TR 18: Eating and Drinking Establishments

"Food service establishment means any place that is kept or maintained for the purpose of preparing or serving food, but does not include: (section 3-1-1, BRC, 1981)

1. Homes containing a family, related by marriage, blood, or adoption up to the second degree of consanguinity, and its nonpaying guests;
2. Outdoor recreation locations where food is prepared in the field rather than at a fixed base of operations;
3. Hospital and health care facility feeding operations licensed by the Colorado Department of Health or its authorized agents or employees;
4. Child care centers licensed by the State of Colorado or Boulder County;
5. Vending machines;
6. Grocery stores and similar establishments, if such grocery store or similar establishment meets the qualifications for participation in the federal food stamp program pursuant to  7 C.F.R. subparagraphs 278.1(b)(1)(i),(ii) and (iii), as such subparagraphs exist on October 1, 1987, or as thereafter amended, whether or not such grocery store or similar establishment is actually authorized to so participate;
7. Food or beverage manufacturing, processing, or packaging plants that are not categorized as food service establishments by the Colorado Department of Health;
8. Food caterers that use the customer's kitchen to prepare food."

Food service tax must be collected by food service establishments whether the food is eaten at the establishment or off its premises. The rate of tax can be found at subsection 3-2-5(b) , BRC, 1981 . "Cover charges, admission or entrance fees, and mandatory service or service-related charges shall be included as part of the purchase price of such food..." unless "the full amount of the charge is passed on to the employees of the food service establishment who have provided direct service to each person paying the charge, and if all federal and state income and other applicable taxes due on such charge have been withheld by the food service establishment and paid to the appropriate government (subsection 3-2-5(b), BRC, 1981)."

Sales tax must be separately stated on the bill or invoice of the service establishment, with the exception of vending machines and drinking establishments selling drinks by the glass. The tax may then be included in the selling price.

Food give-a-ways including, but not limited to, "happy hour" buffets, continental breakfast, peanuts and pretzels are subject to sales/use tax to be paid by the eating or drinking establishment, based on the cost of the food to the establishment. Food served at a fund-raiser when an admissions charge is paid is subject to food service tax to be paid by the fund-raiser (See TR22: "Fund Raising" for details). The admissions charge is subject to admissions tax (section 3-4-2, BRC, 1981) to be paid by the person paying the admissions charge (See TR1: "Admissions Tax" for detailed information). Fund-raising meals are subject to food service tax for the portion of the price paid that is applicable to the customary selling price of the meal (See TR22: "Fund Raising" for detailed information). Most fund-raising tickets will separate the meal amount from the donation amount.

Employers charging employees for meals and beverages must collect food service tax upon the selling price of the meals and/or beverages. If the meal is being subsidized by the employer, the actual cost of the meal may be higher than the selling price. But the tax continues to be based upon the selling price.

Eating and drinking establishments must pay sales/use tax on tangible personal property purchased for use in the operation of the business, including, but not limited to, equipment, fixtures, linens, silverware, china, glassware and table decorations. The purchase of disposable plastic and paper products served to and used up by the customer along with the meal or drink are exempt from sales/use tax. These disposable products include, but are not limited to, napkins, straws, plates, knives, forks, spoons and cups.

Examples:

1. A Boulder organization sells tickets for two different fund-raising events. The first event is a silent auction where hors d'oeuvres are served and there is an admissions charge of $25.00. The second event is a dinner. The price of the ticket is $100.00, $25.00 dinner value and a $75.00 donation. For the first event, the organization must collect admissions tax on the $25.00 for the silent auction and pay sales/use tax on the price charged for the hors d'oeuvres. For the second event, the organization must collect food service tax on the $25.00 dinner value. (Note: the $25.00 charge for admissions and food service can include the admissions and food service taxes.)
2. A sandwich shop purchases reusable plastic baskets, plastic serving utensils, napkins and mints. The mints are for customers which will be placed in a bowl by the exit door. The sandwich shop must pay sales/use tax on the plastic basket because it will not be used up by the customer along with the meal. Sales/use tax must also be paid on the mints, because they are not part of the meal and are given away by the sandwich shop. The plastic utensils and the napkins are tax exempt when purchased because they are included in the price of the meal.
3. A restaurant serves a free buffet with the purchase of drinks in its bar. The restaurant also charges a 15% mandatory gratuity on parties of 5 or more. The gratuity is added to the tip fund and paid out equally in cash each night to the wait staff. No records are kept, and no income taxes withheld on the tips. The restaurant must pay use tax on the cost of the food given away on the buffet. The restaurant must also collect food service tax on the 15% mandatory gratuity, because it does not meet the exemption rules.

Last Updated on Tuesday, 21 May 2013 15:38