Menu Tax for US F&B Businesses: What’s Taxable and What’s Not

Running a food and beverage business in the US comes with important tax obligations. Sales tax rules differ by state and locality, but certain general guidelines apply across the board. For US small businesses, especially in food service, knowing which menu items are taxable is essential for accurate pricing, reporting, and compliance.

This blog explains what is typically taxed, what is exempt, and how professional accounting services can help small business owners stay compliant.

Understanding Sales Tax on Food and Beverage Items

Here’s how various food and beverage items are generally treated when it comes to sales tax:

Unprepared Food (Groceries)

• Usually not taxable

• Includes bread, raw produce, milk, and canned goods sold in their original packaging

• Typically exempt when sold for off-site consumption in grocery-style form

Prepared or Heated Food

• Usually taxable

• Includes hot meals, soups, reheated dishes, or anything made for immediate consumption

• Common in restaurants, cafés, and food trucks

Cold Prepared Food

• Varies by state

• Cold sandwiches, salads, and deli items may be taxable if sold as a combo or ready-to-eat

• If sold in bulk or for later consumption, may be exempt

Beverages

• Most are taxable

• Alcoholic drinks, soft drinks, flavored teas, and sugary beverages are generally taxed

• Some exemptions apply for beverages with 100% juice or medical necessity

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Candy and Confectionery

• Typically taxable

• Includes chocolate bars, gummies, hard candy, and similar items

• Some states classify candy differently depending on ingredients (e.g., presence of flour)

On-Premises Consumption

• Almost always taxable

• Food and drinks consumed inside your facility (dine-in restaurants, bars, food courts) are subject to sales tax

Takeout or Delivery

• Depends on state

• For example, New York exempts certain cold to-go foods, but California taxes most restaurant food, even cold takeout

Examples from State Regulations

New York

• Exempt: Grocery-type items like cold sandwiches sold separately, milk, fruits, and unprepared foods

• Taxable: Candy, soft drinks, alcohol, and hot meals

California

• Exempt: Some cold foods sold to-go

• Taxable: Prepared foods, combo meals, and dine-in service items

• 80% rule: If 80% or more of sales are from prepared foods, nearly all sales become taxable

Additional Tax Considerations for Food Businesses

Sales Tax on Alcohol

Alcohol is taxable in all states and often comes with additional local or state-level excise taxes.

Coupons and SNAP Benefits

• Items purchased with SNAP (food stamps) are typically exempt from sales tax

• Manufacturer and store coupons may impact taxable totals depending on local regulations

Meal and Beverage Taxes

Some jurisdictions charge an additional prepared food tax on top of regular sales tax. Always check your local city and county rules.

Business Meal Deductions

Note that IRS deductions for business meals are separate from sales tax regulations—they apply when filing income taxes and have no impact on point-of-sale pricing.

How Accounting Services Help With Food & Beverage Tax Compliance

Tracking which items are taxable and understanding multi-jurisdiction rules can be difficult for small businesses. Here’s how working with professional accounting services helps:

• Categorize taxable and non-taxable sales by item and location

• Track exemptions, combos, and special local taxes

• Prepare timely and accurate sales tax returns

• Maintain records for audit-readiness

• Identify deductions and compliance opportunities under current IRS and state rules

Summary

Sales tax compliance is a key part of running a food and beverage business in the US. Knowing what items on your menu are subject to tax—especially when serving both prepared meals and grocery-style goods—helps prevent costly mistakes. While rules vary by state, working with reliable accounting services ensures your US small business stays on top of compliance and reporting.

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