Texas comped meals, coupons and takeout: how sales tax works

In Texas, ready-to-eat food is generally taxable even when it is sold to go. The Comptroller says a complimentary meal is not taxable but tax is due on the taxable ingredients used to prepare it, and a coupon is treated as a discount when the restaurant gets no reimbursement, so tax applies only to the reduced price. Bakery items sold without plates or eating utensils are not taxable, whatever their size.

Is takeout taxable in Texas?

The Comptroller's restaurant publication says ready-to-eat food is typically taxable even when it is sold to go. A burrito in a bag carries the same tax as one on a plate. The setting does not change the result. What matters is whether the food is ready to eat.

What about bakery items?

The publication says bakery items sold without plates or eating utensils are not taxable, whatever their size. A loaf, a box of cookies or a dozen rolls sold over the counter can be nontaxable, while a slice of cake served on a plate with a fork is part of a meal. If your cafe sells both, your point of sale needs separate tax categories, and the staff need a clear rule for each item.

How are complimentary meals treated?

Complimentary meals are not taxable, according to the publication. You do not charge the guest, so there is no sale. But tax is due on the taxable ingredients used to prepare the comp, and on taxable drinks given away. In practice that means that when you buy ingredients with a resale certificate to make food for sale, you owe tax on the share you give away. Ask your accountant how to estimate and report the amount, such as by recording comps in the register and applying the tax at cost.

How do coupons work?

The publication says coupons are treated as discounts when the restaurant gets no reimbursement for them, so tax applies only to the reduced price. A $5-off coupon on a $25 meal means tax on $20. If a third party reimburses you for the coupon, the answer is different, and the Comptroller treats the reimbursed amount as part of the price. Read the terms of any voucher or marketing arrangement before you decide how to ring it up.

A worked example of a busy lunch

A guest orders a $14 sandwich and a $4 drink, uses a $3 coupon that you fund, and takes the food to go. The taxable price is $14 plus $4 less $3, or $15. At 8.25 percent, tax is $1.24, and the total is $16.24. A second guest is a regular whose lunch you comp, and your cost of the taxable ingredients is $4. You owe tax on the $4, not on the $14 menu price. A third buys a bag of six cookies with no plate or utensil, and that sale is not taxable.

What about gift cards?

The publication says gift cards are not taxed when sold, and tax is collected when the card is redeemed for a meal. The guide on gift cards covers the federal rules for the card itself.

What about delivery charges and alcohol?

Ask the Comptroller's Tax Help team about delivery charges and alcohol. Ask in writing and keep the response, because a delivery fee that you keep is a different question from a gratuity paid to staff.

How should you set up the register?

1. Create separate tax categories for ready-to-eat food, bakery items sold without plates or utensils and retail goods.
2. Set coupons so they reduce the taxable price when you are not reimbursed.
3. Create a comp reason code, so you can report comped items.
4. Test the settings with sample orders after each menu change.
5. Review the category reports with your accountant once a year.

What should you keep?

Sales reports by category, a list of comps and their cost, and copies of any coupon or voucher terms. Those records show how you reached the numbers on your return.

How do you handle employee meals?

A meal you give to staff is a type of complimentary meal, and the same logic applies to the ingredients. Many restaurants set a staff meal allowance and record it in the register with a reason code, so the cost is visible. Ask your accountant how to treat staff meals for both sales tax and payroll tax, because a meal provided for the convenience of the business is treated differently from one given as pay. Write your staff meal policy in the handbook, including who qualifies, how often and what is included.

What about catering and large orders?

A catering order is a sale of ready-to-eat food, so tax applies to the food, and your written contract should state the price, what is included and how any gratuity or service charge is handled. If a customer holds a valid exemption, such as a nonprofit with an exemption certificate, collect the certificate before you leave tax off, and keep it. Without the paper, the Comptroller can assess the tax to your business.

More guides for your business:

• Texas restaurant purchases, resale certificates and taxable items
• Texas gift card rules for restaurants
• Texas mandatory gratuity and sales tax: the 20 percent line

More in the US guides for food businesses.