Restaurants Are Eligible for Manufacturing Exemptions in Texas

Thoughtware Alert Published: Jun 10, 2021
Warehouse storing inventory

Food operators and restaurants often make significant purchases of various kitchen equipment, tools, and supplies used to operate the business. Many of these purchases vary from small dollar amounts to extremely large expenditures of equipment used in multiple restaurant facilities. Texas food operators and restaurants often make these purchases without realizing there are potential sales tax savings for such equipment and supplies. Most vendors selling such equipment are not aware of the exemptions, and neither are many restaurants. 

Most food operators and restaurants also are now facing the present decline of in-store patrons due to the COVID-19 pandemic and are left to rely on online orders to help sell their food items. The COVID-19 pandemic has caused frustration for food operators and restaurants that are now trimming their operating costs and overhead to keep their business running. 

At present, Texas allows certain exemptions on certain kitchen processing equipment used to prepare food or beverages that are for sale. To qualify, the equipment has to make a change in the product rather than simply keeping it warm or cool. The exemption extends to various kitchen processing equipment like charbroilers, deep fat fryers, electric kettles, grills, soda machines, etc. The exemption applies to the original purchase of such equipment as well as subsequent repair parts and labor. Refrigerators, hand tools, dishwashers, and trash compactors—even though necessary in the food preparation process—generally do not qualify.

In addition, restaurants operating in Texas can claim a sales tax exemption on nonreusable items (such as plastic eating utensils, soda straws, and paper napkins) that are given to customers as part of their meals. Restaurants can purchase these items tax-free by issuing a resale certificate to their vendor. 

Furthermore, an exemption also is available for some items that are necessary to comply with regulatory requirements for public health. These items include hairnets, gloves, and other work clothing required by law and worn during food preparation, along with disinfectants used in the processing areas. However, employee uniforms and work apparel do not qualify for the exemption.

Lastly, employee meals or meals furnished to restaurant employees are eligible for the sales and use tax exemption if 1) the meals are provided to restaurant employees during the duration of their work shift (before, during, or after shift), 2) the meals are provided for the convenience of the restaurant owner, and 3) the employees are involved in preparing or serving the food. 

For more information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.

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