Article by David Joseph, Co-founder of DAVO Sales Tax
In 2020 we were thrust into a new takeout world. As we scrambled to make this new reality work, POS systems stepped up with new online ordering options, and third party ordering apps like Grubhub, Postmates, Uber Eats, and Doordash took center stage on how to get the food people wanted to their doors.
Unfortunately, in our business of automating sales tax for restaurants and retailers, we saw too many cases where the question of who collected and paid sales tax got overlooked. We saw businesses not collect correctly, and in too many cases, restaurants and retailers paying sales tax twice on delivery orders. We want to make sure that doesn’t happen to you.
Take-Out Culture and Delivery Apps Are Here to Stay
Takeout apps and direct online takeout ordering went from gaining popularity in 2019 to the lifeline that kept the industry alive in 2020. As the world begins to open up, the convenience of online ordering and takeout culture is here to stay.
For many third-party ordering apps make sense. They act as the middle man who gets you in front of your next customers at precisely the right time. They come with employees and independent contractors standing by to deliver food from your restaurant directly to your customer. Many businesses don’t have the staff or time for a takeout and delivery service. Apps like GrubHub and Uber Eats fill that need.
The issue with third-party apps is as they struggle to be profitable and grow, they are still figuring out how to charge for their service. Some take hefty commissions on top of monthly fees. If we are already operating on razor-thin margins, these fees can cause serious problems.
To make these apps work for you, you must know how to understand them and manage them to fit your business.
Run 3rd Party Orders Through Your POS
Orders from third-party takeout apps are received on devices separate from your POS. Managing these apps through your POS creates better workflows, keeps your reporting accurate, and will save you lots of time and money when paying your sales tax. Some POS systems even offer apps to bring in your 3rd party orders straight to your system.
Don’t Double Pay Sales Tax
Food tends to have some of the most complicated sales tax rules, but it is essential to get sales tax right. Sales tax must be collected and paid by the seller on record or facilitator. Ensure you understand how the sales tax is collected and which party is responsible for remitting the sales tax – you or your third-party ordering app. These can change from app to app, state by state, and your contract with the app.
Review your contract with each third party order app and see who is responsible for filing and remitting sales tax on these orders. In many states, including New York, ordering apps are very recently responsible for collecting and remitting sales tax on their sales.
If you do not program your POS correctly, you may end up double paying on these orders.
If the ordering app pays the sales tax, create an ORDER TYPE for each third-party app and assign it a 0% tax rate. Next, create a TENDER TYPE for each 3rd party app. Enter and close the orders under the corresponding third party app.
If the third-party app collects the sales tab but sends it back to you, then create an ORDER TYPE for each third-party all and assign it to the prevailing tax rate for your location. Next, create a TENDER TYPE for each third-party app as well. Enter and close the orders under the corresponding third-party app.
The delivery and takeout apps have been mostly helpful during a rough period. We hope with a little homework and a few changes to your POS, you will have a better handle on this piece of the puzzle and will protect you from unwanted surprises.
David Joseph is the co-founder of DAVO Sales Tax and a former restaurant owner. DAVO Automated Sales Tax integrates with many popular POS systems to set aside sales tax daily and file and pay it when it’s due, on-time, and in-full. Put your sales tax on autopilot and never worry about it again. David can be reached at firstname.lastname@example.org or (888) 659-8432.