California Sales Taxes

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt, or touched. California's sales taxes are administered by the California Department of Tax and Fee Administration ("CDTFA"), the successor to the California State Board of Equalization ("SBE" or "BOE").

For the restaurant industry, most taxable sales are going to be of food and beverages. However, you may also be required to collect sales tax on mandatory tips, corkage fees, and cover charges, among other things.  Rules regarding food sold for consumption at your place of business, food sold to-go, food delivery services, and online ordering services are very complex. 

Another area of dispute is when your restaurant adds a separate surcharge to your customers' bills to defray the increased costs of doing business. Does sales tax also apply to the surcharge amount?  For example, instead of increasing menu prices, your restaurant adds a surcharge to receipts to cover required employer costs, such as increases to minimum wage, healthcare contributions, and paid sick leave.  Whether the surcharge is a flat fee or a percentage of the selling price, whenever a surcharge is separately added to any taxable sale, the surcharge is may also subject to tax.

Example

Below is an example of the computation of sales tax on a taxable sale that includes a restaurant passing the TBID assessment on to its customer. Tax has been applied to the total selling price, including the TBID assessment. The example assumes an 8.5% sales tax rate (your actual tax rate may differ):

• Baked pasta = $14.00
• Side salad = $4.00
• Wine = $8.00
• Subtotal = $26.00
• TBID (1.5%) = $0.39
• Total sale = $26.39
• Sales tax [8.5% × $26.39] = $2.24
• Total due= $28.63

If your sales included a TBID amount, you may be entitled to a refund of any California sales tax collected on that separate surcharge.