With the increase in delivery options like Postmates, Uber Eats, and Grubhub, it is easier than ever for consumers to order out, and consumers are utilizing these services at increasing rates. For restaurants, this can lead to added complexities not only in delivering a quality product, but also in determining and properly remitting Washington State sales tax. We previously discussed accounting treatment of these sales under generally accepted accounting principles. Here we’ll focus on the state and local tax impact of these sales.
While the setup of the sale and the service responsibilities of the restaurant and delivery service vary across contracts, many times the delivery service will collect the full sale price paid by the consumer and remit a net sale to the restaurant, holding back commissions earned by the delivery service. In addition to the sale price, the delivery service collects retail sales tax paid on these sales from the customer. This leads to a question on who is responsible for remitting the sales tax and how it should be reported on the sales tax returns of the restaurant and delivery service.
Under Washington State Department of Revenue (DOR) guidance, the marketplace seller1 is usually not required to collect and remit retail sales tax on these sales, as this is handled by the marketplace facilitator.2 The delivery service is responsible for collecting and remitting retail sales tax on behalf of the restaurant. However, the marketplace seller (the restaurant) is still required to report the full sales price paid by the consumer under the Retailing B&O tax classification and retail sales tax, however, an offsetting deduction for “Retail Sales Tax Collected by Facilitator” should be taken from retail sales tax. The DOR adds that confirmation must be obtained from the marketplace facilitator that will collect and remit the retail sales tax If such confirmation cannot be obtained, the restaurant remains responsible for the full sales tax.
We recommend reviewing the terms of your contracts with all delivery services along with current reporting practices to ensure sales are being properly reported and taxes properly remitted. For more information or assistance, please contact Sonjia Barker, CPA, State and Local Tax Senior Manager.
1 A marketplace seller is defined as a company that makes “retail sales through either a physical or electronic marketplace operated by a marketplace facilitator” (e.g., the restaurant).
2 A marketplace facilitator facilitates sales between the marketplace seller and the consumer. The facilitator is often involved in listing the products for sale, order taking, and payment processing services (e.g., the delivery service company).