Alert for Restaurants: New Georgia Regulation Affects Sales Tax

On September 24th, 2014, the Georgia Department of Revenue (“GADOR”) issued a new regulation (Ga. Comp. R. & Regs. 560-12-2-.115) clarifying sales tax guidance for restaurants and similar establishments. The regulation addresses prepared food sales, single-use item purchases, mandatory gratuities and a few other topics of interest.

We have summarized a few of the more impactful items here for your review.

Prepared Food Sales – The GADOR provides specific definitions and examples in their regulation related to pre-packaged food and bottled beverages. If these items are purchased for off-premise consumption (emphasis added), they will be exempt from the state sales tax and only subject to local sales taxes. This means items such as bottled water, bags of chips, craft soda, and a number of other items could be subject to the reduced rate of tax normally only afforded to grocery items. Point-of-Sale systems and compliance procedures will need to be updated with new rates for these products in combination with either “dine in” or “to go” designations for proper tax application.

Single-Use Items –  Aside from changing the rates on some items sold by restaurants, the new GADOR guidance allows for restaurants to purchase a number of single-use items that were previously taxable as exempt for resale. This could be a definite benefit to your business. Items covered in this exemption include ketchup packets (and similar products), paper napkins, straws, forks, knives, toothpicks, spoons, and even some items like mints, chips and peanuts that are provided as a compliment to the sale.

Mandatory Gratuities and Delivery Charges – The final segment of significant guidance is mandatory gratuities and delivery charges. The new regulation is very specific about how and where mandatory gratuities and delivery charges are presented to the customer and that they are subject to tax.

Smith & Howard can provide clarification on these new rules as well as assistance in designing a tax process to support ongoing compliance procedures. The changes provided here are briefly summarized; there could be more significant issues identified or benefits obtained by completing a comprehensive review of your sales tax compliance activities. Please call 404-874-6244 to reach Marvin Willis or Timothy Howe with any questions you may have.