How Marketplace Facilitators Play a Key Role in Restaurants & Food Delivery Services
Restaurants and food operators are facing rapid changes in their business model fueled by technology advancements as well as pandemic restrictions.
With COVID-19 restrictions and social distancing, many restaurants are continuing to adapt to the ever-changing environment in 2021 and beyond. Many restaurants have seen the number of in-store patrons rapidly drop in the past year, and some have taken other venues to sustain their restaurant business. Naturally, many restaurants and food operators are turning to online ordering and delivery platforms in the hopes of attracting customers by allowing them to browse their menus and select options for quick home delivery meals.
While online delivery services might sound appealing in this environment, there is some uncertainty and confusion regarding who is now responsible for collecting sales and use taxes and food and beverage taxes on sales going through these platforms. Is the restaurant owner/food operator or the delivery platform and marketplace facilitator (Uber Eats, Grubhub, DoorDash, etc.) responsible for collecting and remitting these transaction-level taxes?
Marketplace facilitators are entities that own or operate an online platform to facilitate sales of goods or services through a platform or app. In many instances, the platform either directly or indirectly processes sales or payments for transactions completed through the app. In the hospitality industry, popular marketplace facilitators include Uber Eats, Grubhub, DoorDash, etc. Throughout the last couple of years, many states have begun adopting marketplace facilitator laws requiring the marketplace facilitator to collect and remit sales and use tax on transactions going through its platform.
Effect on Restaurant Owners & Food Operators
Restaurants that work with marketplace facilitators face the challenge of determining whether the marketplace facilitator platform collects and remits sales and use tax on food orders or whether it is still the restaurant’s responsibility to do so. Since marketplace facilitator laws differ by state, the same platform may be considered a marketplace in one state—and required to collect and remit sales tax—but not in another state, making it more challenging for restaurant operators. Also, not all platforms are created equal, and one platform may be subject to marketplace facilitator laws while similar platforms are not in the same exact state. For instance, restaurants working with DoorDash in Oklahoma must continue to remit their sales tax directly to the state, but when working with Uber Eats in the same state, Uber Eats will collect and remit sales tax on food orders instead of restaurants. In addition, some platforms may be considered a marketplace facilitator and required to adhere to sales tax collection laws for grocery items delivery but not restaurant/ready-to-eat food delivery or vice versa. It is important for restaurants to review their contract with their food delivery platforms as well as the platforms’ websites to determine the states in which the platform collects sales tax and the effective date of this sales tax collection responsibility.
There also is the issue of other food and beverage taxes, e.g., soda tax, mixed beverage, beer and wine tax, and other excise taxes. If the platform is responsible for collecting sales and use tax on food orders, it does not automatically mean the platform will collect these other types of taxes; they may remain the restaurant’s responsibility to remit to the state. There also are differences in how each platform may choose to handle those types of taxes. For example, in Uber Eats’ marketplace facilitators terms and conditions, Uber Eats indicates the platform would not remit these taxes to the states and it would be the restaurant’s responsibility to do so. To contrast that with DoorDash, the platform has indicated it will collect and remit other taxes in addition to sales tax like sugary beverage taxes. These tax collection determinations are constantly changing and evolving, as are the differences between states and platforms, creating a complex environment for the hospitality industry. After performing an internal review, if a restaurant determines that for any periods both the platform and the restaurant have remitted sales taxes on the same food orders, the restaurant may be able to file for a refund with the state to recover overpaid sales taxes.
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