Guidance for restauranteurs on “comped” meals
The practice of providing a restaurant meal for no charge, or “comping”, is fairly common in the hospitality business. Reporting this meal correctly for tax purposes is less common, as the State of Michigan tax code is fairly ambiguous on this for tax preparers. Lacking the interpretative guidance on comped meals (outside one sentence in the use tax registration instruction), ShindelRock has prepared a short primer on how best to handle is frequent restaurant meal type:
1) Employee free meals–If a restaurant gives a meal free to an employee during work hours the restaurant must pay a use tax on the cost of the food.
2) Employee discounted meals–If the restaurant provides meals at a discounted rate to employees during non-working hours, the sale as discounted, is subject to sales tax.
3) Customers not charged due to non-satisfaction or over/under cooking–The restaurant must pay a use tax on the cost of the food.
4) Customers not charged because the meal was complimentary–The restaurant must pay a use tax on the cost of the meal.
The cost of the meal – for use tax purposes – would be the actual cost of the food/beverage. For simplicity, we recommend that restauranteurs use the overall cost, on average, of food and beverages for use tax purposes. If food and beverages average 30% and a customer is comped on a $20 meal, use tax would be:
Meal cost – $20 x 30% = $6 cost. Use tax would be $6 x 6% or .36 cents.
Your ShindelRock tax professional can help you ensure you are following the correct tax procedures on employee and customers “comped” meals. Bon Appetit!