The type of sales and amount of sales determine if a business is a restaurant. A restaurant is defined as:
An establishment that charges for food or beverage intended for immediate consumption; or
An establishment that has made total sales of food or beverage in the previous taxable year of at least 80% taxable food and beverage; or
A new establishment that projects its total sales for the first year to be at least 80% taxable food and beverage Note: Some items are taxable even when sold by a business not defined as a restaurant, such as sandwiches (except frozen), heated food or beverages, items from a salad bar, and party platters and prepared food.
Caterers are considered restaurants for the purpose of the meals tax and must follow all applicable laws and regulation. See more information for caterers, including guidelines on bundling and package pricing.
Generally, taxable meals are food and beverage offered for a charge, to be consumed on or off premises, available for immediate consumption. All food is taxable when sold by a restaurant, except grocery-type items sold for consumption off-premises. If an admission or minimum charge is included in the charge for the meal (not stated as separate charge), then it is considered to be part of the meal and is therefore also subject to meals tax.
Meals and non-alcoholic beverages are taxed at a different rate than alcoholic beverages. The separate 10% tax on alcoholic beverages applies to sales by holders of first and third class liquor licenses. This includes alcohol that is sold for consumption on the premises of a restaurant.
A sale of an alcoholic beverage could be subject to the 6% sales and use tax, or the 10% alcoholic beverages tax, but never both. Tax treatment depends on whether a sale is for immediate consumption. Sales and use tax applies to alcoholic beverages sold at retail that are not for immediate consumption. This includes alcoholic beverages sold at retail in a sealed container for off-premises consumption. The 10% alcoholic beverages tax applies to all other sales of alcoholic beverages for immediate consumption, as long as the sales are not otherwise exempt.
Please note: If tax is included in the purchase price of the item, you must state on the menu, price list, bill, receipt, or vending machine that the sales price includes the amount of tax charged.
See Alcoholic Beverage Taxes for more information.
These are not considered taxable meals, even when sold by a restaurant:
Self-serve, bulk, non-prepackaged grocery items such as fruit, vegetables, candy, flour, nuts, coffee beans
Grocery-type items furnished for take-out such as the following:
Whole pies or cakes and loaves of bread
Whole uncooked pizzas delicatessen and nonprepackaged candy sales by weight or measure (except party platters)
Pint or larger closed containers of ice cream or frozen confection
Eight-ounce or larger containers of salad dressing or sauces
Quart or larger containers of cider or milk
Single bakery items sold in quantities of three or more (Often called the “three donut rule,” the rule applies to all similar baked goods.)
Sale of Meals for Resale Exemption
Beginning July 1, 2019, an exemption under Act 51 applies to purchases of meals for the purpose of resale. A buyer intending to resell meals may purchase meals without paying meals tax to the seller. Once the buyer resells the meals, it must collect and remit meals tax to the Department of Taxes. The buyer must present to the seller an accurate and properly executed exemption certificate for the exempted sale, Form M-3, Vermont Meals Tax Exemption Certificate for Purchase of Meals for Resale.
The responsibility is on the seller to verify that the buyer will resell the meals. If the seller accepts an exemption certificate with no reasonable expectation that the meals will be resold, the seller will be responsible for the meals tax not collected from the buyer. The exemption certificate must be received at the time of sale and must be signed, dated, and complete. Sellers must retain exemption certificates for at least three years from the date of the last sale covered by the certificate to document why tax was not collected from the buyer.