Article by David Joseph, co-founder, DAVO by Avalara
Some of the biggest days of the year for restaurant sales are fast approaching. Whether it’s night after night of large parties and functions or an increase in take out and food delivery app orders, foodservice establishments see big increases in revenue in November and December.
This increase in sales also brings an increase in the amount of sales tax you’re collecting on that additional revenue. It’s easy to look at your funds available and mistake the sales tax you’ve collected as cash available for other needs. But come January, when the largest sales tax bill of the year may be due, the funds to pay the sales tax may not be available. For many restaurant owners, the January sales tax holiday hangover can spiral into missed payments and penalties. We have a few tips to make sure you don’t get caught off-guard with your January tax filing.
3 tips to plan now for your January sales tax bill
1. Review what you paid last year
Start with what you know. Review your November and December sales from last year as well as what you paid in sales tax for that period. Use that number as a baseline to understand how much you may need to pay this year. If you expect a significant increase in business this year, calculate how much more in sales tax that would equate to. For example, if you expect an additional $20,000 in revenue and your state sales tax rate is 5%, you would collect and then need to have $1,000 on hand to pay the sales tax bill.
2. Create a system to save your sales tax funds
Soften the blow of January’s tax bill by keeping track of your sales tax liability more regularly. You should aim to run a report in your POS system to look at how much sales tax was collected on a frequent basis – if not daily then weekly. Then, set-up a way to put that money aside so you know not to use it for other purposes. You could even set-up a separate checking or savings account and move the sales tax collected over to that account.
Many restaurant owners are turning to sales tax automation to calculate and manage sales tax funds for them. Sales tax automation apps, like DAVO by Avalara, seamlessly integrate into your existing POS to calculate sales tax from your sales and set it aside in a separate account daily.
3. File on time
Missed sales tax payments can result in hefty fines and penalties. The long term risks of not paying sales tax add up quickly. For one, the penalty and interest that is charged on unpaid balances can be between 5%-50% of the balance due. If you fall too far behind, the State may decide to place a lien on your business which creates a host of financial problems, like getting a loan. Some states even have criminal penalties for not paying sales tax.
By planning ahead so that you can file on time and pay in full, you can avoid any penalties and risk. You may even be rewarded! 27 states offer discounts for the amount of sales tax due when it’s filed and paid on-time (see below):
Automate Your Sales Tax
One of the easiest ways to avoid the January sales tax hangover is to set-up a sales tax automation system now. Sales tax automation can eliminate the entire complicated, manual process and tasks associated with reporting, filing and paying sales tax. Sales tax automation enables you to automate every task within the process including:
Sales Tax Reporting
Sales tax automation apps, like DAVO Sales Tax, integrate directly with the most popular POS systems. The app gathers daily transactional sales data, including cash, credit, debit, refunds, gift cards and 3rd party apps. At the close of business, the amount of sales tax collected and owed is totaled.
Sets Aside Sales Tax Daily
Once the amount of sales tax is calculated, the app will set aside the funds from that day’s sales in a secure tax holding account. Because the cash is set aside daily, you can be assured that the funds needed to pay sales tax are available when the payment is due.
Automatic Sales Tax Filing and Payments
When sales tax payment deadlines approach, the app automatically files and pays sales tax to the State. Using the funds set aside in the secure tax holding account, the app pays the amount due.
With a fully automated process, you’re guaranteed to pay sales tax on time and in full. The deadlines and paperwork are off your plate. The risk of mistaking sales tax for income or misspending money that really belongs to the State is eliminated.
DAVO Sales Tax can help you avoid the January sales tax hangover and gain back valuable time to focus on the priorities that will help the business grow. Automating sales tax takes just a few minutes to set-up and then you never have to worry about sales tax again. The app is free to try for the first month. Put your sales tax on autopilot and stop worrying about how it will get paid.
As a former restaurant owner, David Joseph is no stranger to the struggles of restaurant sales tax. A self-proclaimed sales tax evangelist, David co-founded DAVO by Avalara, a sales tax automation platform that integrates directly with the point of sale.
