Since the pandemic, the restaurant industry has evolved considerably — with many owners adopting third-party marketplace delivery platforms, offering customer favored convenience and becoming a key revenue source for many establishments.
However, coupled with the ever-changing sales tax environment stemming from the Wayfair decision and state’s implementations of Marketplace Facilitator rules, many restaurant operators have faced new challenges and questions related to sales tax reporting guidelines. Specifically, numerous restaurants have experienced significant overpayments of sales tax as a result of utilizing third-party marketplace delivery platforms such as DoorDash, Grubhub, Postmates and UberEats.
Double Reporting Sales Taxes
It is widely recognized that restaurants can benefit greatly from using third-party delivery services. While this partnership can generate a larger footprint and increase overall revenue, restaurants should be aware of the potential to double-report sales taxes on sales stemming from the third-party marketplace platforms.
In recent years, many states have adopted marketplace facilitator rules that require online platforms to remit sales tax on sales stemming from third-party sellers. These laws aim to ensure accurate collection of taxes while creating a level playing field between brick-and-mortar businesses and e-commerce platforms. However, restaurants using third-party marketplace platforms are still responsible for remitting sales tax on their own in-house sales, and when it comes to monthly sales tax reporting, confusion on what to report can occur as many restaurant’s POS systems are not configured to distinguish between in-house versus marketplace platform sales.
Oftentimes, this can lead to double reporting of sales tax that has also been reported by the marketplace seller. Provided here is a basic scenario that has been observed in the restaurant industry. When a customer places a restaurant order via a third-party platform such as UberEats, UberEats will now collect and remit the sales tax on behalf of the restaurant. However, when the UberEats sale runs through the restaurant’s ordering system, the sale is typically not flagged as a third-party sale and is mistakenly added to monthly sales reports used to create the restaurant’s own monthly sales tax returns, resulting in double reporting of the sales tax to the state.
This overpayment, which may date back to the initial adoption of the third-party marketplace platform, can create a significant cash flow issue for the restaurant that will only stop occurring when and if the sales report is reconciled against the third-party marketplace sales reports.
Restaurants of Any Size Can Be Impacted
Any restaurant using third-party platforms may be at risk of double-reporting sales taxes, as these apps often operate as marketplace facilitators − collecting, tracking and remitting taxes on behalf of the restaurants.
Double Reporting Is Not Limited to Restaurants
Double reporting extends beyond the restaurant industry and affects all businesses that work with third-party marketplaces to sell goods. In such cases, the marketplace facilitator is responsible for collecting and remitting sales taxes to the state. Individual businesses may still be required to file their tax returns and report their taxable sales, thus creating confusion and additional work for businesses, especially those that operate in multiple states with different tax laws. It is important for businesses to stay informed of the tax laws in their state and work with a knowledgeable accountant or tax advisor to ensure that they are properly reporting and remitting sales taxes.
Let Us Be Your Guide
Working with a skilled team of professionals can help identify and remedy any potential errors related to the sales tax compliance function. Cherry Bekaert’s Sales & Use Tax team can review sales tax compliance procedures to make sure you are not losing unnecessary money to the government when remitting your taxes. Additionally, Cherry Bekaert’s team can work with your business and state taxing authorities to recoup historical overpayments. By taking this proactive measure, businesses can prevent noncompliance and ensure accurate reporting.
