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Retailers Must Pay Sales Tax on Certain Give-Aways
Effective October 1, 2009, restaurants and other retail establishments must now pay sales tax on items given away to customers with the required purchase of another product. Generally, this policy change will have little effect on restaurants because most of the items that they buy are exempt from sales and use tax as "food and food ingredients."
However, according to the Wisconsin Department of Revenue (DOR), this new policy does apply to some items purchased and given away by restaurants -- items that don't qualify for that "food and food ingredient" exemption. This would include soft drinks, candy, packaging such as the disposable cups and straws that go with a "free" soda, and other items.
"It's easy enough to continue offering your customers special promotions by charging a nominal price for your promotional give-away items," said Pete Hanson, WRA Director of Government Relations. "If you charge one dollar or even one penny for an item instead of giving it away, then the tax is paid on that amount as the final transaction price."
According to Hanson, when you use a non-food item in a promotion, you want to make sure the transaction price is higher with the promotional item included, and you want to avoid using the word "free." In other words, if you normally sell a soft drink for $1.79, you can avoid having to calculate and pay tax on your cost of an extra soda by saying "two for $1.89" rather than "buy one, get one free."
Access the DOR article "Items Given Away for Free - Change in Wisconsin Sales and Use Tax Treatment Effective October 1, 2009"
Local Sales Tax Hikes: Fond du Lac and Milwaukee Counties
A local sales tax of 0.5 percent in Fond du Lac County went into effect on April 1, 2010. All restaurants and other retail establishments in Fond du Lac County will be expected to pay the extra half-penny for every dollar in sales of taxable items when they pay their Q2 sales taxes to the state Department of Revenue (DOR).
In Milwaukee County, the local Food and Beverage tax increases from 0.25 percent to 0.5 percent on July 1, 2010. The increased tax would be reported on the return for the period that begins July 1, 2010. A monthly filer would report the new rate on the July 2010 return due by August 31 while a quarterly filer would report the new rate on their 3rd quarter return due by the end of October 2010.
Items that are taxable under the local Food and Beverage tax are all prepared foods, candy and soft drinks sold in Milwaukee County. Prepared foods sold for carry-out (off-premise) consumption are taxable as well. POS systems that are currently programmed to charge the local tax only on dine-in sales will have to be reprogrammed to charge the tax on all sales of prepared foods.
Read more details in the DOR's March 2010 Sales and Use Tax Report
Sales to Restaurant Employees
According to the Wisconsin Department of Revenue, a sales and use tax exemption is provided for sales of and the storage, use, or other consumption of candy, soft drinks, dietary supplements, prepared foods and disposable products that are transferred with such items, furnished for no consideration (i.e. at no cost) by a restaurant to the restaurant's employee during the employee's work hours. However, effective October 1, 2009, a restaurant’s sales of such items to employees are subject to tax.
Signage: Drink Prices in Bar and Dining Room Include Sales Tax
Sales tax must be charged on all alcoholic beverages sold.
Wisconsin statutes require that customers must be notified when prices include sales tax. Post a sign in a conspicuous location stating “all drink prices include sales tax.” Operators may also provide customers with a receipt which separately itemizes the tax or states “prices include sales tax” or conspicuously post the bracket system card, S-213 or S-218 issued by the Department of Revenue.
WRA sells a cardstock poster for $1 (plus sales tax of course) that simply states “All drink prices include sales tax.” Call 800.589.3211 to order. WRA also has free signs available to restaurateur members in the Members Only section stating: All drink prices include sales tax. Download the larger version or the smaller size.
WRA Members: for additional details and resources on this topic, refer to the email member alert sent on June 14th. Call 800.589.3211 if you did not receive this alert.
Not a member? Contact WRA at 800.589.3211 to find out how you can stay informed with timely alerts and restaurant operations resources you just can’t find anywhere else.
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