Managing restaurant sales tax can be complicated and time-consuming. If running your busy restaurant isn’t enough work, it is also your responsibility to make sure you understand your state and local tax rates so that you can accurately collect sales tax from each transaction, and then pay and file multiple times a year with a breakdown of all your taxable sales. There are so many moving parts – mistakes are easy to make and deadlines can quickly be missed, which can mean costly fines and increased audit risk. Restaurant sales tax automation can eliminate the entire complicated process.
What is restaurant sales tax automation?
Your point of sale system likely offers integration with technology that enables you to automate every step of sales tax management – from calculating tax for each sale and setting the funds aside daily, to preparing, filing, and paying the tax owed to the State when due. DAVO by Avalara Sales Tax seamlessly integrates with the most popular POS systems to automate sales tax from start to finish. All you have to do is set up the service on your POS and DAVO takes it from there. Set up typically takes about 5 minutes and you never need to worry about sales tax again.
Why it’s important to set sales tax aside daily (sales tax impounding)
An important part of dealing with restaurant sales tax is cash management: ensuring you have the correct funds set aside when it comes time to pay your sales tax. If you aren’t setting those funds aside on a daily basis, you run the risk of mistakenly spending the money and coming up short when it is time to pay.
Sales Tax Impound Definition: In accounting, the practice of setting aside sales tax is also referred to as sales tax impounding.
DAVO uses data from your POS system to set aside the exact amount of sales tax you collect daily. The funds are then transferred to a secure tax holding account. With this automated cash management in place, you can rest easy knowing that the funds are accounted for every single day.
The benefits of restaurant sales tax automation
When you reduce the need for manual management of a complicated business process like sales tax, you save a lot of time – something that is in very short supply for many busy restaurant owners. Beyond the major benefit of time and resource savings, there are many other benefits of automating your restaurant’s sales tax:
- Eliminates missed payments and late payment penalties. Taxes are automatically filed and paid on time and in full so you will never have to think about a payment deadline again.
- Ensures you automatically receive discounts where available. If you operate in one of the 26 states that offer on-time filing discounts, your discounts are automatically calculated, collected, and refunded. *Note that restaurant sales tax by state varies – to find specific sales tax information for your state, click here.
- Sets sales tax funds aside daily (sales tax impounding) ensuring you have the correct funds set aside when it comes time to pay.
- Completely removes the burden of restaurant sales tax from your plate so you never have to worry about it again. More time to focus on food and grow your restaurant business!
Pete oversees operations as the General Manager of DAVO by Avalara. He has decades of experience leading technology teams for a variety of companies, including Quantrix and IDBS.