Understanding California Restaurant Tax

In California, restaurants are responsible for paying sales tax to the state on taxable items. What makes a transaction taxable? The answer gets a little complicated for restaurants. The key distinctions are whether the food is hot or cold, and whether it is intended to be consumed on the premises. Here’s how to calculate California restaurant tax:

  • Hot food (whether eaten in the restaurant or taken to go or delivered) is taxable
  • Cold food is not taxable if taken to go, but is taxable if consumed in the restaurant
  • Deliveries are taxable (including the delivery fee) if the food is hot, but not if cold. If the delivery contains both hot and cold items, the tax including the delivery charge should be pro-rated to distinguish between the two. If the delivery also contains non-food articles like alcohol and convenience items, those items are taxable.

An added complication to the above is the 80/80 rule. If 80% or more of your sales are food, and 80% or more of the food sales are taxable, then you owe California food tax (aka sales tax) on 100% of sales.


Calculating California Restaurant Tax

The California state sales tax (sometimes referred to as the California restaurant tax) is 7.25%. Additional sales tax may be owed to your county and city, depending on your location. County sales tax rates vary widely: Los Angeles charges 2.25% while Orange County assesses only 0.5%.

Tips for Streamlining Your Restaurant Tax Calculation Process

In order to accurately and efficiently collect California restaurant sales tax, you should program your POS system to charge sales tax on those items on which it is due. However, if you’re subject to the 80/80 rule, all your sales are taxable, regardless of whether the food is hot or cold. Beyond your POS, a modern restaurant accounting software suite will save you considerable time when you’re examining the books at tax time. Even the best software requires human oversight, so it’s well worth the expense to hire a tax professional to review your numbers. California sales tax can be complicated, and you want to get it right.