Texas Sales Tax Audit on Cover Charges
Are you charging sales tax on cover charges at your place of business? The State of Texas’ Comptroller’s Office wants you to!
Cover charges are any flat fee type of charge that is levied on as an entrance fee. This normally relates to businesses such as bars, restaurants, and clubs. Think of this like an amusement tax as is will be subject to a door-fee, entry-fee, or admission-fee.
Our firm is currently representing a client who is the owner of a hookah bar. Although the audit started off as a tobacco tax audit, it quickly changed shape to include cover charges. Most would think that this does not apply to bars or restaurants, but the rules can change very quickly, as these charges are related to something more than just walking in and buying food or drinks. By charging a cover charge, you have essentially created a new layer of business – essentially, paying a fee to socialize.
The same applies to mandatory gratuities. If a mandatory gratuity exceeds 20% of the charge, the entire gratuity becomes taxable regardless of how it is disbursed.
Facing a sales tax audit in Texas? Contact our attorney for a consultation.
