Restaurant Tax Rates By State – A 2024 Guide

Opening and operating a restaurant can be an exciting yet challenging endeavor. One key aspect to consider is the various taxes that apply to restaurants, which can significantly impact your bottom line. Tax rates vary widely depending on the state and municipality where your restaurant is located. Understanding the different taxes that restaurants must pay is crucial for proper financial planning and remaining compliant.

This guide provides an overview of Restaurant Tax Rates by State across the United States. We’ll look at general sales tax, meal tax, liquor tax, and other taxes that states levy on restaurants. Read on to learn what taxes apply to restaurants in your state or a state where you are considering opening a restaurant.

Sales Tax

One of the most common taxes restaurants must collect and remit is general retail sales tax. This applies to all retail businesses selling tangible personal property. Sales tax is collected as a percentage of the total sale price of food and beverages.

The sales tax rate varies widely by state and local jurisdictions. Some states have no statewide sales tax but allow localities to charge their own rates. Other states have sales tax rates ranging from 2.9% to as high as 7.25%. Most states also exempt certain food items from sales tax or tax them at a lower rate.

It’s important to note that unlike other industries, restaurants typically must pay sales tax on their supplies and ingredients purchased to produce the final food product. This is referred to as tax-on-tax. The sales tax paid on those items generally cannot be recovered or deducted when the restaurant charges and remits sales tax on the final meal sale.

Read More: Chicago Restaurant Sales Tax in 2024: Calculator, Rates & Law

Let’s look at some examples of general statewide sales tax rates that apply to restaurant sales:

• Alaska – No state sales tax
• California – 6.00%
• Florida – 6.00%
• Illinois – 6.25%
• New York – 4.00%
• Texas – 6.25%
• Wyoming – 4.00%

Some states allow local jurisdictions to levy their own sales taxes on top of the statewide rate. For example, the sales tax in New Orleans consists of a 4.00% Louisiana state sales tax plus an additional 5.00% New Orleans city sales tax for a combined 9.00% rate. It’s important restaurants are aware of both state and local sales tax rates that apply to their establishment.

Restaurant & Meal Tax

Many states and localities impose specialized restaurant or meal taxes in addition to the general sales tax. Unlike the broad statewide sales tax, restaurant tax is levied specifically on prepared food and beverage sales at restaurants, bars, coffee shops, food trucks, caterers, and other food service businesses.

Restaurant tax aims to generate additional revenue from the large restaurant industry in a jurisdiction. Some reasons states Specifically target restaurant sales for extra tax include:

• Restaurants utilize local infrastructure like roads, sewers, and utilities but unlike retailers don’t sell tangible goods subject to regular sales tax.
• Diners are perceived as having high income and ability to pay.
• Taxing restaurant meals is politically more feasible than raising broad-based sales tax.
• Extra revenue can fund tourism and hospitality related projects that benefit restaurants.

Read More: What is Restaurant Tax in California? Calculator & Laws

Restaurant tax rates range from less than 1% up to as high as 11% depending on the state and city. Some states allow both state and local meal taxes. Let’s look at some restaurant tax rates across the country:

• California – No special statewide restaurant tax but some cities charge rates between 0.5% – 3.0%.
• Florida – No special restaurant tax. However, Florida allows counties to charge a “food and beverage tax” up to 2.0% specifically on restaurant sales.
• Illinois – 1.00% state restaurant tax plus 1.25% to 4.00% local restaurant taxes.
• New York City – 5.00% meal tax. Other New York cities levy between 3.00% to 5.00% restaurant tax.
• Seattle – 0.5% city tax on restaurant meals.
• Texas – No special restaurant tax. Some cities such as Austin charge a minimal restaurant tax.
• Washington DC – 10.00% meal tax on all restaurant and prepared food sales.

As you can see, restaurant taxes can make a big difference in the total taxes paid by restaurants. It’s crucial for owners to be fully aware of restaurant tax rates when budgeting and filing taxes.

Read More: North Carolina Food Tax Calculator: Exemption and Administration Guide

Liquor Tax

Alcohol sales make up a sizeable portion of revenue for many restaurants and bars. However, those sales come with the cost of sometimes steep alcohol taxes in addition to sales tax. States levy alcoholic beverage excise taxes on distributors and manufacturers of beer, wine, and liquor. That tax is passed along and ultimately paid by restaurants and consumers. Liquor tax is charged per gallon or liter of beverage. Beer, wine, and liquor can have vastly different tax rates even within the same state.

Some examples of state liquor tax rates:

• California – $0.20 per gallon for beer, $0.30 per gallon for wine, $3.30 per gallon for liquor. Plus applicable sales tax.
• Florida – $0.48 per gallon for beer. Wine and liquor taxed at sales tax rate.
• Illinois – $0.231 per gallon for beer, $1.39 per gallon for wine, $8.55 per gallon for liquor. Plus sales tax.
• New York – $0.14 per gallon for beer, $0.30 per gallon for wine, $6.44 per gallon for liquor. Plus sales tax.
• Texas – $0.198 per gallon for beer, $0.204 per gallon for wine, $2.40 per gallon for liquor. Plus sales tax.
• Washington – $0.263 per gallon for beer, $0.763 per liter for wine, $31.48 per liter for liquor. Plus sales tax.

Restaurants serving alcohol should investigate state and local level liquor taxes when pricing menu items and calculating profit margins on alcohol sales. Also be aware some states like Alaska and Delaware have set up special tax-exempt systems for purchasing alcohol for resale.

Read More: Mn Food Tax Calculator: Exemption and Administration Guide

Business & Occupancy Tax

Many local municipalities require all businesses to register and pay an annual business license tax or business and occupancy (B&O) tax. Restaurant tax rates are determined based on total gross receipts or square footage. Large cities like Chicago, Philadelphia, and Baltimore charge B&O tax upwards of $1,000 – $6,000 whereas small towns may only assess a minimal license registration fee.

Key aspects of business tax for restaurants:

• Tax based on gross sales/receipts, not net profit.
• Set as flat yearly amount or per $1,000 of gross receipts.
• Separate from sales, meal, or income tax.
• Paid for the privilege of operating in a jurisdiction.
• Charged by cities, counties, and states.
• Deductible business expense for federal income tax.

Restaurants must comply with B&O tax registration, filing, and payment deadlines to legally operate. The application and renewal process can be tedious for businesses with multiple restaurant locations that cross jurisdictional boundaries. Failure to pay on time can result in penalties and interest fees.

Read More: City Wise Michigan Food Tax Calculator: Exemption and administration

Property Tax

Property taxes are annual taxes levied by local governments on the assessed value of real estate and tangible business property. Restaurant owners must pay property tax on the building, land, equipment, furnishings, and other assets used in operating the restaurant. Tax is paid to municipalities, counties, school districts, and other special taxation districts. Assessed property values and tax rates determine the amount owed.

Key aspects of property tax for restaurants:

• Based on assessed value of real estate and tangible property.
• Assessed annually based on market value and taxable value.
• Paid to multiple entities like county, city, and school districts.
• Tax rates per $100 or $1,000 of value – typically 1% to 3%
• Deductible business expense for income tax.

Though not directly related to food sales, property tax is a significant expense that must be budgeted for when opening or running a restaurant. Property tax costs are fixed overhead that can equate to several thousand dollars annually depending on assets owned and location.

Read More: Wisconsin Food Tax Calculator: Exemptions and Regulations

Income Tax

Restaurants organized as corporations or partnerships must pay federal and state income tax in addition to the business taxes described above. Income tax is due on net taxable business profit left after deducting all eligible business expenses like wages, supplies, utilities, and other costs of doing business.

• Federal income tax rate is a flat 21% for C-corps under the TCJA.
• S-corps and LLCs pass profit/loss to owners who pay at individual rates.
• State income tax rates range from 0% to 12% of net profit.
• Credits and incentives like the Work Opportunity Tax Credit available.
• Quarterly estimated payments required to avoid underpayment penalties.

Thorough profit & loss statements are necessary for restaurants to calculate income tax and make quarterly estimated payments. Income tax can be a complex aspect of owning a restaurant – particularly when dealing with owners drawing wages, partner/shareholder distributions, depreciation, and other issues. Working with an experienced restaurant accountant is key to maximize legitimate tax deductions and properly file income tax returns.

Employment & Payroll Taxes

Restaurants with employees must register for employer tax accounts with federal and state agencies. This includes obtaining an EIN from the IRS and state tax ID number. In addition to collecting income tax through employee withholding, restaurants must remit FICA payroll taxes (Social Security & Medicare), federal & state unemployment insurance taxes, and other employer-side taxes. Common payroll taxes for restaurants include:

• 15.3% FICA on first $150,000 of employee wages
• 6% federal unemployment tax (FUTA) up to $7,000 per employee
• State unemployment insurance (SUTA) – rates vary up to 10%
• Possible state & federal disability, paid leave, and other employer taxes

Many restaurant owners choose to work with a payroll provider to simplify withholding, reporting, and payment of employment taxes on their behalf. Using a payroll service like ADP or Gusto can save significant time and ensure full compliance with payroll tax regulations. Keeping up to date with changes to federal and state payroll taxes and rates is also crucial as an employer.

Other Restaurant Taxes

On top of the taxes described above, some states and cities levy a range of other taxes that target restaurant sales or related costs of doing business. Examples of other common taxes for restaurants include:

• Prepared food tax – similar to restaurant tax but applied more broadly to any prepared food sales like catering, food trucks, and grocery store deli counters. Rates vary by state.
• Litter tax – fines restaurants per location to fund city street cleaning and maintenance efforts.
• Disposable bag fees – charges for using non-reusable bags for takeout orders. Rates range from $0.05 to $0.25 per bag.
• Bottled beverage tax – applies to sales of canned/bottled soda, juice, water, and other non-alcoholic drinks.
• Keg registration fees – requires a tag to be purchased and affixed to beer kegs provided to restaurants. Rates range from $5 to $30 per keg.
• Tourism surcharge – small fee added to restaurant bills (typical 1%) to fund local tourism promotion.
• Public health insurance fees – helps cover cost of providing health insurance to employees.

Staying aware of more obscure taxes that may apply to your restaurant is important when budgeting. While each individual tax may be minimal, they can add up to impact the bottom line. Thorough research upfront ensures you don’t get hit with unexpected fees down the road.

How Restaurants Can Manage Taxes

As this guide illustrates, restaurants must keep track of and remit a dizzying array of taxes beyond just sales tax. Tax compliance ties up significant time and monetary resources that could otherwise go toward operating and growing your restaurant. Here are some tips for effectively managing the various tax obligations:

• Maintain organized records – Keep detailed sales reports, invoices, bank records, and other documentation to back up figures reported on tax returns. Digital POS software can greatly assist with tax recordkeeping.
• Compartmentalize tax filing duties – Assign tax filing responsibilities to specific staff members who become experts at their role.
• Use a restaurant accountant – Hiring an accountant knowledgeable in restaurant taxes provides additional support to catch errors and maximize deductions.
• Factor taxes into pricing – Menu prices should be set taking all applicable taxes into account to avoid losing profit margin.
• File/pay electronically – Submit returns and remit taxes via state agency and IRS online portals when possible.
• Stay up to date on tax law changes – Sales, payroll, income, and other tax rates and rules change regularly – stay in the loop.
• Use a tax calendar – Mark all major tax deadlines clearly on a calendar with reminders set to avoid late fees.
• Compare vendor prices after tax – Factor in sales tax when comparing ingredient supplier prices to make the best decision.

Keeping taxes in check will allow your restaurant to optimize profitability and prevent problems with state and federal revenue agencies. Consider outsourcing tax duties or hiring an accountant if in-house resources are stretched thin.

Restaurant Tax Rates by State

To summarize tax rates across the country, here is an overview of sales, meal, liquor, and business tax rates in each state as of 2023:

State	Sales Tax	Meal Tax	Liquor Tax	Business Tax
Alabama	4.00%	No	Markup of 66%-75% on inventory	$15-$100
Alaska	No state tax	No	$12.80 per gallon liquor	No state tax
Arizona	5.60%	No	$3.00 per gallon liquor	$50 – $300
Arkansas	6.50%	No	Wholesale markup of 33%	$50 – $1,000
California	6.00%	Varies locally	$3.30 per gallon liquor	$75 – $800
Colorado	2.90%	No	$2.28 per gallon liquor	$16 – $150
Connecticut	6.35%	1.00%	$5.40 per gallon liquor	$250
Delaware	No	No	Wholesale markup	$75 – $500,000
Florida	6.00%	0-2% locally	Alcohol taxed at sales tax rate	$50 – $200
Georgia	4.00%	No	Wholesale markup 3%-20%	$50 – $400
Hawaii	4.00%	0.5%	$5.98 per gallon liquor	$25 – $100
Idaho	6.00%	No	$14.57 per gallon liquor	$10 – $100
Illinois	6.25%	Up to 4% locally	$8.55 per gallon liquor	$25 – $200
Indiana	7.00%	No	$2.68 per gallon liquor	$25 – $100
Iowa	6.00%	No	Wholesale markup	$50 – $250
Kansas	6.50%	No	$2.50 per gallon liquor	$15 – $25
Kentucky	6.00%	No	$1.92 per gallon liquor	$10 – $300
Louisiana	4.00%	Up to 5% locally	$2.50 per gallon liquor	$25 – $500
Maine	5.50%	No	$35 per gallon liquor	$10 – $100
Maryland	6.00%	No	$1.50 per gallon liquor	$30 – $300
Massachusetts	6.25%	No	$4.05 per gallon liquor	$50 – $350
Michigan	6.00%	No	Wholesale markup	$15 – $50
Minnesota	6.88%	No	Alcohol taxed at sales tax rate	$20 – $300
Mississippi	7.00%	No	27% retail markup on liquor	$10 – $110
Missouri	4.23%	1.59% locally	$2.00 per gallon liquor	$25 – $110
Montana	No	No	$3.69 per gallon liquor	$20 – $350
Nebraska	5.50%	1.50%	$3.75 per gallon liquor	$20 – $100
Nevada	6.85%	No	$3.60 per gallon liquor	$25 – $4,000
New Hampshire	No	No	Wholesale markup	$50 – $300
New Jersey	6.63%	No	$5.50 per gallon liquor	$25 – $2,000
New Mexico	5.13%	No	$6.06 per gallon liquor	$20 – $500
New York	4.00%	Up to 5% locally	$6.44 per gallon liquor	$25 – $5,000
North Carolina	4.75%	No	Wholesale markup	$15 – $200
North Dakota	5.00%	No	$2.50 per gallon liquor	$25 – $200
Ohio	5.75%	No	$0.18 per gallon beer	$100 – $250
Oklahoma	4.50%	No	Wholesale markup	$20 – $1,500
Oregon	No sales tax	No	$0.08 per gallon beer	$100 – $100,000
Pennsylvania	6.00%	No	18% tax on liquor sales	$10 – $300
Rhode Island	7.00%	1.00%	$5.40 per gallon liquor	$10 – $1,500
South Carolina	6.00%	No	$2.72 per gallon liquor	$15 – $150
South Dakota	4.50%	2.00%	$3.93 per gallon liquor	No state tax

Tennessee	7.00%	No	Wholesale markup	$15 – $1,500
Texas	6.25%	Varies locally	$2.40 per gallon liquor	$25 – $750
Utah	5.95%	1.00%	Wholesale markup	$15 – $100
Vermont	6.00%	10.00%	$7.75 per gallon liquor	$35 – $2,000
Virginia	5.30%	2.50%	20% retail markup on liquor	$30 – $500
Washington	6.50%	0.5% locally	$31.48 per liter liquor	$15 – $1,200
West Virginia	6.00%	No	Wholesale markup	$30 – $100
Wisconsin	5.00%	0.50%	Wholesale markup	$25 – $500
Wyoming	4.00%	No	12% wholesale markup	$35 – $500

Conclusion

As we’ve explored in detail, restaurants across the United States face a complex web of taxes that significantly impact the bottom line. Sales tax, meal tax, liquor tax, payroll taxes, income taxes, and business taxes all must be properly remitted by savvy restaurant owners and operators. Tax rates and regulations also constantly evolve, requiring diligent research and monitoring.

While taxes present a burden, thoroughly understanding tax obligations can help restaurants stay compliant and make smart financial decisions. Factoring taxes into menu pricing and negotiations with vendors allows you to build taxes into your cost structure. Leveraging tools like POS software, payroll services, and accountants optimizes efficiency. With some diligence, restaurants can master the challenge of taxes and go on to succeed in their community.

Frequently Asked Questions

Q: Do restaurants pay sales tax on supplies purchased?

A: Yes, unlike retailers, restaurants usually pay full sales tax on ingredients, equipment, and other supplies used to produce the final food product. Sales tax paid on supplies generally cannot be credited against sales tax collected on menu items.

Q: How often are restaurants required to remit collected sales tax?

A: Most states require monthly or quarterly sales tax filing. However, larger restaurants may need to remit sales tax collections more frequently. Check with your state revenue department for sales tax due dates.

Q: Can restaurant owners deduct sales tax paid from their income taxes?

A: No, sales tax incurred by restaurants is not deductible for federal income tax purposes. However, some states do allow deducting sales tax paid on certain business purchases.

Q: Is a retail liquor license required for restaurants to serve alcohol?

A: Yes, restaurants must obtain a special retail liquor license from the state alcohol control agency along with local liquor permits. This allows on-premise alcohol sales for drinking at the restaurant.

Q: How do restaurants calculate estimated quarterly income tax payments?

A: Estimated tax payments are based on the prior year’s net income and current year profit projections. The required amount is the lesser of 90% of current year tax or 100% of prior year tax (110% if income exceeds $150,000).