Under Texas Tax law, restaurants are considered manufacturers. The “manufacturing rule”; Texas Tax Code Section 151.318 provides sales tax exemptions for manufacturing equipment that directly makes or causes a chemical or physical change to a product held for sale. Equipment used in storage or transportation activities, however, is not exempt. Items that are necessary and essential to a quality control process that tests the product being manufactured for ultimate sale also are exempt. Comptroller Rule 3.300(d)(9) on manufacturing exemptions specifically restricts the quality control activity to the actual manufacturing process. In other words, if the quality control activity occurs prior to actual production or after the final wrapping and packaging, the items are not exempt. Packaging equipment, including wrappers, code dates, labelers and tapers, are exempt from sales tax when purchased by manufacturers for use as a part of the completion of the manufacturing process, as provided in Rule 3.300(d)(15). Note that some items are taxable or exempt depending on the item’s use. For example, paper towels used by a restaurant in the kitchen and in public areas are taxable, i.e. paper towels used in cleaning tables and counters do not qualify for exemption. Paper towels, however, that are furnished to customers with food or beverages may be purchased tax-free with either a resale or exemption certificate. But, paper towels used solely by food processing employees who must wash their hands to meet public health regulatory requirements will qualify for tax exemption. With dual-purpose items, such as paper towels, a restaurant must keep clear and convincing records regarding use in a manner that qualifies for exemption. The restaurant will be responsible for remitting the applicable use tax on any paper towels or similar items purchased tax-free that are subsequently used in a taxable manner. Below are three different lists of items purchased by restaurants. Refer to these lists to know what you should be paying tax on and what you can purchase tax free.
The list of taxable items below fall into the general classification of items that are clearly not tax exempt and include:
- items that hold, warm, cool, freeze, serve and/or display food;
- items that don’t contact food;
- non-powered utensils or hand tools;
- items that are used to prepare food to be given away;
- clothing, aprons and certain gloves not required by law or for public health requirements; or
- equipment and services used to operate a restaurant and not directly used to prepare food or beverages for sale.
For a detailed list of taxable supply items click here TAXABLE SUPPLY ITEMS FOR RESTAURANTS
The following items are considered non-taxable if used by a food service provider for the purpose of manufacturing food or drink for sale.
- makes or causes a physical or chemical change in the product being manufactured for sale;
- is used in a quality control process;
- is required by law or regulation for public health;
For a detailed list of non-taxable manufacturing items click this link NON TAXABLE MANUFACTURING (RESTAURANTS)
This last list includes items that are tax exempt if non-reusable, or ingredients being served to the customer with the product being sold, or if they are necessary and essential to comply with laws related to public health.
For a detailed list of non-taxable disposable items click this link NON-TAXABLE DISPOSABLE (RESTAURANTS)