SU1 Restaurants and New Jersey Taxes revised March 2023

Rev. 3/23

Restaurants and New Jersey Taxes

Tax Topic Bulletin S&U-1

Introduction....................................................................................................................................................................... 2

Sales and Use Tax ............................................................................................................................................................ 2

Sales Price ...................................................................................................................................................................... 2

Meal Coupons and Discounts ................................................................................................................................ 3

Discounts (No Coupon Required) .................................................................................................................... 3

Coupons .................................................................................................................................................................... 3

Caterers .......................................................................................................................................................................... 5

Cover Charges .............................................................................................................................................................. 5

Credit Card Surcharges ............................................................................................................................................ 5

Delivery Charges ......................................................................................................................................................... 5

Gratuities ........................................................................................................................................................................ 5

Exempt Organizations ............................................................................................................................................... 6

Government Agencies. ......................................................................................................................................... 6

Alcoholic Beverages ................................................................................................................................................... 7

Purchases by Restaurants ........................................................................................................................................ 7

Services to Property ................................................................................................................................................... 8

Laundered Items ......................................................................................................................................................... 9

Urban Enterprise Zones ................................................................................................................................................ 9

Litter Control Fee ............................................................................................................................................................. 9

Corporation Business Tax .......................................................................................................................................... 10

C Corporations (filing separate returns) ......................................................................................................... 10

S Corporations (filing separate returns) .......................................................................................................... 10

Combined Groups ................................................................................................................................................... 10

Employer Responsibilities ......................................................................................................................................... 11

Connect With Us ........................................................................................................................................................... 11

Restaurants and New Jersey Taxes

Rev 3/23

Introduction

Businesses that sell prepared food and beverages (such as restaurants, taverns, snack bars,

food trucks, and caterers) are responsible for a number of New Jersey taxes. This bulletin

explains the New Jersey Sales Tax rules that apply to the sale of food and beverages. It also

briefly describes other taxes administered by the Division of Taxation for which a restaurant

or food-related service business may be liable.

Sales and Use Tax

Prepared food and beverages (including alcoholic beverages) sold in restaurants are subject

to New Jersey Sales Tax whether the food is eaten in the restaurant or taken and consumed

off the premises (take-out order). This includes prepared food and beverages sold by drive-

in/drive-through restaurants, food service and hot dog carts, food trucks, and other mobile

service facilities.

The following establishments, as well as other establishments engaged in the sale of prepared

food and beverages, are required to collect Sales Tax:

Cafes

Cafeterias

Carry-Out Restaurants

Catering Halls

Diners

Drive-In/Drive-Through Restaurants

Fast Food Operators

Food Trucks

Hamburger and Hot Dog Stands

Luncheonettes

Pizzerias

Restaurants

Sushi Bars

Taverns, Grills, Bars

For information about the current Sales Tax rate, visit our website

. Sales Tax is calculated

based upon the sales price of the purchase.

Sales Price

Sales price, or purchase price, includes:

• The seller’s cost of property sold;

• The cost of materials used, labor or service cost, interest, losses, all costs of

transportation to the seller, all taxes imposed on the seller, and any other expenses

of the seller;

• Charges by the seller for any services necessary to complete the sale; and

• Delivery charges.

Sales price does not include any discounts that are not reimbursed by a third party. See

Meal

Coupons and Discounts

below.

Restaurants and New Jersey Taxes

Rev 3/23

Meal Coupons and Discounts

Restaurants may offer their patrons discounts on meals. How the Sales Tax is calculated

depends on whether the seller is reimbursed for the discount. The same rules apply regardless

of the type of discount that the restaurant offers (i.e., coupons; buy one, get one free; kids eat

free; etc.).

Discounts (No Coupon Required)

If a restaurant charges a reduced price for a meal or provides a free item or meal, and no

coupon is required for the customer to receive the discount, New Jersey Sales Tax is charged

on the amount that the customer actually pays.

Example

On Wednesday nights, patrons receive a free dessert with the purchase of every entree. There

is no coupon required. Sales Tax is charged only on the amount that the customer pays.

Coupons

Seller Not Reimbursed.

Whenever a customer must present a coupon or dining card to

receive a reduced price or a free item, New Jersey Sales Tax is charged on the price that the

customer actually pays as long as the restaurant receives no reimbursement from a

manufacturer, distributor, or other third party for accepting the coupon.

Example

A coupon enables the patron to buy one meal and get the second one free, and the restaurant

receives no reimbursement from a third party. Sales Tax is charged only on the price that the

customer pays.

Entrée

Dessert

Soda

Subtotal

Wednesday Promotion

Taxable Receipt

6.625% Sales Tax

Amount due from patron

$ 17.95

6.95

+ 2.95

$ 27.85

- 6.95

$ 20.90

+ 1.38

$ 22.28

Restaurants and New Jersey Taxes

Rev 3/23

First meal

Second meal

Subtotal

Coupon for free meal

Taxable receipt

6.625% Sales Tax

Amount due from patron

$ 12.95

+ 10.95

$ 23.90

- 10.95

$ 12.95

+ 0.86

$ 13.81

Seller Reimbursed.

When a restaurant accepts a coupon entitling a purchaser to pay a

reduced price or to receive a free item, and the restaurant is reimbursed by a manufacturer,

distributor, or other third party, Sales Tax is charged on the full price because that is the

amount the seller ultimately receives — part of it from the customer and the balance from the

manufacturer.

Example

A coupon enables the patron to buy one meal and get the second one free, and the restaurant

is reimbursed by a third party. Sales Tax is charged on the total bill before the coupon is

subtracted.

First meal

Second meal

Taxable receipt

6.625% Sales Tax

Subtotal

Coupon

Amount due from patron

$ 16.95

+ 13.95

$ 30.90

+ 2.05

$ 32.95

- 13.95

$ 19.00

NOTE: If a coupon involves a reimbursement by a third party, and that fact is not disclosed

either on the coupon or in an accompanying advertisement, a seller that accepts the coupon

charges the customer Sales Tax on the reduced price but is required to remit Sales Tax to New

Jersey on the entire receipt (i.e., the amount the customer paid plus the reimbursement

received for the coupon).

For more information on coupons and discounts, see

Coupons, Discounts & New Jersey

Sales Tax.

Restaurants and New Jersey Taxes

Rev 3/23

Caterers

Catering charges are considered part of the sales price and are subject to Sales Tax. This

applies whether the food is prepared for eating on the caterer’s premises or for delivery to the

purchaser’s home.

Cover Charges

Cover or entertainment charges are considered to be fees for admission and are subject to

Sales Tax. Minimum charges also are subject to Sales Tax.

Example

A night club has a $50 minimum charge. A patron gets a check that includes $27 for food, $22

for cocktails, and $1 for the minimum charge. The patron pays Sales Tax on the entire $50

check.

Credit Card Surcharges

Credit card surcharges added to the check when a customer pays by credit or debit card are

considered part of the sales price and are subject to Sales Tax.

Example

A patron gets a check for a meal that includes $55 for food and drinks, and a $3 surcharge for

paying by credit card. The patron pays Sales Tax on the entire $58 check.

Delivery Charges

Delivery charges imposed by the seller are considered part of the sales price and are subject

to Sales Tax.

Example

A customer places an order for delivery. The total check includes $50 for food, and a $3

delivery charge. The customer pays Sales Tax on the entire $53 check.

Gratuities

Charges made for tips and gratuities are not subject to tax when:

1. The charge is separately stated on the bill or guest check given to the customer; and

2. The charge is specifically designated as a gratuity or tip; and

3. All such monies received by management are paid in total to employees.

Restaurants and New Jersey Taxes

Rev 3/23

Exempt Organizations

Meals purchased in restaurants by representatives of organizations that are registered as tax-

exempt with the New Jersey Division of Taxation are not subject to Sales Tax when:

1. The meals are paid for

directly from organization funds

; and

2. A representative provides the restaurant with a photocopy of the organization’s New

Jersey Exempt Organization Certificate (Form ST-5). The copy must include the date,

the name of the restaurant, a description of the transaction, and the signature and title

of an officer of the organization.

If a representative pays for the meal personally (even with the intention of being reimbursed

by the tax-exempt organization), the representative cannot use an Exempt Organization

Certificate (Form ST-5) and must pay Sales Tax on the price of the meal.

For more information, see Nonprofit Organizations and Government Entities

Government Agencies.

Any New Jersey State agency, political subdivision of the State of New Jersey, federal agency,

the United Nations, or any other international organization of which the United States is a

member is exempt from paying Sales Tax on otherwise taxable meals.

In transactions with government agencies, the acceptable proof of exemption from Sales Tax

is a copy of a government purchase order, official contract, or an order on official government

letterhead signed by a qualified officer. Payment must be made by the agency’s check or

voucher for the exemption to apply. If payment is made from an individual’s account, the

purchase is subject to Sales Tax regardless of the method of payment (personal check, credit

card, cash, etc.) and irrespective of the agency’s intent to subsequently reimburse the

individual.

Federal employees are exempt if payment is made by a GSA SmartPay credit card having a 0,

6, 7, 8, or 9 as the sixth digit of the account number (credit card centrally billed to and paid by

the federal government). If payment is made with a GSA SmartPay card having a 1, 2, 3, 4, or

5 as the sixth digit, the card is individually billed to and paid by the employee, and the federal

government exemption does not apply.

In addition, certain exemptions are granted to qualified foreign diplomatic and consular

personnel who reside in the United States. For information concerning the exemptions, see

Diplomatic/Consular Sales Tax Exemptions

Restaurants and New Jersey Taxes

Rev 3/23

Alcoholic Beverages

All retail sales of alcoholic beverages are subject to New Jersey Sales Tax. Alcoholic beverages

include all liquors, mixed drinks, wines, sparkling wines, cordials, and beer. As with other retail

sales, the tax must be separately charged and stated to the customer.

Purchases by Restaurants

In general, restaurants, caterers, and other food service establishments must pay Sales or Use

Tax on supplies purchased for use in their businesses. However, because the Sales and Use

Tax Act provides certain exemptions from Sales Tax, a restaurant may purchase some property

and services from a supplier without paying Sales Tax.

For example, when a restaurant purchases taxable items of prepared food and beverages, such

as candy, soft drinks, and alcoholic beverages that are to be resold, the restaurant gives the

supplier a completed resale certificate to document that the purchase is exempt from Sales

Tax. Acceptable resale certificates include Form ST-3, Form ST-3NR, or Form ST-SST

depending on how the company is registered. The most commonly used certificate for New

Jersey-based businesses is

Form ST-3.

The purchaser must fully complete all fields on the exemption certificate in order to claim the

exemption. The restaurant will charge Sales Tax on these items when they are sold.

The Act also provides an exemption for products that are: (1) nonreturnable containers or

wrapping supplies and (2) incidental to the delivery of prepared food to the customer. When

purchasing these items, the restaurant gives the supplier a completed New Jersey Exempt Use

Certificate (Form ST-4) or the Streamlined Sales and Use Tax Certificate of Exemption (

Form

ST-SST) and does not pay Sales Tax. The purchaser must complete all fields on the exemption

certificate in order to claim the exemption.

The following disposable items are exempt from Sales Tax when used to deliver prepared food

and beverages to patrons:

Aluminum Foil Paper Buckets

Aluminum Plates Paper Cups

Baking Cups Plastic Cups

Boxes for Take-Out Orders Sandwich Plastic Wrap

Cake Boxes Take-Out Order Trays

Cellophane Paper Twine

Cup Carriers Waxed Bags

Restaurants and New Jersey Taxes

Rev 3/23

Cup Lids Waxed Paper

Paper Bags Wrapping Paper

A restaurant must pay Sales or Use Tax on purchases of taxable items used in the business

that are not resold or that are not otherwise exempt, e.g., soaps, detergents, floor waxes, paper

towels, and other similar items.

A restaurant must pay Sales or Use Tax when it purchases the following items:

Ashtrays Plastic Can Liners

Butter Trays Plastic Forks

Dispensers Plastic Knives

Doilies Plastic Spoons

Flatware Plastic Stirrers

Freezer Paper Plastic Trays

Guest Checks Straws

Janitorial Supplies Table and Counter Equipment

Napkins Toilet and Tissue Paper

Paper Napkins Toothpicks

Placemats Towels

A restaurant must pay Sales or Use Tax on the purchase of food preparation equipment such

as coffee and soda machines, ice makers, blenders, food processors, etc. A restaurant is not

considered a manufacturer and cannot claim an exemption for machinery and equipment used

to produce prepared food and beverages.

For more information, see Sales Tax Exemption Administration

and Business Purchases

Services to Property

All cleaning and janitorial services (indoor and outdoor) are subject to Sales Tax, whether the

services are performed on a regular contractual basis or not. Charges for parking lot sweeping,

snow plowing, and lawn maintenance are subject to Sales Tax. Rodent and pest control

services also are taxable; however, charges for an initial inspection or re-inspection of real

property are exempt from tax. Rug and carpet cleaning services, including picking up and

relaying cleaned rugs and carpets, are subject to Sales Tax. Charges for cleaning upholstered

fabrics, including draperies and other textile furnishings, also are taxable.

Restaurants and New Jersey Taxes

Rev 3/23

Charges for the removal of contained waste including garbage, rubbish, trash, and recyclables

are exempt from Sales Tax when the services are performed on a regular contractual basis for

a term of at least 30 days. This service must be performed at least once a month for

consecutive months for the exemption to apply.

Laundered Items

Charges for laundering and/or the rental of the following types of items are subject to Sales

Tax: cloths, mats, mops, industrial wiping cloths, table linens, towels, and similar items.

Urban Enterprise Zones

Qualified businesses located within New Jersey’s designated Urban Enterprise Zones and UEZ-

impacted business districts are eligible for certain tax advantages.

A qualified business in an Urban Enterprise Zone is entitled to an exemption from Sales Tax

when it purchases most equipment and supplies (except motor vehicles) and taxable services

(except telecommunications services) that are for the exclusive use of the business within the

Zone. For example, this purchase exemption would apply to the purchase of industrial kitchen

equipment or patron tables for use at the Zone location. To claim the exemption, the business

must provide the seller with an Urban Enterprise Zone Exempt Purchase Certificate (Form UZ-

5) when making these purchases. There is no exemption for a qualified business’s purchase of

natural gas, electricity, or utility service.

Although a qualified business that is a certified, reduced-rate seller may charge Sales Tax at

50% of the regular rate on most retail sales of tangible personal property within the Zone or

UEZ-impacted business district, the reduced Sales Tax rate does not apply to sales of prepared

food or beverages. A business must collect Sales Tax at the full rate on these items. Sales of

taxable services by a qualified business also are subject to tax at the full Sales Tax rate.

For more information about Urban Enterprise Zones or UEZ-impacted business districts, visit

the New Jersey Department of Community Affairs

. Information also is available on the

Division of Taxation’s website.

Litter Control Fee

New Jersey imposes a Litter Control Fee, due March 15 annually, on the gross receipts of

wholesale and retail sales of litter-generating products sold within or into New Jersey by

manufacturers, wholesalers, distributors, or retailers. Litter-generating products include but

are not limited to: beer and other malt beverages, cigarettes and tobacco products, distilled

spirits, food for human consumption, soft drinks, carbonated waters, and wine.

Restaurants and New Jersey Taxes

Rev 3/23

“Retailer” includes the owner or operator of a take-out or drive-through restaurant, snack bar,

or similar establishment, when the majority of the restaurant’s food and beverage gross

receipts are derived from sales made for consumption off the premises. It does not include

owners or operators of restaurants, the principal activity of which consists of selling prepared

food on the premises of the restaurant. A restaurant’s

principal activity

is one that accounts

for more than half of the business’s gross receipts relating to food and beverage sales.

Any retailer with less than $500,000 in gross receipts from the sales of litter-generating

products is excluded from payment of the fee for that calendar year.

Corporation Business Tax

C Corporations (filing separate returns)

The New Jersey Corporation Business Tax Act imposes an annual Franchise Tax on every New

Jersey Corporation and every out-of-state corporation that acquires a taxable status in New

Jersey by doing business, employing or owning capital or property, maintaining an office, or

deriving receipts, or engaging in contacts within New Jersey. Both domestic and foreign C

corporations are required to file a New Jersey Corporation Business Tax Return (Form

CBT-

100) regardless of whether they had any assets or conducted any business activities in New

Jersey.

S Corporations (filing separate returns)

A federal S corporation may elect to be treated as a New Jersey S corporation if they have

filed the New Jersey S Corporation or New Jersey QSSS Election (Form CBT-2553

). S

corporations pay a reduced rate of Corporation Business Tax. New Jersey S corporations are

required to file a New Jersey Corporation Business Tax Return (Form

CBT-100S).

S corporations that elect to be a member of a combined group are treated as C corporations

for tax purposes.

Combined Groups

A combined group is a group of companies that have a common ownership and are engaged

in a unitary business, if at least one company is subject to New Jersey Corporation Business

Tax. These groups are required to calculate their Corporation Business Tax on a combined

basis. The managerial member of the combined group is responsible for addressing all tax

matters, including paying tax and filing the CBT-100U

on behalf of the group.

For more information on Corporation Business Tax, visit our website.

Restaurants and New Jersey Taxes

Rev 3/23

Employer Responsibilities

Every New Jersey employer is required to register with the State for tax purposes and to

withhold New Jersey Income Tax from wages paid to both resident and nonresident

employees working in this State (except Pennsylvania residents covered under the Reciprocal

Personal Income Tax Agreement between New Jersey and Pennsylvania). Employers also have

Department of Labor and Workforce Development responsibilities to withhold New Jersey

unemployment insurance, health care subsidy fund, workforce development partnership fund,

disability insurance, and/or family leave insurance contributions. See

New Jersey Income Tax

Withholding Instructions

(NJ-WT) for more information.

Connect With Us

Email your State tax questions;

Visit a Regional Information Center;

Call 609-292-6400;

Subscribe to our NJ Tax Alert E-News;

This document is designed to provide guidance to taxpayers and is accurate as of the date issued.

Rev. 03/23 to include information about payments made with a GSA SmartPay credit card that has

5 as the sixth digit.