food delivery business is classified as a marketplace facilitator, they are responsible for calculating, collecting and remitting tax on all restaurant transactions made through their platforms in states where marketplace facilitator legislation is enacted.

Of the 45 states and D.C. that collect sales tax, only Kansas, Missouri and Florida do not have marketplace facilitator laws. Thresholds exist for facilitators, just like they do for businesses under Wayfair economic nexus laws, and the amounts or transactions thresholds typically mimic the economic nexus laws. To make matters more difficult to follow, some states have caveats that exclude restaurants and food sales from marketplace facilitator laws. Google the businesses name with the words “marketplace facilitator” after it, and it should provide a result that takes you to the company’s website showing where and when they started collecting and remitting sales tax in a given state. Notably, Grubhub does not collect in any state. While this is a good reference starting point, restaurants should consult directly with their delivery businesses to ensure the proper party is collecting and remitting applicable sales taxes.

Arizona and Colorado

Arizona’s marketplace facilitator laws were updated on October 1, 2019, with a threshold of $100,000. However, food delivery businesses are only considered a facilitator for delivery of grocery and convenience products in Arizona. UberEats is registered in Arizona to collect and remit, while DoorDash and GrubHub are not.

Colorado’s marketplace facilitator laws were enacted on October 1, 2019 and all facilitators with a physical presence or surpassing the $100,000 economic nexus threshold must collect and remit sales or use tax on all sales to Colorado consumers made through the marketplace. Colorado has a non-collecting seller use tax reporting law, however. This means a facilitator can opt out of the facilitator law if they provide the state with information about their sellers through their marketplace. Neither UberEats, DoorDash or GrubHub are registered to collect sales tax in Colorado.

Considerations

In order to avoid double taxation, it is critical that owners work with the person responsible for preparing their sales tax returns to separate out the sales tax already remitted by food delivery businesses from the total sales tax owed for the month. It is important for owners and operators to understand that the way restaurants calculate sales tax on orders will not change. However, it will affect how their sales tax returns are prepared. Businesses may not opt-out of these marketplace facilitator arrangements since the facilitator is legal required to collect and remit the sales tax.

Consult with a tax advisor that has experience handling sales tax issues to make sure your business stays compliant. For any questions or concerns, please contact your Henry+Horne advisor.

Brian Ess

Get in on the conversation.

Unfortunately, we cannot give free advice to non-clients by email, comment response, or phone call. Thank you! Read our disclaimer.