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Introduction

This bulletin explains how sales tax applies to purchases by restaurants, taverns, and other similar establishments. In this bulletin, the word restaurant includes:

• diners,
• cafeterias,
• drive-ins,
• pizzerias,
• taverns,
• delicatessens,
• food courts,
• street carts,
• concession stands, and
• any other establishment that sells "restaurant-type" food.

For information on sales by these types of businesses, see Tax Bulletin Sales by Restaurants, Taverns, and Similar Establishments (TB-ST-806).

"Restaurant-type" food

"Restaurant-type" food can generally be described as food or drink which is sold in a form ready to be eaten. It includes:

• food or drink sold for on-premises consumption;
• sandwiches;
• self-service salad bars;
• food or drink sold in a heated state; and
• unheated food or beverages sold for off-premises consumption that are not sold in the same form, condition, quantities and packaging as they are ordinarily sold in grocery stores.

Inventory

Whether you buy your inventory from a supplier in bulk or from a grocery store, food items such as produce, seafood, meat, canned goods, etc., are not taxable to any purchaser, i.e., these items are exempt whether purchased by an individual or a business.

Certain taxable food and beverages can be purchased by a restaurant without paying the sales tax by using Form ST-120, Resale Certificate, as long as the items will be resold.

Taxable food and beverages that can be purchased for resale include:

• candy,
• soft drinks (including soda, bottled water, sports drinks, and lemonade),
• cocktail mixers, and
• alcoholic beverages.¹

Any taxable inventory that was purchased for resale that is later given away without charge, such as a complimentary meal or drink for a guest or an employee meal, is subject to the use tax. For more information on purchases subject to use tax, see Tax Bulletin Use Tax for Businesses (TB-ST-910).

However, taxable inventory that was purchased for resale that is sold as part of a meal or drink special (e.g., a "2 for 1" drink special during "happy hour") is not subject to tax.

Restaurant-type food items cannot be purchased without paying sales tax. For example, concession stand operators or street vendors who purchase food that is cooked and delivered to them in a heated state must pay sales tax on the purchase. They must also collect sales tax on sales to their customers. However, a refund or credit is available for any sales tax originally paid.

Utilities

A restaurant must pay sales tax on its purchase of utilities. For information on certain exemptions for utilities used in production, see Tax Bulletin Production Equipment and Utilities Used by Supermarkets, Grocery Stores and Delis (TB-ST-690).

Production of food for sale

The Tax Law separates the sale of restaurant-type food from the sale of food generally found for sale in a supermarket. Many times, businesses such as bakeries, butcher shops, and delis sell both types of food.

Other purchases 

Employee meals

Meals that are provided to employees during their scheduled work time are not subject to sales tax as long as:

• the employer does not receive any cash from the employee or deduct money from their wages or accept other consideration for the meal from the employee; and
• the value of the meal is not income to the employee under federal or New York State income tax laws.

Any charge by the employer to an employee for food or drink is taxable, whether paid by the employee or withheld from the employee's wages.

The employer is liable for use tax on any taxable components of the food and any taxable drinks given to the employee.

Recordkeeping requirements

Keeping detailed records for your business will help you prepare accurate and complete sales tax returns. Records must be maintained to establish the taxable status of all purchases of property or services. All purchase records must be kept for at least three years from the due date of the return to which those records relate, or the date the return is filed, if later. Purchase records should include records related to:

• purchases subject to state and/or local taxes;
• purchases for resale (e.g., inventory and raw materials);
• purchases exempt from state and/or local taxes for reasons other than for resale.

Purchase records must substantiate all your expenses and your cost of goods sold. These records should also show that your business inputs (purchases) bear a reasonable relationship to your business outputs (sales).

If you use a point-of-sale (POS) system to track your inventory and other purchases, each POS transaction record must provide enough detail to independently determine the taxability of each purchase. See Tax Bulletin Recordkeeping Requirements for Sales Tax Vendors (TB-ST-770) for a complete discussion of recordkeeping and internal control requirements for businesses using a POS system.

If you use a POS system and your system lacks the storage capacity to comply with the three-year retention period, you must transfer, maintain, and have available in a machine sensible and auditable² form any data that has been removed from the POS system. If you change POS systems, you must ensure that the data from the old system is transferred, maintained, and available in a machine-sensible and auditable form.

You should also keep any other record or document that, given the nature of your business, would be necessary to prove that you have paid the proper amount of sales or use tax due. For complete information on these requirements see Tax Bulletin Recordkeeping Requirements for Sales Tax Vendors (TB-ST-770).

If you are not able to provide adequate records if you are audited, you may be subject to an estimated audit methodology to determine any additional taxes due. If you owe additional taxes, you will also be subject penalties and interest and could have your Certificate of Authority suspended or revoked.

Sales tax refunds and credits

If you pay sales tax to your supplier on any purchase that qualifies as exempt, you can request a refund or credit for the sales tax paid. For detailed information, see Tax Bulletins How to Apply for a Refund of Sales and Use Tax (TB-ST-350) and Sales Tax Credits (TB-ST-810).

¹New York State Liquor Authority rules require that alcoholic beverages be purchased from a licensed wholesaler or manufacturer.  (back)

²Machine-sensible and auditable form means that the data should stored be in a commonly used format and not stored or presented to the department in a format readable only by proprietary software.   (back)