New Jersey – Bulletin on Taxability of Restaurants Revised

SALT Report 2243 – The New Jersey Division of Taxation recently revised their sales and use tax bulletin for the restaurant industry. Businesses that sell prepared foods and beverages, such as restaurants, taverns, snack bars, and caterers, are responsible for a number of New Jersey taxes.

Purchases by Restaurants

Restaurants, caterers, and other food service establishments are required to pay sales or use tax on supplies purchased for use in their businesses.  However, because the Sales and Use Tax Act provides certain exemptions from sales tax, a restaurant may purchase certain goods and services from a supplier without paying sales tax.

The exemption generally applies to prepared foods and beverages, such as candy, soft drinks, and alcoholic beverages that will be resold.  As well as, products that are either non-returnable containers or wrapping supplies or, are incidental to the delivery of prepared food to the customer. When purchasing these items, the restaurant must issue their supplier a New Jersey Exempt Use Certificate Form ST-4 or the Streamlined Sales and Use Tax Certificate of Exemption Form ST-SST.

Sales and Use Tax

Prepared food and beverages, including alcoholic beverages, sold in restaurants are subject to New Jersey sales tax whether eaten in the restaurant or taken and consumed off the premises. This includes prepared food and beverages sold by drive-in/drive-through restaurants, food service and hot dog carts, and other mobile service facilities.

Gratuities

Tips and gratuities are not subject to tax when:

  1. The charge is separately stated on the bill or guest check given to the customer,
  2. The charge is specifically designated as a gratuity, and
  3. All monies received by management are paid in total to the employees

The bulletin also discusses the sales tax rules that apply to exempt organizations, service charges, alcoholic beverages, laundered items, and also briefly describes other taxes administered by the Division that a restaurant or food-related business may be subject to.

For Further Information
New Jersey Division of Taxation – Tax Bulletin S&U-1