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Merchants who use sales tax revenue as working capital rarely take time to understand the true cost and potentially catastrophic legal pitfalls until it’s too late.

Under New York’s recently passed 2019 Executive Budget, sales of restaurant-type foods, including heated foods and heated beverages, can now be made tax free, provided the sale is for resale – meaning the purchaser intends to resell the prepared food to its customers.

Most restaurant sales are taxable. The sales tax is collected, or should be collected, from customers by the restaurant as a fiduciary of the state. As such, not only is the business responsible, but certain individuals who are owners or active in the restaurant’s management may be deemed a “responsible person”...

This article is meant to scare you. Sales taxes are complicated. Sales taxes are “trust taxes.” Improper compliance can lead to a civil audit, significant penalties, personal liability, and in the worst-case, where you are facing a criminal investigator. Every year, some business owner has an audit go from bad to worse from not paying sales tax.

Restaurant operators, like operators of all sales tax businesses, need to understand how and when to accept exemption certificates from their customers and how and when to issue exemption certificates to their vendors and suppliers. Improper use of a certificate can lead to an unexpected sales tax liability after-the-fact.

Restaurateurs looking to buy a restaurant, or the business assets of a closing or for-sale restaurant, must take care not to inadvertently also purchase the former owner’s pre-existing sales tax liabilities along with the deep-fryer, reach-in cooler, and banquettes.

Recordkeeping is essential for any restaurant, but recordkeeping for sales taxes is particularly important because of the consequences of not following the law. If mishandled, sales and use taxes can quickly ruin your business. Good recordkeeping practices are your first line of defense.