How Much Is Tax at Restaurants & How Is It Calculated?

Dining out often involves more than just the menu price, as taxes are added to the final bill. These taxes are sales taxes, levied by state and local governments on the sale of prepared food and beverages. Understanding how these taxes are applied can provide clarity on the total cost of a restaurant meal.

Sales Tax on Restaurant Meals

The main tax diners encounter on restaurant bills is sales tax, a consumption tax applied at the point of sale. This tax is collected by the restaurant from the customer and then remitted to the appropriate tax authorities. Sales tax is imposed at the state level, with additional taxes added by county and city governments.

While most states have a statewide sales tax, some, such as Alaska, Delaware, Montana, New Hampshire, and Oregon, do not. However, even in states without a statewide sales tax, local jurisdictions may still implement their own. Sales tax is collected on prepared food and beverages, differentiating them from most unprepared grocery items, which are often exempt or taxed at a lower rate.

How Restaurant Tax Rates Vary

Restaurant tax rates are not uniform across the country and differ significantly based on location. The total tax rate a diner pays is a combination of state, county, and city sales taxes. For example, a state might have a base sales tax rate, and then individual counties or cities can add their own percentages. This layered approach means the tax rate for a meal purchased in one municipality can differ from an identical meal purchased in a neighboring one.

Beyond general sales taxes, some jurisdictions impose additional taxes specifically on prepared foods or restaurant meals, sometimes referred to as “meals taxes.” Special district taxes, such as those for transit, stadiums, or tourism, can also be levied on restaurant purchases in certain areas. These additional taxes can result in combined rates exceeding 10% in some major cities.

What Is Taxed at Restaurants

Sales tax applies to prepared food items and both non-alcoholic and alcoholic beverages sold at restaurants. This includes meals consumed on-premises (dine-in), as well as food and drinks prepared for takeout or delivery. While most prepared foods are taxable, some states have specific exemptions for certain items, such as cold prepared foods or bakery goods sold without utensils.

A common point of inquiry concerns service charges and gratuities. Voluntary tips left by customers are not subject to sales tax, as they are considered discretionary payments. However, mandatory service charges or mandatory gratuities that are automatically added to a bill are considered part of the taxable sales price of the meal and are subject to sales tax. This applies even if the mandatory charge is later distributed to employees, unless specific conditions are met, such as being separately itemized and fully distributed.

Calculating Restaurant Tax on Your Bill

The sales tax on a restaurant bill is calculated as a percentage of the subtotal of all taxable items. To determine the tax amount, the combined sales tax rate (state, county, and city) is applied to the pre-tax total of your food and beverage purchases. For instance, if the pre-tax total is $50 and the combined tax rate is 9%, the sales tax would be $4.50.

The tax amount is typically itemized and displayed separately on your receipt, usually below the food and beverage subtotal and before any voluntary tip line. Diners can perform a quick mental check by multiplying their subtotal by the local tax rate to verify the sales tax calculation. This provides transparency and allows customers to understand the total charges on their bill.