The rules in Memphis, Tennessee for sales tax and liquor-by-the-drink taxes for restaurants and bars can be tricky. Here’s how to do it right.
- Food and non-alcoholic beverages are subject to sales tax. That means 9.25% (7% is the state portion and 2.25% is the local). You pay this on your regular monthly sales tax return, which must be filed online.
- Beer is subject to regular sales tax only.
- Liquor and wine are subject to both sales tax and liquor-by-the-drink (LBD) tax for a combined total of 24.25%. 15% is the LBD tax rate and 9.25% is the sales tax rate. LBD tax has to be remitted by paper check each month along with your return. Sales tax same as above.
Restaurants in Memphis almost universally make food and non-alcoholic beverages tax-exclusive (so a $10 item actually costs the customer $10.92).
Restaurants in Memphis also almost universally make beer, liquor and wine tax-inclusive (so a $10 glass of wine costs the customer $10 but nets the restaurant $8.04*). When restaurants have tried making alcoholic beverages tax-exclusive, there is usually some customer backlash.
Most Point-Of-Sale (POS) systems can apply two different tax rates to the same item. If so then you’d apply LBD tax of 15% and sales tax of 9.25% to wine and liquor drinks and sales tax for everything else. If your POS won’t do that then just apply 24.25% to wine and liquor and break it out on the back end each month.
Fun. Fun. Fun.
*Use this formula to calculate net sale (n) from a tax-inclusive price (p) given percentage tax rate (r): n= p/(1+r). So in the example above: n = $10/(1 + 0.2425) so n = 8.04.