Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains how Washington's business and
occupation (B&O) tax and retail sales tax apply to sales by restaurants,
cocktail bars, taverns, and similar businesses. It discusses sales of meals,
beverages, and foods at prices that include retail sales tax. This rule also
explains how discounted and promotional meals are taxed. Caterers and persons
who merely manage the operations of a restaurant or similar business should
refer to WAC
458-20-119 Sales by caterers and
food service contractors, to determine their tax liability.
(a)
Definition. Restaurants, cocktail
bars, and taverns. The term "restaurants, cocktail bars, taverns, and
similar businesses" means every place where prepared foods and beverages are
sold and served to individuals, generally for consumption on the premises where
sold.
(b)
Examples.
This rule contains examples that identify a number of facts and then state a
conclusion. These examples should be used only as a general guide. The tax
results of other situations must be determined after a review of all facts and
circumstances.
(c)
Other
rules that may apply. The following rules may contain other relevant
information:
(i) WAC
458-20-107 Requirement to
separately state sales tax-Advertised prices including sales tax.
(ii) WAC
458-20-119 Sales by caterers and
food service contractors.
(iii) WAC
458-20-131 Gambling
activities.
(iv) WAC
458-20-168 Hospitals, nursing
homes, assisted living facilities, adult family homes and similar health care
facilities.
(v) WAC
458-20-183 Recreational services
and activities.
(vi) WAC
458-20-187 Tax responsibility of
vending machine owners and operators.
(vii) WAC
458-20-189 Sales to and by the
state of Washington and municipal corporations, including counties, cities,
towns, school districts, and fire districts.
(viii) WAC
458-20-190 Sales to and by the
United States and certain entities created by the United States-Doing business
on federal reservations-Sales to foreign governments.
(ix) WAC
458-20-243 Litter tax.
(x) WAC
458-20-244 Food and food
ingredients.
(2)
Retailing B&O and retail sales
taxes. Sales of meals and prepared foods to consumers by restaurants,
cocktail bars, taverns, and similar businesses are subject to retailing B&O
tax and generally subject to retail sales tax. Retail sales tax exemptions are
available for the following sales of meals:
(a) Prepared meals sold under a
state-administered nutrition program for the aged as provided for in the Older
Americans Act (Public Law
95-478 Title III) and
RCW
74.38.040(6);
(b) Prepared meals sold to or for senior
citizens, disabled persons, or low-income persons by a nonprofit organization
organized under chapter 24.03A or 24.12 RCW;
(c) Food, drink, or meals furnished by a
senior living community, as defined in
RCW
82.04.040, to tenants as part of a rental or
residency agreement for which no separate charge is made, regardless of whether
the tenant is a resident for purposes of chapter 18.20 or 18.390 RCW.
RCW
82.04.040;
(d) Prepared meals sold to the federal
government. WAC
458-20-190. However, meals sold
to federal employees are taxable, even if the federal employee will be
reimbursed for the cost of the meals by the federal government; and
(e) Meals provided without specific charge by
a restaurant to its employees.
RCW
82.08.9995. These meals are also exempt from
B&O tax and use tax.
RCW
82.04.750 and
82.12.9995. However, if any charge
is made for meals to employees, retailing B&O tax and retail sales tax
apply.
For purposes of (e) of this subsection, the following
definitions apply:
(i) "Meal" means
one or more items of prepared food or beverages other than alcoholic beverages.
For the purposes of (e) of this subsection, "alcoholic beverage" and "prepared
food" have the same meanings as provided in
RCW
82.08.0293.
(ii) "Restaurant" means any establishment
having special space and accommodation where food and beverages are regularly
sold to the public for immediate, but not necessarily on-site, consumption, but
excluding grocery stores, mini-markets, and convenience stores. Restaurant
includes, but is not limited to, lunch counters, diners, coffee shops, espresso
shops or bars, concession stands or counters, delicatessens, and cafeterias. It
also includes space and accommodations where food and beverages are sold to the
public for immediate consumption, if a separate charge is made for such food
and beverages, and are located within:
* Hotels, motels, lodges, boarding houses, bed and breakfast
facilities;
* Hospitals, office buildings, movie theaters; and
* Schools, colleges, or universities. Restaurants also
include:
* Mobile sales units that sell food or beverages for immediate
consumption within a place, the entrance to which is subject to an admission
charge; and
* Public and private carriers, such as trains and vessels, that
sell food or beverages for immediate consumption if a separate charge is made
for such food or beverages.
A restaurant is open to the public for purposes of this
subsection (2) (e) if members of the public can be served as guests.
"Restaurant" does not include businesses making sales through vending machines
or through mobile sales units such as catering trucks or sidewalk vendors of
food or beverage items.
(3)
Wholesaling B&O tax.
Persons making sales of prepared meals to persons who will be reselling the
meals are subject to the wholesaling B&O tax classification. Sellers must
obtain a copy of the purchaser's reseller permit to document the wholesale
nature of any sale as provided in WAC
458-20-102 Reseller
permits.
(4)
Service and
other business activities B&O tax. Compensation received from owners
of vending machines for allowing the placement of those machines at the
restaurant, cocktail bar, tavern, or similar business is subject to the service
and other business activities tax. WAC
458-20-187. Persons operating
contests of chance should refer to WAC
458-20-131.
(5)
Deferred sales or use tax.
If the seller fails to collect the appropriate retail sales tax, the purchaser
is required to pay the deferred sales or use tax directly to the department.
(a) Retail sales tax or use tax applies to
purchases of dishes, kitchen utensils, linens, and items that do not become an
ingredient of the meal.
(b) Retail
sales tax or use tax applies to purchases of equipment, repairs, appliances,
and construction.
(c) Retail sales
tax or use tax does not apply to purchases of food or beverage products that
are ingredients of the meals being sold.
(d) Retail sales tax or use tax does not
apply to purchases of paper plates, paper cups, paper napkins, toothpicks, or
any other articles that are furnished to customers, the first actual use of
which renders such articles unfit for further use, when purchased by
restaurants and similar businesses making actual sales of meals.
(6)
Combination
business. Persons operating a combination of two kinds of food sales, of
which one is the sale of prepared food (i.e., an establishment, such as a deli,
selling food products ready for consumption and in bulk quantities), should
refer to WAC
458-20-244 for taxability
information.
(7)
Discounted
meals, promotional meals, and meals given away. Persons who sell meals
on a "two for one" or similar basis are not giving away a free meal, but rather
are selling two meals at a discounted price. Both the retailing B&O and
retail sales taxes are calculated on the reduced price actually received by the
seller.
Persons who provide meals free of charge to persons other than
their employees are consumers of those meals. Persons operating restaurants or
similar businesses are not required to report use tax on food and food
ingredients given away, even if the food or food ingredients are part of
prepared meals. For example, a restaurant providing meals to the homeless or
hot dogs free of charge to a little league team will not incur a retail sales
or use tax liability with respect to these items given away. A sale has not
occurred, and the food and food ingredients exemption applies. Should the
restaurant provide the little league team with soft drinks free of charge, the
restaurant will incur a deferred retail sales or use tax liability with respect
to those soft drinks. Soft drinks are excluded from the exemption for food and
food ingredients. WAC
458-20-244.
(8)
Sales of meals, beverages and food
at prices that include retail sales tax. Persons may advertise and/or
sell meals, beverages, or any kind of food product at prices including retail
sales tax. Any person electing to advertise and/or make sales in this manner
must clearly indicate this pricing method on the menus and other price
information. WAC
458-20-107.
(9)
Spirits, beer, and wine restaurant
licensees. Restaurants operating under the authority of a license from
the liquor and cannabis board to sell spirits, beer, and wine by the glass for
on-premises consumption generally have both dining and cocktail lounge areas.
Customers purchasing beverages or food in lounge areas may not be given sales
invoices, sales slips, or dinner checks, nor are they generally provided with
menus.
(a) Many spirits, beer, and wine
restaurant licensees elect to sell beverages or food at prices inclusive of the
retail sales tax in the cocktail lounge area. If this pricing method is used,
notification that retail sales tax is included in the price of the beverages or
foods must be posted in the lounge area in a manner and location so that
customers can see the notice without entering employee work areas. The
department presumes that no retail sales tax has been collected or is included
in the gross receipts when a notice is not posted and the customer does not
receive a sales slip or sales invoice separately stating the retail sales
tax.
(b) The election to include
retail sales tax in the selling price in one area of a location does not
preclude the restaurant operator from selling beverages or food at a price
exclusive of retail sales tax in another. For example, a spirits, beer, and
wine restaurant licensee may elect to include the retail sales tax in the price
charged for beverages in the lounge area, while the price charged in the dining
area is exclusive of the retail sales tax.
(c) Spirits, beer, and wine restaurant
licensees are not required to post actual drink prices in the cocktail lounge
areas. However, if actual prices are posted, the advertising requirements
expressed in WAC
458-20-107 must be met.
(d)
Examples.
(i) Example 1. XYZ Restaurant operates both a
cocktail bar and a dining area. XYZ has elected to sell drinks and appetizers
in the bar at prices including the retail sales tax while selling drinks and
meals served in the dining area at prices exclusive of the retail sales tax.
There is a sign posted in the bar area advising customers that all prices
include retail sales tax. Customers in the dining area are given sales invoices
that separately state the retail sales tax. As an example, a typical well drink
purchased in the bar for $7.00 inclusive of the retail sales tax, is sold for
$7.00 plus retail sales tax in the dining area. The pricing requirements have
been satisfied and the drink and food totals are correctly reflected on the
customers' dinner checks. XYZ may factor the retail sales tax out of the
cocktail bar gross receipts when determining its retailing B&O and retail
sales tax liability.
(ii) Example
2. RBS Restaurant operates both a cocktail bar and a dining area. RBS has
elected to sell drinks at prices inclusive of retail sales tax for all areas
where drinks are served. It has a sign posted to inform customers in the bar
area of this fact and a statement is also on the dinner menu indicating that
any charges for drinks includes retail sales tax. Dinner checks are given to
customers served in the dining area that state the price of the meal exclusive
of retail sales tax, the retail sales tax on the meal, and the drink price
including retail sales tax. Because the business has met the sign posting
requirement in the bar area and has indicated on the menu that retail sales tax
is included in the price of the drinks, RBS may factor the retail sales tax out
of the gross receipts received from its drink sales when determining its
taxable retail sales.
(iii) Example
3. Z Tavern sells all foods and drinks at a price that includes the retail
sales tax. However, there is no mention of this pricing structure on its menus
or reader boards. The gross receipts from Z Tavern's food and drink sales are
subject to the retailing B&O and retail sales taxes. Z Tavern has failed to
meet the conditions for selling foods and drinks at prices including retail
sales tax. Z Tavern may not assume the gross receipts include any retail sales
tax and may not factor the retail sales tax out of the gross
receipts.
(10)
Gratuities. Tips or
gratuities representing donations or gifts by customers under circumstances
which are clearly voluntary are not part of the selling price and not subject
to tax. However, mandatory additions to the price by the seller, whether
labeled service charges, tips, gratuities or otherwise are part of the selling
price and are subject to both the retailing B&O and retail sales
taxes.
Statutory Authority:
RCW
82.32.300,
82.01.060(2), and
2011 c 55. 12-07-060, § 458-20-124, filed 3/19/12, effective 4/19/12.
Statutory Authority:
RCW
82.32.300,
82.01.060(2),
chapters
82.04,
82.08,
82.12 and
82.32 RCW. 10-06-069, §
458-20-124, filed 2/25/10, effective 3/28/10. Statutory Authority:
RCW
82.32.300. 93-23-018, § 458-20-124,
filed 11/8/93, effective 12/9/93; 83-07-034 (Order ET 83-17), §
458-20-124, filed 3/15/83; Order ET 70-3, § 458-20-124 (Rule 124), filed
5/29/70, effective 7/1/70.