Tax Considerations for Restaurants Entering New Markets

by Adam Berebitsky, BDO Tax Partner

Today the average family’s schedule is faster-paced than before. As traditions around the dinner table reflect that change, the restaurant industry is growing at staggering rates. In fact, according to the National Restaurant Association State of the Industry report, 2017 restaurant industry sales are expected to top $800 billion. For new restaurant concepts entering the market, it is critical that state and local tax aspects be considered prior to opening the restaurant’s doors.

State and Local Business License Registrations

The first step for restaurant concepts entering new markets is to determine whether there are any state or local, including county or city, business registration applications that are required to be filed. A business license requirement is based on the specific restaurant location and an annual license fee for the benefit of operating in that jurisdiction may apply. Each jurisdiction is different with respect to its registration process. Most states have simplified the process and allow taxpayers to file the registration electronically, allowing the state to process registration applications quicker. In addition to an initial registration, an annual license renewal may be required.

Income, Sales and Use Tax, Employment and Personal Property Tax Registrations

Depending on state rules, a restaurant may be required to register for income, sales and use, employment and personal property tax. Some states, such as Florida, Maryland and Virginia, allow a taxpayer to register for all of these taxes using one form. Other states may require separate registrations for each type of tax. Once registered, the restaurant will be required to file tax returns on a periodic basis depending on the type of tax.

Establishing solid procedures at the onset of opening the restaurant will be important to avoid the pitfalls of delinquent tax return filings and unanticipated tax liabilities.

Miscellaneous Tax and License Registrations

Depending on the type of restaurant concept that a company is operating, there are various licenses that need to be considered. Although not an all-inclusive list, several examples of taxes and licenses include a food service facility license, liquor license, restaurant license, convention and tourist taxes, litter tax and alcohol/beverage permits. Each tax or license may be administered by a different state agency, which adds complexity to the registration process.

Because tax and license registrations vary by state, it is important that an investigation is performed to identify and understand the requirements in each operating jurisdiction. Careful planning is critical to make sure the appropriate licenses and registrations are in place prior to opening a restaurant location so that the company can focus on operating the business and servicing customers—two very important components of success in the ever-changing restaurant landscape.

This article originally appeared in BDO USA, LLP’s “Restaurant Selections” newsletter (Winter 2018). Copyright © 2018 BDO USA, LLP. All rights reserved. www.bdo.com