Any private person, entity, institution, or organization selling meals, serving alcohol, or renting rooms to the public must collect the applicable Vermont business taxes from their customers on their gross receipts and remit the tax to the Vermont Department of Taxes. As a caterer, you should know the Vermont business taxes that apply to your business so that you collect and pay the right amount of tax.
A catering service is considered to be a restaurant for the purposes of the Vermont Meals and Rooms Tax. Note: Alcoholic beverages sold by holders of a First or Third Class Liquor License are subject to the 10% Vermont Alcoholic Beverage Tax.
Catering Service Billed as a Package
Like a restaurant, caterers provide more than just food as part of their service to customers. Tableware, linen, decorations, and the labor involved to prepare and serve the meal all contribute to the dining experience. If the catering service you offer is presented and billed as a “package,” you must collect and remit the 9% Vermont Meals and Rooms Tax on all items and services that are components of the package.
You may choose to itemize components of your catering service on the bill for the customer, but costs for the meal, labor, and other components are subject to the meals and rooms tax even when itemized. These components include the following (non-inclusive list):
- Food and beverage
- Labor for preparing, delivery, serving, and cleaning up after the meal
- Tableware, such as dishware, cutlery, glassware, linens, and other items necessary for serving the meal
- Flowers and any other decorative items provided as part of the service
- Room, banquet hall, building, or any space where the meal will be served
If you present the bill for the package plan to the customer with the meals and rooms tax included, then the you must state “tax included” on the bill. Charges and tax should be properly allocated in the accounting records of your business, and the tax must be reported and remitted accordingly.
Sales Tax on Rentals
If you rent items such as tableware or linens, you should pay the applicable 6% Vermont Sales Tax to the vendor. You then may choose to pass on the sales tax as a markup in the final bill to the customer.
When Use Tax Applies
You may rent or purchase items subject to sales tax in Vermont from a vendor not licensed to collect tax in Vermont. In this situation, you should remit the 6% Vermont Use Tax to the Vermont Department of Taxes. This most often occurs when making purchases via the internet or from vendors located in states which do not impose sales tax.
Local Option Tax
In addition to the state-imposed business taxes, you may be required to collect and remit a 1% local option tax imposed by some Vermont municipalities. A municipality may choose to levy a local option tax on 1) meals and alcohol; 2) rooms; and/or 3) any items subject to sales tax. Local option tax is destination-based. In other words, if you are catering in a town that has a local option tax, you must collect it from your customer. Please note that you should always calculate the local option tax as 1% of the taxable (net) sales for each town. Do not make the mistake of calculating local option tax as 1% of 6%, the sales tax rate, or 1% of 9%, the meals tax rate. This will result in collecting too little local option tax.
Businesses are responsible for collecting and remitting local option taxes along with state business taxes. If you are subject to local option tax and have not been collecting and remitting it, you may have a tax liability. Learn more about local option tax and if you must collect it in the municipality where you are catering.
Sales 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 or the 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.
Vermont Business Tax Account and License
Businesses and nonprofits must register for a Vermont Business Tax Account and license before collecting Vermont tax. Registration is free.
LAWS, REGULATIONS AND GUIDANCE
Technical Bulletin 13 Purchaser-Based Treatment of the Vermont Meals and Rooms Tax and Sales and Use Tax
Technical Bulletin 25 Requirement to Collect Local Option Meals & Alcoholic Beverages Tax and Local Option Rooms Tax
Technical Bulletin 48 Application of Meals and Rooms Tax for Meals and Room Charges at a School or College