Sales tax issues

[BidwellPerk]

hi everyone. I’m having issues with sales tax being recorded accurately in my coffee shop. We are in California where to-go drink drinks are never taxed, hot prepared food is always taxed, and some fresh food options are never taxed regardless of dining option.

The problem comes from the fact that the dining options in Square are at the item level. For example, if a customer orders a to go drink and hot prepared food, the drink is tax-free, but the food is taxable. My staff generally does a good job removing the tax from the drink item as appropriate, but it takes an extra step to also mark that item as to go. I’m wondering if anybody has found a good solution to this.

Tax rules in Square allow you to set tax based on the dining option, but not the item category. Ideally, we could set the entire transaction as for here or to go, but that doesn’t seem to be possible, either. Each item on the check has its own Dining Option. Has any other restaurant in California come up with a pretty good solution? I am unfortunately going through a sales tax audit right now and I’m trying to get the data in my Square system to match what the auditor has determined to be our standard ratio of to-go versus dine in customers. 

[VanKalkerFarms]

I'm not in that business, but could your first question be for here or to-go, then you choose a to-go coffee that has its item set to no tax, maybe a favorites page that is the for here, and a different page that is the to-go items?  You would have 2 different items, for each item, so when you run reports, you would have to choose both, but then you will also see the ratio that they are to each other.

[indianathomas · Accepted solution]

Square's tax rules can trigger based on fulfillment method (dining option), but dining options are set per item, not per transaction. And tax rules can apply to item categories, but not combine category + dining option simultaneously. This creates the friction your staff experiences.

Best Practical Solutions
Option 1: Use Conditional Tax Rules by Item Category (Recommended)
Square lets you create tax exemption and tax reduction rules based on fulfillment method, item price, total price, or item quantity, and apply them to individual items or an entire category.

You can make most drinks tax-exempt by default and only apply tax when they're dine-in.

The configuration approach:

1. Create a "To Go" dining option as your default (first in the list)
2. Create a tax rule with "Fulfillment method" as the condition, and apply it to your beverage category so drinks are automatically tax-exempt when marked To Go Square
3. Hot food items stay taxable regardless of dining option (California rule)

[BidwellPerk]

So, this was totally my thought process but I had neglected to get far enough in the process to see that you can apply the tax rule to specific item categories only after you select dining option (or the other three options: quantity, total sum, etc). Thank you!! All good now. 

[VanKalkerFarms]

Glad @indianathomas  was able to help you.  He is a great Square resource and knows so much from all his day to day dealing with Square in all his locations.