As a restaurant owner during COVID-19, you are probably relying heavily on 3rd party apps (3PAs) such as Grubhub, DoorDash, and Uber Eats. With delivery likely being the vast bulk or possibly only revenue stream available to you, it’s vitally important that you understand who is responsible for collecting and remitting sales tax through these 3rd party orders.
Managing sales tax for 3PA is complex because each app creates a new revenue stream to manage. Also, laws regarding who is responsible for collecting and remitting sales tax on 3PAs is often unclear.
The most efficient way to manage 3PAs is to make the POS the official record of sale and enter all 3PA orders directly into the POS. Setting up your POS this way will help manage multiple revenue streams in one place, saving valuable resources when it’s time to remit sales tax. Failure to manage sales tax correctly can lead to costly fines, penalties or even overcollection and overpayment of sales tax.
Some states require 3PAs to collect and remit sales tax while other states require the restaurant to remit the sales tax. There is little consistency and lots of confusion in this space. To determine who is responsible for sales tax on 3PA orders in your state, we suggest checking your agreement with the 3PA provider. It’s important to realize that, at the end of the day, it is the merchant’s responsibility to know who is responsible for collecting and remitting sales tax for your business and the final word is always the State Department of Revenue. So when in doubt, contact them.
Here is guidance on how to set-up your POS system to make it the official record of sale and keep track of all 3rd party app orders in one place.
POS SETUP FOR 3rd Party APPS WHEN RESTAURANT REMITS SALES TAX
- Create an ORDER TYPE named for each 3rd party app. Typical order types are “Dine In” or “To-Go”.
- Assign the new ORDER TYPE the correct tax rate(s) for your tax jurisdiction.
- Create a TENDER TYPE named for each corresponding 3rd party app. Typical tender types are “Cash or Check” or “Credit/Debit”.
POS SETUP FOR 3rd Party APPS WHEN APPS REMIT SALES TAX
- Create an ORDER TYPE named for each 3rd party app. Typical order types are “Dine In” or “To-Go”.
- Assign the new ORDER TYPE a 0% tax rate for your tax jurisdiction.
- Create a TENDER TYPE named for each corresponding 3rd party app. Typical tender types are “Cash or Check” or “Credit/Debit”.
ENTERING ORDERS
Enter orders for 3PAs into your POS as they are received using the appropriate ORDER TYPE. When the order is complete, close it under the corresponding TENDER TYPE.
Entering orders this way creates an efficient workflow to the kitchen and customer while also streamlining your back-office work. Sales are recorded in the POS either including sales tax where you pay the tax or as non-taxable, 0% sales tax where the 3PA is remitting the sales tax. This best practice will streamline back-office work and sales tax management as well as provide clean books and records for accounting or in the event of a sales tax audit.
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