The Pennsylvania Department of Revenue is taking a new initiative to support the restaurant industry in a two-fold approach that  was discussed in the PA Tax Update No.216 e-newsletter. The new initiative is intended to provide guidance and resources for the restaurant industry as well as to utilize the Departments resources more and to ease the burden on compliant businesses. Prior to this new initiative, Pennsylvania’s discovery and audit techniques resulted in very large sales and use tax assessments and in some cases, personal assessments. The assessments of tax resulted in difficult times for bars and restaurants to continue their business. The new initiative taken by Pennsylvania is a welcome change to an industry that has been severely hit due to the Covid-19 pandemic. Restaurants and bars should take a proactive approach to their sales and use tax requirements.

What is Taxable?

Pennsylvania has a 6% tax rate on the sale of food and non-alcoholic beverages regardless of getting takeout or dining inside an eating establishment. Alleghany and Philadelphia Counties, are subject to an extra sales tax rate of 1% and 2%.  An eating establishment is defined as “a business, or an identifiable location within a business, which advertises or holds itself out to the public as being engaged in the sale of prepared or ready-to-eat food or beverages, to customers for their immediate consumption on or off the property.” Eating establishments may or may not provide seating accommodations for their customers and can be mobile or immobile.

A few examples of eating establishments include:

• Amusement Parks
• Bars that serve food
• Carnivals
• Food Trucks
• Hotels
• Night Clubs
• Pizzerias
• Theaters

PA Department of Revenue has further guidance on what is considered an eating establishment.

What is Tax-Exempt?

The following would not be subject to sales tax and is outlined in the law as tax exempt.

• Alcoholic Beverages – except for a Wine Expanded Permit from the PA Liquor Control Board
• Bottled Water
• Candy & Gum
• Gift Cards
•  Tips
• Wearing Apparel

Registered charitable organizations that have a valid sales tax exemption number, are also exempt from tax for any food and beverages that was billed or paid by them.

What About Discounted Food Items?

Coupons, store discounts, employee discounts and on-spot discounts all establish a new purchase price when the item and discount are stated on invoice or register tape. 

Recordkeeping Requirements

It’s imperative that eating establishments keep well maintained records for the Department of Revenue in accordance with Regulation 34.2 Keeping of Records. Each store or outlet must have their own set of records that detail the amount of tax separate from the total sales. Electronic or hard copies of these records must be kept on file for the current and past three calendar years. Having detailed records of your establishment will ensure proper sales and use tax reporting.

If you have any questions on properly reporting sales and use tax for Pennsylvania purposes, please contact Jason Skrinak, CPA.