Sales and use tax audits are on the rise, making it more important than ever that McDonald’s owner/operators accurately report all sales and purchases. Below are a few tips and general reminders on sales and use tax compliance.

1.     Sales and use tax laws vary by state.  If you prepare your business’s Sales and Use tax return and are unsure of all the specific state rules or would like a refresher, please contact us and we will get you some state specific information.  You may also find information on your state’s website.

2.     Recent audits focused not only on ensuring compliance with reporting and paying sales tax properly, but also on ensuring compliance with reporting and paying use tax properly. In general, purchases of tangible personal property for use, storage or consumption from vendors that do not charge sales tax, are subject to use tax. Therefore, it is important to keep up with a list of these vendors (generally out of state) that do not charge sales tax so that these purchases can be properly reported on a Sales and Use Tax return.

3.     If Sparkmon and Associates prepares your Sales and Use Tax returns, be sure to  forward to us any invoices for items purchased for your use on which sales tax was not paid. Generally, this does not apply to items purchased for resale (see #5 below).  Unless we are aware that sales tax was not charged on an invoice, we will not know to report the amount on the Use Tax return. It is especially important to send us any large equipment, signage, and leasehold improvement invoices on which sales tax was not paid.  

4.     In the event of an audit, you may be required to submit copies of invoices for items you purchased.  It is important to keep and review copies of all purchase invoices for at least 4 years, even if your purchase was paid via a credit card.  Note that in the event of audit, a copy of your credit card statement is not sufficient as documentation of items purchased.  You must provide actual copies of the invoices.  

5.     Georgia, like most states, has an exemption where items purchased for resale are not subject to sales tax. For example, if a McDonald’s owner/operator contracts with a company to purchase food and paper products for his or her restaurant, the owner/operator does not pay sales tax on purchases from the vendor because the product was bought with the intention to be resold. The expectation is that he owner/operator will charge his customer sales tax at the point of sale.

It gets trickier when product is given away as either a benefit to employees or customers through promotional events or a “Be Our Guest” card. In this case, items were not “sold” so the owner/operators would not need to pay sales tax; however, they would need to pay use tax.

On the flip side, owner/operators can end up paying too much in taxes if they are not careful. This happens most commonly on products sold at discount, such as buy-one get-one-free promotion. The sales tax should be calculated on the discounted price that is actually charged to the customer and not the regular price of the item.

6.     South Carolina does not charge a credit card convenience fee for online credit card payments for sales tax. Therefore, if your business is located in South Carolina, you may be able to pay your sales and use tax online through your business credit card and you may be able to earn points on your credit card.  This depends on the type of credit card you have.  As stated above, each state law varies.  In addition, laws change regularly so please contact us if you would like updated information on your state’s sales and use tax laws. 

7.     Below are couple of tips to protect against being assessed penalties and interest as a result of a sales tax audit:

• Properly report transactions that are subject to use tax. At the same time, do not report sales that are not subject to use taxes, such as “buy-one, get-one” transactions;
• File sales and use tax returns timely. For instance, an owner operator who purchases a piece of equipment out-of-state with no sales tax charged in June should include the sales tax calculations and pay the use tax in July when filing June sales;
• Assess food policies. If owner/operator gives away free food to their crew or managers, they should make sure to properly report use tax liability every month; and,
• Be sure your POS system is set up to properly record and report transactions.

 We appreciate your business.  Please let us know if you have any questions.