Texas sales tax on employee meals and gift cards

Texas sales tax on employee meals and gift cards

Whether it’s that time of year or you are simply giving away a few free meals to your employees, remember that sales tax does apply. In a recent audit, our client was giving away about 25 free meals per night. Although they were documented as free meals to employees, they were surprised to find out that there should have been sales tax collected on the meals. As a result, our client was responsible for paying the sales tax on the employee meals with penalties and interest. The rule is that meals and beverages provided to employees by employers for free of charge would be taxable to the extent that tax was due on the original purchase price of the food and drinks.

However, we were successful in removing gift cards from the the arena of sales tax. The auditor had initially applied sales tax to gift cards. We fought hard and had these removed from the tax liability. The rule is that gift cards are not taxable “since it is represents an intangible right to a future purchase.” Tax would be calculated when the gift card is redeemed. (Letter No. 200702942L, Texas Comptroller of Public Accounts, February 7, 2007, received August 2007)

Texas sales tax on employee meals and gift cards