How to save time and sanity with sales tax automation
Learn how restaurant sales tax automation can help you win-back time to focus on the tasks that help your bottom line.
DISCLAIMER: This content is provided for informational purposes only and is not intended as legal, accounting, tax, HR, or other professional advice. You are responsible for your own compliance with laws and regulations. You should contact your attorney or other relevant advisor for advice specific to your circumstances.
A restaurant is a business of a thousand details – from back office tasks to ordering food to managing employees. The list goes on. Your time is far too valuable to waste on the generous helping of complicated and time-consuming tasks that fall on your plate. What’s more, these increasingly complex tasks are often prone to human error. Thankfully in this day and age, restaurateurs have a multitude of automation technology available to them, including sales tax automation.
Sales tax management in particular is a task that requires attention to detail and a good cash management system. First, as a restaurant owner, it is your responsibility to familiarize yourself with state and local tax rates so that you can accurately collect sales tax from every transaction. Then, you must be able to report on a breakdown of all of your taxable sales, pay and file multiple times a year. Perhaps most importantly, you must also have a system in place to keep track of the cash needed for sales tax money – money that really belongs to the State – in order to ensure that you have the correct sales tax funds set aside when they are due.
You didn’t get into this business to become a tax collector, but the State imposes this additional requirement on restaurant owners. This burden effectively makes you act as a sales tax agent for the State. Sales tax adds another layer of responsibility to your already very full plate – one that comes with more risk than you may realize.
Restaurant sales tax automation can eliminate the entire complicated, manual process and along with it, the risk of human error and missed deadlines which can result in costly fines. Not only can you rest easy knowing that your sales tax is being done correctly, you can also win back time – a truly hot commodity in this industry. Who doesn’t want more time to focus on growing your business, training your team or other priorities?
What is restaurant sales tax automation?
Restaurant sales tax automation completely handles the sales tax process from start to finish so that you don’t have to spend time managing the State’s money, keeping track of deadlines, or filing and paying when those deadlines come along. You could think of it as ADP, Gusto or Paychex for sales tax.
A sales tax automation app uses sales data from your POS handheld to automate the entire sales tax process from end to end. The app gathers daily transactional sales data from your device – this includes all transactions – cash, credit, debit, refunds, gift cards and 3rd party apps. At the end of every day, sales tax associated with these transactions is totaled and a debit request is issued to your bank account to transfer funds to a secure tax holding account for safekeeping until it is time to file and pay. This part of the automation process is crucial because the funds – often thousands of dollars that really belong to the State – will not be mistaken for income.
With the sales tax funds safely set aside, the app then automatically files and pays with the State when due. This guarantees that sales tax is always paid on time and in full. At the end of each tax period, a reconciliation is completed. This reconciliation ensures that the calculations made from your POS are accurate and that the totals match the funds that have been set aside. Once the reconciliation is complete, a tax return is automatically completed and filed with the State – and the set aside sales tax funds are used to make a payment to the State on your behalf. The deadlines and paperwork are off your plate.
Setting up and implementing a sales tax automation solution is a quick and easy process. As the business owner, you are still responsible for determining the correct sales tax rate to set for each item or product in your POS system. Once you have the sales tax rate configured, you enter a few details about your business and tax ID. Set-up is complete! The sales tax funds that will be due to the State are set aside for safe-keeping and the app will automatically take care of the rest. Just as autopilot on a plane requires a pilot to check the gauges, a good sales tax automation app keeps you in the loop with daily emails including how much sales tax was taken out along with a short sales summary of the previous day. In five minutes or less, your sales tax process is automated.
Why is it so important to set sales tax funds aside daily?
Without a good sales tax cash management system in place, restaurants run the risk of coming up short when it comes time to pay. Penalties are harsh.
In this fast-paced business it’s easy to mistake sales tax funds that really belong to the State for working capital. In a moment when you find yourself suddenly needing to replace a crucial piece of equipment, what seems like cash in hand turns out to be someone else’s money. Restaurant owners may innocently misspend sales tax funds, if they have not been accurately accounted for and set aside.
If your restaurant comes up short when it is time to file and pay, the penalties for failure to pay taxes can be burdensome. Late payment fines can add up quickly. What’s more, in some states it is a criminal offense to be 90 days late on your taxes, and a warrant can be issued for your arrest. Some states even have a “shame” list.
Restaurant owners may be personally liable for sales tax, even if the business is sold or folds. Sales tax debt can’t be discharged in bankruptcy. In other words, it never goes away! No one wants the burden of sales tax debt preventing them from realizing their dreams or moving forward in life.
Many restaurant accountants and bookkeepers recommend sales tax impounding, or the practice of setting aside funds to pay a tax burden. A sales tax automation app automates sales tax impounding. Everyday, the funds are set aside and transferred to a secure tax holding account. With this automated cash management in place, the risk of mistaking sales tax for income or misspending money that really belongs to the State is eliminated.
Automatically setting sales tax funds aside daily reduces risk in an inherently risky business. Daily set asides also ensure that you will have the correct funds accounted for when it is time to pay sales tax to the State.
What are the benefits of restaurant sales tax automation?
Running a restaurant is task overload. Time is in short supply. The more time-intensive manual tasks that you can automate, the better for your bottom line and your sanity. The primary benefit of restaurant sales tax automation is time and resource savings. Beyond that, there are many other ways that sales tax automation can benefit your business.
Eliminate the cost and risks associated with missed payment deadlines. Restaurant sales tax automation guarantees that you will not miss a sales tax payment deadline. You will no longer have to keep track of deadlines or worry about incurring late payment penalties and the fees associated with them. You never have to worry about sales tax again – or the criminal offense risks that are applicable after 90 days in some states.
Receive on-time filing discounts that may be available in your state. 27 states offer discounts or rebates for filing on time. If you operate in one of these states, your on-time filing discounts or rebates are automatically calculated, collected and refunded to you. Depending on how much sales tax you collect and your state’s discount, your refund may cover the cost of sales tax automation.
Rest easy knowing that your sales tax funds are set aside and accounted for on a daily basis. The daily set aside piece of restaurant sales tax automation ensures that you will not come up short when your sales tax is due. It also takes the guesswork out of cash management. These funds are moved into a secure holding account daily so that they can not be mistaken for income and spent on something else.
When you dreamt of running your own restaurant, “sales tax collector” probably wasn’t on one of the many hats you expected to wear, along with so many others. Consider sales tax automation to take one of the less glamorous or beneficial tasks off your already full plate.
As a former restaurant owner, David Joseph is no stranger to the struggles of restaurant sales tax. A self-proclaimed sales tax evangelist, David co-founded DAVO by Avalara, a sales tax automation platform that integrates directly with the point of sale.