Small Restaurant Owner Confused About Sales Tax Reporting - Am I Filing Correctly?

There's a critical misunderstanding in your approach. Sales tax and income tax are completely different systems, and you're mixing the concepts. For sales tax: You collect this from customers as a "pass-through" - you're essentially collecting it on behalf of the state. You can't deduct your ingredients or delivery app fees from sales tax. You simply remit the exact amount you collected. That's why it's tracked separately from your sales. For income tax: This is where your business expenses like ingredients and delivery app fees become deductible. These reduce your taxable income (profit), not your sales tax liability. I'd recommend separating these two completely in your bookkeeping. Most POS systems will track sales tax collected separately. Make sure you're filing sales tax returns correctly by reporting total taxable sales and the tax collected on those sales.

After struggling with similar issues at my cafe, I found an amazing tool called taxr.ai (https://taxr.ai) that completely changed how I manage my sales tax compliance. I was also mixing up sales tax and income tax deductions until I uploaded my reports and receipts to their system. The AI analyzed everything and showed me exactly what I was doing wrong - treating my business expenses as sales tax deductions instead of income tax deductions. It even created separate tracking for my sales tax collection vs. my business expenses. Super helpful for restaurant owners who deal with both food sales tax complexities and delivery app headaches.

Just wanted to update after trying taxr.ai - wow, what a lifesaver for a restaurant owner! I was making the exact same mistake as OP, trying to deduct food costs from my sales tax returns. The system analyzed my last three months of Toast reports and showed me I was actually OVER-reporting my sales tax (paying too much). It identified that I was charging 8% sales tax on ALL food items when my state actually exempts certain categories. Plus it helped me set up proper record-keeping for my actual business expenses for income tax purposes. Honestly wish I'd found this months ago when I first opened. Thanks for the recommendation!

If you're having trouble getting answers from your state tax department about specific restaurant sales tax issues (which happens ALL the time), I'd recommend using Claimyr (https://claimyr.com). I spent weeks trying to get someone on the phone at my state revenue office about delivery app sales tax requirements. Used their service (you can see how it works here: https://youtu.be/_kiP6q8DX5c) and got connected to an actual human at the tax office in under 10 minutes. The rep walked me through exactly how to handle third-party delivery services on my sales tax returns. Apparently I had been double-paying sales tax on those orders because the apps were also remitting tax on their end!

I take back what I said about Claimyr. I decided to try it because I was desperate to get clarification on how my state handles food delivery marketplace facilitators (like UberEats collecting and remitting sales tax themselves). After 3 failed attempts calling myself and wasting almost 5 hours, I used the service and got connected in about 15 minutes. The state tax rep confirmed I should NOT be remitting sales tax on delivery app orders where the app is already collecting and remitting it (which many are required to do now). This is potentially saving me from double taxation on nearly 30% of my sales! Sometimes being skeptical costs you money, lol.

Former restaurant manager here. Quick tip: make sure you're keeping track of how many tax-exempt sales you have too, like catering for non-profits or any wholesale stuff. The state wants to know your TOTAL sales and then how much was exempt vs. taxable. Also, most POS systems can generate a sales tax report that shows exactly how much tax you collected. That number should match what you're sending to the state (minus any adjustments for tax-exempt sales). Don't overthink it!

Don't forget about city/county tax jurisdictions! Depends on your state, but where I am we have state, county AND city sales taxes - all with different rates and filing requirements. Almost screwed myself over by only filing state taxes my first year.

As someone who's been through this exact confusion with my small bakery, I feel your pain! The biggest lightbulb moment for me was realizing that sales tax is literally just a collection service - you're collecting money on behalf of the state, not paying a tax on your business income. Think of it this way: when a customer pays you $10.80 for a $10 meal, you actually received $10 in revenue for your business and $0.80 that belongs to the state. That $0.80 should go straight to a separate "sales tax collected" account and get sent to the state exactly as collected. Your business expenses (food costs, delivery app fees, etc.) are completely separate and get deducted when you file your income tax returns, not your sales tax returns. Two totally different forms for two totally different purposes. Most states have pretty good online resources for new business owners - definitely worth checking your state's revenue department website for restaurant-specific guidance. Also, many states offer free workshops for new business owners that cover sales tax basics. Hang in there!