The state of Nevada is a major hub for bars and restaurants, which qualify for sales tax at 4.6%, reaching up to 8.375% due to local taxes. The Nevada Department of Taxation provides a detailed guideline concerning how to handle taxable property for businesses in the state, including restaurant and bar owners. In general, prepared food and beverages are taxable, which is essential for business owners to familiarize themselves with when billing their customers and filing sales taxes.
The following is a breakdown of how the Nevada applies sales tax on items and services offered in food and beverage establishments.
This definition includes food prepared for immediate consumption:
- Food sold as heated or in a heated state by the seller
- Food sold together with utensils provided by the seller, such as plates, knives, forks, glasses, spoons, napkins, or cups
- Two or more food ingredients combined or mixed by the seller, to be sold as a single item.
The sales tax rate for prepared food is 6.825%.
Overall, the sales price of a meal adds up to the following costs:
- Food and food ingredients
- Alcoholic and nonalcoholic beverages
- Paper products including napkins, "to-go" containers, straws, toothpicks, plastic cups/glasses, and place settings
Further, coupons and discounts apply in determining the sales price. The NRS 372.025 provides a definition of gross receipts, which excludes cash discounts allowed or received on sales.
For discounts, tax is computed after the discount is allowed. This is the difference between the price of the meal and the discount, which gives the taxable amount.
Restaurant owners also calculate coupons as:
- "Two for one" coupon: Tax charged on a single meal.
- Percent-off coupons: Receives similar treatment as a discount percentage.
- Dollar amount coupons: This is treated the same as percent off coupons, provided it doesn't include the wholesale.
- Use tax is always due: This is based on the product cost of all alcoholic beverages and paper products.
Restaurants and bars that offer qualified services are obligated, in Nevada, to collect and remit sales tax accordingly.
The services include:
- Clean up
- Carving fees
- Set up service
- Mandatory gratuities (not taxable if the whole amount is transferred to employees)
Nevada Sales Tax Nontaxable Services
There are, however, other services that are exempt from sales tax:
- Renting out rooms
- Tips voluntarily offered to servers
Business owners are also advised not to impose sales tax on certain bodies and organizations:
- The State of Nevada
- The US government
- Exempt entities including churches, charities, and schools
- Some members of the Nevada National Guard and their families
It's important to note that there needs to be proof of documentation like exemption certificates to claim the exempt status for the entities and not the employees.
The state of Nevada also considers alcoholic beverages such as beer, liquor, and wine as taxable. Other taxable beverages include coffee, coffee substitutes, and tea which are served for immediate consumption. The tax code obligates bars to have a statement or sign showing the customer they have charged sales tax.
Complimentary Meals and Drinks
Nonalcoholic beverages and food offered as a complimentary to patrons and employees are no longer taxable since June 13th, 2013. If it's a complimentary alcoholic beverage, taxes are imposed on the alcohol cost, garnishments, and paper products. The seller collects and pays the use tax. In this guideline, there are two examples elaborating on how to calculate the cost of complimentary drinks and how sales apply.
In case a restaurant or bar receives a complimentary ticket from another business with an agreement for reimbursement, then it qualifies as a sale for the restaurant.
Additional Information About Nevada Sales Tax on Restaurants and Bars
Any restaurant or bar that owns a vending machine is required to attach a visible permit on it and indicate a sign for items similar to bar sales on beverages. In addition, if there's an over taxation, the restaurant or bar owner can refund the excess to the customer or submit it to the tax department.
How to Minimize Sales Tax Audit Risk
It's good practice for businesses to be proactive in ensuring they plan well for their sales and use tax obligations to avoid being a target for an audit.
Here are some simple tips to apply:
- Avoid mismatch in sales and use tax filing: Irregularities in sales returns are a major trigger for most audit notices. One way to avoid this is to ensure your sales tax return has congruence with other third-party data, such as the federal income return and 1099-k reports. Irregular exempt sales can also trigger an audit.
- Always have your exemption certificates on hand: Make sure you and your employees have a policy of keeping track of all exemption certificates to avoid the headache of proving your taxable sales as nonexempt.
- Put in place a proper and reliable recording system: Maintenance of accurate records of all sales and purchases, including returns, provides a reliable inference for a business and even during an audit.
What Happens if You Receive a Sales Tax Audit Notice?
One of the key inquiries we get from our clients is how to deal with a Nevada sales tax audit. We advise you to involve a sales tax professional right away to help you undertake a pre-audit. A professional will advise you on which documentation is relevant, such as exemption certificates, POS receipts, and tax returns.
In 2021, the department of taxation announced a tax amnesty program which was valid from February 1st, 2021 through to May 1st, 2021, for eligible unpaid taxes, fees, or assessments. This also included sales taxes. In the meantime, it's imperative for Nevada restaurant and bar owners to be fully aware of all state and local taxes while ensuring they always maintain good records to avoid or survive an audit.
Learn More About the Nevada Sales Tax on Restaurants and Bars
Restaurant and bar businesses in Nevada have to acknowledge that the tax department will always solicit third-party reporting, identify and punish those who fail to collect and file sales taxes. For this reason, such establishments should organize and align their operations to promote compliance every tax year.