When you’re ready to expand your restaurant business across state lines, there are SALT restaurant accounting issues you need to be aware of. Managing SALT (state and local taxes) matters across state borders requires an understanding of the complexities of multistate taxes. Proper accounting of SALT can help restaurant owners avoid expensive mistakes.
Here are a few restaurant industry specific SALT restaurant accounting issues a restaurant owner should consider when doing business in multiple states.
If you have a physical location in a state, you’ll likely owe property taxes. Tracking each state’s due dates can be daunting. Not only do you need to track deadlines but also filing information with the counties your restaurant’s locations are in.
Property taxes are imposed by local governments, based on the value of each restaurant property. The taxes are usually assessed on January 1 of each year. Having an accounting system that includes due date reminders can help you meet your deadlines.
While property tax may not be the most discussed tax, it makes up approximately 38% of SALT revenue, which is larger than sales and income tax revenue combined.
Which property is taxed?
Property tax is assessed on both real and personal property. All 50 states allow local jurisdictions to tax real property, 38 states tax personal property and 11 states tax inventory.
Restaurant owners should be filing property tax returns on buildings, vehicles, furniture, machinery, supplies, etc. All individualized by state depending on restaurant location.
Confused by what property should be included on your tax return? Knowledgeable restaurant accountants can help you set up an accounting system that easily tracks property that needs to be reported.
There are several things to consider when diving into property tax. Removing ghost assets, valuation analyses, certain exemptions and depreciation methods all play a part. Even simple changes such as changing a capitalization policy threshold can affect the reporting of assists and can result in under/over reporting of assets.
A restaurant accounting specialist can help you stay current with property tax payments, and also help you maximize the various credits and deductions that can lower property value and save you money.
A restaurant accounting firm experienced with cost segregation studies can help your restaurant group find additional tax savings.
Economic Nexus is essentially the degree of activity your restaurant business has in a state before you’re subject to that state’s tax. You create economic nexus by doing business in the state and/or deriving restaurant income from within that state.
In general, nexus occurs when you have a physical or economic presence in a state. Nexus can also be established if your restaurant business is temporarily doing physical business in a state for a food show or tasting event.
Do restaurant expenses equal economic nexus?
Even if you don’t open a location in another state, you may be creating nexus by maintaining an inventory of supplies in another state, have goods sold online or have restaurant labor cost in that state.
You’re likely aware of the sales tax requirements you have if you have a restaurant in a certain state, but are you selling any of your food, sauce, t-shirts, etc. to customers in other states? If so, you’ll need to review your total sales to see if you reach any economic nexus thresholds.
Which brings us to Wayfair. This was the court decision that found a physical presence in a state was no longer the defining factor in establishing economic nexus. Each state has its own economic nexus statutes so it’s important to know each state’s thresholds.
Income + Business Taxes
Besides sales taxes, you may also have income and business tax requirements in the states you have restaurant locations.
It is true that a state cannot force you to pay income tax if you do not have a physical presence there (aka you only ship sales to that state). However, if you have remote employees, salespersons, go to seminars or fairs, make deliveries in your own trucks or incur restaurant costs in that state, you may be required to pay income and payroll taxes in that state.
Some states enforce taxes or fees other than, or in addition to, an income tax (i.e., CA’s LLC Fee, TX’s Franchise Tax and WA’s Business and Occupation Tax) which your restaurant business may still be subject to even if you never step foot in that state.
Escheatment/Unclaimed Property of Gift Cards
Gift cards are a great source of restaurant revenue. But did you know the rules of how to account for gift cards in your restaurant accounting process vary by state?
Be sure you’re in federal compliance with rules that apply to every state. Restaurant managers should know gift cards cannot expire before five years from date of purchase. Reloadable gift card funds need to be valid for five years from the date of the most recent reload.
Gift card fees
As a restaurant owner, you must disclose any fees on the card itself or associated packaging. In states that allow post-sale fees, these fees cannot be imposed until one year of inactivity and can only impose one post-sale fee per month.
While it may seem unimaginable to you to not redeem a gift card, many people stuff them in their wallets and promptly forget all about them, which presents you with a complicated accounting and state tax compliance issue.
Restaurant accounting software can take the headache out of tracking inventory and gift cards. A restaurant accounting firm can help you find the right restaurant accounting software for your unique needs. Reach out today.
Restaurant bookkeeping for gift cards
When it comes to restaurant bookkeeping for gift cards, your accounting method matters. If your restaurant uses the accrual basis of generally accepted accounting principles, you can either recognize the revenue in full at the time the gift card is purchased or defer recognition.
Restaurant owners can defer recognition of gift card sales as income only for a certain period, and only for unredeemed cards. That timing varies by state. Restaurant accounting software can help you stay on top of when unredeemed gift cards need to be reported.
Escheatment rules by state
Arizona – Gift cards and certificates never escheat to the state and are exempt from reporting requirements.
California – Generally, gift cards and certificates are exempt from reporting and escheat rules except for those with an expiration date. Those are presumed abandoned if left unclaimed for more than three years after purchase.
Colorado – Gift cards are subject to escheat rules once purchased and after five years of non-use. A gift certificate issued only on paper is not subject to these provisions.
Henry+Horne can provide your restaurant with current escheatment rules for all states you do business in. Contact your advisor today.
Third Party Delivery Apps
Not long after the decision in Wayfair gave states the ability to enact “economic nexus” laws, marketplace facilitator laws started to arise. Among the many third party delivery options, the well-known examples are Amazon, eBay and Etsy.
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.
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.
Is your restaurant business working with facilitators?
Thresholds exist for facilitators, just like they do for businesses under Wayfair economic nexus laws, and the amount or transaction thresholds typically mimic the economic nexus laws. To make matters more confusing, some states have caveats that exclude restaurants and food sales from marketplace facilitator laws.
Do marketplace facilitator laws apply to your restaurant operations in certain states? Reach out to an experienced restaurant accounting firm to learn more.
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 each state.
Why work with Henry+Horne
Working with an experienced restaurant CPA can take the worry out of SALT. Henry+Horne offers you an integrated team providing tax, accounting, and advisory services with a trained eye for the unique needs of restaurants.
Our restaurant specialists are available to work with you no matter where you’re established or how many locations and jurisdictions your restaurant group covers.
Interested in learning more? Contact Henry+Horne’s SALT department today.
Brian Ess, J.D.