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Special Tax Issues For Restaurants

Restaurant owners are subject to multiple tax obligations. In addition to state and federal income tax, localities may also impose sales taxes. In Massachusetts, the state charges a 6.25% sales tax on meals sold by restaurants. Restaurants must register as a vendor with the Massachusetts Department of Revenue and timely send in their sales taxes on the appropriate Massachusetts meals tax return.

Restaurant Owners Face A Higher Risk Of Audit

Tax laws require restaurant owners to keep complete and accurate records of their gross receipts (taxable and non-taxable sales). These sales are reported on monthly sales tax returns. In addition, the sale of alcoholic beverages is generally separately itemized. Yet since many restaurants have a cash business model, this recordkeeping requirement can be daunting.

Not surprisingly, restaurant owners have a higher likelihood of audit than many other types of businesses.

Potential Tax Penalties

There are various reasons that state tax authorities may disagree with a restaurant owner’s reported tax liability. Underreporting is a clear example, when authorities suspect a restaurant has not fully reported its cash receipts. However, an audit may also arise for late-filed returns.

If an audit results in sales tax liability, this can implicate severe tax fines and penalties for late payment. If tax authorities find evidence of tax fraud or evasion, a restaurant owner may be assessed the civil tax fraud penalty and also be criminally charged.

Take A Proactive Approach

We understand the challenges facing restaurant owners, and we have represented many owners embroiled in tax audits. Our proactive counsel can examine your business methods and streamline procedures. We generally recommend electronic filing of returns and a coordinated approach to determine a restaurant’s total tax liabilities, including federal and state income taxes, sales taxes, and withholding taxes.

Contact An Experienced Boston Tax Attorney

Whether you are facing an audit or want to safeguard your restaurant operations, we have the experience to assist you. Your communications with us are also confidential, protected by the attorney-client privilege. To schedule an initial consultation with an experienced tax lawyer, call 866-485-7019 or complete our online contact form.