Why There's Sales Tax on Some Drinks and Not Others

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I need a better filing system.
Every once in a while someone mistakes Scott for a food financial expert and risks ruining dinner by trusting him to answer to a burning question. Got a question about food or restaurants? Send it via Twitter @scottreitz, Facebook @ Cityofate or in the comments.

This question came in by email. A disgruntled reader was unhappy that some restaurants were charging tax on his drinks and others were not:

In almost all restaurants that I go to, sales tax is not charged on alcohol. Two places recently have charged it. It this against Texas law?

I thumbed through some of my receipts to see if I saw the same discrepancy. Anyone who has seen my office can attest that I have more receipts than an accountant in high tax season. It didn't take long to find two receipts that calculated tax differently.

A Cane Rosso receipt with five beers and two pizzas added up to $51, and an 8.25 percent sales tax ($4.21) was levied on that entire sub-total.

A receipt from Eno's with seven beers and two sandwiches added up to $47.25, but here the tax was only applied to the food portion of the bill. The restaurant appeared to charge $1.07 in tax, but that's not really how things work.

R.J. DeSilva, a spokesman for the Texas Comptroller, explained the variation. Sales tax depends on whether a restaurant has a mixed-beverage permit from the TABC. If the restaurant does, there is no sales tax -- the business pays a mixed beverage tax on its overall alcohol sales. If they don't have a mixed beverage permit, sales tax is charged on each drink the restaurant sells.

So it's not that a customer isn't being taxed when a restaurant has a mixed beverage permit. It's just that they don't see it. The tax is rolled up into the cost of each drink, instead of being tacked on at the end. The rates are different, though. Sales tax hovers around 8.25 percent, depending on where you're imbibing. The current mixed beverage tax rate is 14 percent.

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12 comments
FoodBevLaw
FoodBevLaw

It's ridiculous, just like anything involving TABC these days. Even better, a beer/wine-only private club license gets tagged with the 14% tax, too.  There's just nothing like arbitrary taxation!

Amy S
Amy S

Former Comptroller and gubernatorial candidate Carol Keeton Rhylander Strayhorn was really great about notifying mixed beverage licensees about charging sales tax (or upcharging guests for the entire 14%). Here's the Comptrollers view: if you are charging guests sales tax on alcohol (when instead you are supposed to pay 14% Mixed Beverage tax on the sales price), you owe the state for both. If you upcharge a guest the 14 percent, you owe the state both. I loved that woman.

JL
JL

Scott's got the right.  Mixed beverage permit means 14% on all alcohol sales, and that number has to be baked in to the price of the drink.   No mixed beverage means 8.25% (or thereabouts, depending upon municipality), tacked on at the end of the bill as with other purchases.   There's no use trying to make any sense of it -- Texas liquor laws defy such efforts. 

SCamp
SCamp

Past experience in some places: sales tax included in price when paying cash by the drink. Sales tax added to tab when paying by credit card.

ScottsMerkin
ScottsMerkin

so beer/wine is 8.25% but liquor is 14%, does that mean when a bar has a mixed bev license they pay 14% on all beverages or just the hard stuff?

Timothyb Leech
Timothyb Leech

I detect somebody misspelling words in here, and I'm pissed!

Chris Danger
Chris Danger

I worked w/ RJ at KXAN TV in Austin many moons ago ago, good guy.  But, I just find the "back-end sin taxing" on mixed bevs in Texas strange...Call it being in other states around the country, but to create two tax structures for essentially the same thing is just beyond idiocy. 

Jay Jerrier
Jay Jerrier

We specifically opted for the BG (beer/wine only) permit to avoid the 14% tax - we did not think we'd be a spot where people wanted mixed beverages and it's not worth the 14% tax, glassware, liquor inventory, and the pressure to have an employee with ironic facial hair and a fedora or newsboy cap.

Kate
Kate

They pay 14% on all Liquor-Beer-Wine sales. 

Daily Reader
Daily Reader

 You need to pick up an application and apply for a position as a proof reader .  I don't see any misspellings.

Amy S
Amy S

Smart move Jay. You and I can charge the same amount for the same beer, but there is a 14% difference in the income and/or sales price flexibility. In addition, those of us paying the 14% get to pay a 1/2% franchise tax on that 14% ching the state receives, as it is not considered deductible for calculating franchise (income) taxes.

I love your restaurant, by the way.

Personally, I don't see why all alcohol (even that sold in packaged stores-which charges sales tax as well) isn't charged the same 14%. One way to do this without a huge outcry by the industries is to make it a pass-thru tax like a sales tax so everyone is on a level playing field. Not to mention, that the cost of a wrong-way-drunk-driver can add up to a pretty expensive new overpass (not to mention the tragic cost of lives these so often take).

I'm certain Jay would agree that the responsibility of being a licensed seller of alcohol is a  very serious matter to most of us in the industry. While many requirements are placed on the licensed sellers of alcohol, it is just as often private consumption that can cause the most tragic consequences.

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