Introduction
Generally, when you hire a caterer for an event, the charges for food, beverages, and the various services they provide are subject to sales tax. This guide aims to clarify the nuances of Catering Services and how sales tax is applied, providing essential information for both caterers and clients.
This article will cover:
- Definition of a caterer
- Sales tax application on catering services
- Sales tax responsibilities for caterers on their purchases
Who Qualifies as a Caterer?
A caterer is an entity that offers prepared food, drinks, and related services for events. These events can be held in diverse locations, such as:
- Caterer-owned banquet halls
- Hotels or restaurants
- Private residences or other venues chosen by the client
Event planners and coordinators who manage and invoice for food, beverages, and other services for events like weddings are also considered caterers. Furthermore, organizations such as churches, community centers, and fraternal organizations become caterers when they sell food, beverages, and associated services for events.
Sales Tax on Catering Services: What’s Taxable?
In most jurisdictions, almost all charges associated with catering services for an event are taxable. This includes any costs incurred by the caterer for the event that are part of the total amount charged to the customer. This remains true even if these charges are itemized separately on the customer’s bill.
Food and Beverages
The sale of prepared or served food and beverages, including both alcoholic and non-alcoholic options, by caterers is taxable. This broad category encompasses everything from sophisticated hors d’oeuvres and formal dinners to casual breakfast buffets.
However, caterers can make tax-exempt sales of their services, including food and beverages, if they are selling to another party for resale. In such cases, the caterer must receive a valid Resale Certificate (Form ST-120 or equivalent) from their customer.
It’s important to note that if a caterer only delivers food and beverages without providing any additional services post-delivery, these sales are considered sales of food and beverages for off-premises consumption and are taxed accordingly, potentially under different regulations applicable to restaurants or food retailers.
Room Rental Fees
Sometimes, hotels or banquet facilities levy a separate charge for renting a space for a catered event. If the catering service is provided by the hotel itself or by a caterer hired by the hotel, the room rental fee becomes part of the overall taxable catering service. Whether this room charge is listed separately or included in the catering package, it is still subject to sales tax.
Conversely, if a client rents a room directly from a venue and hires an independent caterer, the room rental charge is typically not taxable.
Understanding Gratuities and Service Charges
Voluntary gratuities or tips left by customers for service staff are generally not taxable.
However, mandatory gratuities require closer attention. A mandatory gratuity, which is automatically added to the bill, is not taxable only if all of the following conditions are met:
- The charge is clearly listed as a separate item on the bill.
- It is explicitly identified as a “gratuity.”
- 100% of the collected gratuity is distributed to the employees.
If any of these conditions are not met, the mandatory gratuity becomes taxable as part of the total catering bill.
Service charges, which are often applied by caterers for banquets or larger groups, are generally always subject to sales tax. This is because they are not typically designated as gratuities on the invoice. It’s crucial to distinguish between voluntary tips, qualifying mandatory gratuities, and taxable service charges to ensure accurate tax calculation.
Caterer Purchases and Rentals: Tax Responsibilities
Caterers often need to purchase or rent various items to execute an event successfully. Even if these purchases are driven by specific client needs, the caterer is considered the end-user of these items in the context of providing catering services, not for resale. Therefore, caterers are usually required to pay sales tax on purchases or rentals of items like:
- Tables and chairs
- Tents and canopies
- Portable bars and dance floors
- Inflatable games and entertainment equipment
- Linens, napkins, and chair covers
- Silverware, glassware, and serving utensils
- Audio/visual equipment
- Decorative fountains
- Ice for chilling food and drinks before service
- Ice sculptures
- Wait staff uniforms
The total charge a caterer bills to their customer remains taxable, even if charges for these rented or purchased items are separately detailed. Caterers cannot typically claim a sales tax credit for the tax they paid on these operational purchases.
Purchases for Resale: Tax-Exempt Options
Caterers can purchase certain food and beverage items intended for resale without paying sales tax upfront by providing a Resale Certificate (Form ST-120 or equivalent) to their suppliers. The caterer will then collect sales tax when these items are sold to the end customer. Examples of items that can be purchased for resale include:
- Alcoholic beverages
- Bottled water
- Cocktail mixers
- Prepared dishes and entrees
- Deli and sandwich platters
- Hot coffee and tea
- Ice served in drinks
- Juices with less than 70% natural fruit juice
- Meals purchased specifically for resale
- Premade sandwiches and wraps
- Soft drinks and sodas
- Soups and stocks
- Subcontracted catering services
- Vegetable and crudité platters
If a caterer mistakenly pays sales tax on a purchase intended for resale, they may be able to claim a credit on their sales tax return.
Non-Taxable Food and Beverage Purchases
Certain staple food and beverage items are often exempt from sales tax. These typically include:
- Fresh produce
- Seafood and meats
- Canned goods and pantry staples
- Fruit juices containing 70% or more natural fruit juice
- Bar garnishes like olives, cherries, and citrus fruits
- Pastries, baked goods, and breads
- Wedding cakes and specialty desserts
No exemption certificate is needed when purchasing these non-taxable food items.
Special Case: Flower Purchases
When caterers purchase flowers for an event, they can use a Resale Certificate (Form ST-120 or equivalent) to buy flowers without paying sales tax, provided they then collect sales tax from their customer under specific conditions:
- The customer must have the option to choose their florist or decline flower services entirely.
- The customer has full control over flower selection and arrangement.
- Customers or their guests are entitled to take the flowers after the event.
- The caterer must maintain detailed records of flower purchases, florists, and customer assignments.
- Flowers purchased for one customer cannot be reused for another event.
- The caterer must collect sales tax on the total charge to the customer, including flowers.
Kitchen and Serving Equipment and Supplies
Equipment and supplies used in food and beverage preparation, cooking, and service are generally taxable when purchased, leased, or rented by a caterer. This includes:
- Ovens (standard, convection, microwave)
- Grills and cooktops
- Stoves and ranges
- Fryers and deep fryers
- Portable coolers and hot boxes
- Prep tables and workstations
- Mixers and food processors
- Silverware and flatware
- Coffee makers and urns
- Hot plates and food warmers
- Glasses and tumblers
- Stemware and wine glasses
- Plates and serving dishes
- Chafing dishes and food warmers
- Portable refrigerators and freezers
- Generators for power supply
Services Purchased by Caterers
Caterers often subcontract additional services to enhance an event. Some of these services are taxable, while others are not.
Taxable services that a caterer must pay sales tax on when purchased include:
- Decorating and event design services
- Parking services (not valet parking staff)
- Security services
- Portable toilet rentals (waste removal services)
When a caterer includes charges for these taxable services in their bill to the customer, they must also collect sales tax from the customer, even if these service charges are itemized. They cannot claim a sales tax credit for taxes paid on these subcontracted services.
Non-taxable services that caterers might purchase include hiring:
- Bands or DJs for entertainment
- Bartenders for beverage service
- Photographers or videographers
- Wait staff and event servers
- Valet parking staff (service of parking cars, distinct from parking fees)
Despite being non-taxable to the caterer when purchased, when these service costs are passed on to the customer as part of the catering bill, they become subject to sales tax.
Comprehensive Catering Sales Tax Example
Let’s consider a detailed example to solidify understanding:
Scenario:
A caterer is contracted to manage an outdoor party at a private residence. The caterer is responsible for all arrangements and will provide:
- Tent, tables, and chairs
- Linens, silverware, china, glassware, and napkins
- Portable dance floor and bars
- Floral arrangements
- Live band
- Food, alcoholic beverages, and soft drinks
- Wait staff
- Valet parking service
The contract specifies a cake-cutting fee of $1.00 per slice and an automatic 18% service charge on the total bill.
Tax Analysis:
- Taxable Purchases/Rentals for Caterer: The caterer must pay sales tax on renting the tent, tables, chairs, linens, silverware, china, glassware, napkins, portable dance floor, and portable bars.
- Non-Taxable Purchases for Caterer: The caterer does not pay sales tax on payments to the band or for the valet parking service personnel. Similarly, hiring temporary cooks, bartenders, or wait staff is also not taxable for the caterer.
- Food Purchases: Food intended to be prepared and served is taxed similarly to groceries.
- Resale Certificate Use: For items purchased for resale (like alcoholic beverages and possibly flowers, assuming conditions are met), the caterer can use a Resale Certificate (Form ST-120) to avoid paying sales tax at the time of purchase. In this example, it’s assumed the floral arrangements qualify for resale—customer choice, control, and right to take flowers.
- Taxable Customer Bill: The entire bill to the customer is subject to sales tax. This includes charges for the band, temporary staff, cake-cutting service, and the 18% service charge, regardless of whether these are listed separately.
Disclaimer: Tax laws and regulations can be complex and may vary by jurisdiction. This information is intended as a general guide and should not be considered legal or tax advice. Always consult with a tax professional or relevant tax authority for specific guidance related to catering services and sales tax in your region.
References and Further Information:
- Tax Law: Section 1105(d) (Example – New York State Tax Law)
- Regulations: Section 527.8 (Example – New York State Regulations)
- Tax Memoranda:
- TSB-M-09(13)S: Sales Tax on Gratuities and Service Charges
- TSB-M-10(3)S: Sales Tax Information Related to Audio/Visual Equipment Used by Hotels, Restaurants, Taverns, Banquet Houses, Caterers, and Similar Establishments
- TSB-M-18(1)S: Summary of Sales and Use Tax Changes Enacted in the 2018-2019 Budget Bill
- Tax Bulletins:
- Food and Food Products Sold by Food Stores and Similar Establishments (TB-ST-283)
- Sales by Restaurants, Taverns, and Similar Establishments (TB-ST-806)
- Sales Tax Credits (TB-ST-810)
Updated: (Current Date)
