Sales tax is a perpetual thorn in the backside of many restaurant owners. We go into the restaurant business to follow a passion for creating great food and experiences for our guests – not to become uncompensated tax collectors for states. Yet that is exactly what restaurant owners are. Wouldn’t it be great if there was a way to automate sales tax management to make it more efficient?
How Sales Tax is Collected
At the most basic level, sales tax management is about cash. But cash management for a busy restaurant owner can be challenging because of time restraints and the amount of revenue flowing in and out of their bank account daily.
Sales tax collection is an antiquated system that dates back to a time when transactions were only made with cash. Today the vast majority of payments are made electronically, yet sales tax is still managed as if they were cash transactions.
In an ideal world, merchants wouldn’t have to worry about managing sales tax. It would be automatically set aside as collected and paid to the state in one seamless process from start to finish, similar to the way payroll taxes are handled. Since restaurant owners gain zero benefits from the sales tax collection process, they shouldn’t be wasting valuable resources managing it.
Pro Tip: State and Federal laws require businesses to collect payroll taxes from employees and sales tax from customers and remit it to the government. There is a misconception amongst businesses that says, “I collect sales tax, therefore I can use it to run my business.” This is an urban myth; it’s actually illegal to use tax revenue as working capital.
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Issues with Sales Tax Management
Owners have a legal responsibility to collect taxes, hold them harmless and secure, and remit them to the government, on time and in full. Many restaurant owners are unaware that states hold them personally responsible if taxes are mismanaged or unpaid.
Nobody likes paying taxes, but as a restaurant owner, it comes with the territory. You gain zero benefits from being a tax collector, so sales tax should be managed as efficiently as possible – that means reducing the costs, time, and stress that come along with the responsibility.
Currently, to manage sales tax, restaurant owners have limited options which all require time and money. They can do it themselves or hire a bookkeeper or accountant, but none of these options are ideal or even close to the ease-of-use offered by an automated solution.
Sales tax is part of the daily flow of credit card and cash deposits being made into a restaurants bank account. The problem is keeping track of what money is working capital that you can use to run your business and what portion is sales tax that belongs to the state. Co-mingling sales tax with working capital funds makes it difficult to know which is which, making it easy and tempting to use sales tax dollars to run the business.
This creates a “mission control, we have a problem” moment when it’s time to remit sales tax to the state and there aren’t enough funds available. This can be especially challenging when sales tax payments are due during the offseason or at the same time as a bi-weekly payroll.
Automating Sales Tax Management
When faced with the choice of paying employees or the state, most owners pay their staff first and worry about paying the state later. Missing a sales tax payment deadline results in huge fines and penalties that come right off the bottom line and out of the owner’s wallet.
This is such a huge waste of hard-earned profits, not to mention the unnecessary stress of worrying about when and how sales tax will get paid or thinking about a delinquency letter from the state demanding payment of sales tax. But it doesn’t have to be.
An automated sales tax software like DAVO Sales Tax can help. Once installed on your POS, DAVO automatically sets your sales tax aside daily and then files and pays it when due, on time and in full, guaranteed. You don’t have to do anything besides run your business and accept payments – the entire process is automatic and seamless. DAVO guarantees your sales tax will be filed on-time so you can spend more time following your passion and fulfilling your guest’s expectations.
If you’ve paid late and been hit with fines and penalties or you just hate sales tax management, you should outsource it to a professional. Collecting and remitting sales taxes is a part of owning any business and it should be managed with machine-like efficiency – not something that costs you money and causes stress.