Delivered, But at What Cost? State and Local Tax Implications of the Food Delivery Business

The rise of food delivery platforms is one of my personal favorite examples of technology creating market disruptions. Apps like Uber Eats, Door Dash, and Grub Hub make any craving just a click away, and like many busy professionals, have become a necessary part of my everyday life. Personal opinions aside, this service allows restaurant owners to get out of the delivery space and focus on running their businesses. As with all “disruptors”, technology advanced quickly and the business has outpaced the law. Food delivery transactions now occupy one of the most fragmented areas of state and local tax (“SALT”) administration. Although many jurisdictions agree that platforms such as DoorDash and Uber Eats can qualify as marketplace facilitators, states diverge significantly on which taxes apply, who bears remittance responsibility, whether delivery fees are taxable, and how local taxes should be sourced and reported.

Who is responsible for the tax?

For SaLT practitioners, the threshold question is always: who is the seller? Food delivery platforms generally operate under one of two models. The delivery platform can act as an agent or marketplace facilitator, delivering food on behalf of the restaurant, or the platform can act as seller, buying the food from the restaurants and reselling to the customer. When the platform acts as a seller, the tax obligation is clear. The platform extends a resale certificate to the restaurant, purchases the meals exempt from sales tax as a sale for resale, and collects tax from the customer. The agent, or marketplace facilitator model, comes with more nuance. The state statutes generally allow a platform to collect and remit sales tax on transactions that occur on behalf of third-party sellers. Following the U.S. Supreme Court’s decision in South Dakota v. Wayfair, nearly every sales-tax-imposing state has enacted marketplace facilitator legislation that allows collection obligations to be shifted from individual sellers to digital platforms. In the food delivery context, this typically means the delivery application, not the restaurant, can collect and remit sales tax on orders placed through the platform. Due to the broad legal frameworks, states apply these rules inconsistently. This can materially affect exemption documentation, invoice treatment, and audit exposure. A SaLT practitioner with multi-state experience, and experience in the industry, can help deliver results.

Taxability of service charges:

An often overlooked issue faced by the industry is the treatment of delivery fees and platform service charges. Several states treat delivery fees as part of the taxable sales price when the underlying meal is taxable. Washington guidance expressly provides that marketplace facilitators selling prepared food must collect sales tax on the “full selling price,” including delivery fees, service fees, and similar charges paid by the customer. Washington also subjects the facilitator’s commissions and related platform income to business and occupation (“B&O”) tax.

Other states take narrower approaches. In some jurisdictions, separately stated delivery charges may remain exempt, while platform service fees may or may not constitute taxable consideration depending on statutory definitions of “sales price.” This creates substantial compliance challenges because the same transaction may be taxed differently depending on how the invoice is structured and how the fee is described.

Local tax administration:

States also vary regarding whether marketplace facilitators are responsible only for state-level taxes or for local taxes and special fees as well. Colorado demonstrates how states increasingly layer additional delivery-specific obligations on top of marketplace facilitator statutes. Under Colorado’s retail delivery fee regime, marketplace facilitators that facilitate taxable deliveries must collect and remit a separate retail delivery fee in addition to sales tax. Colorado regulations specifically state that the marketplace facilitator assumes the retailer’s liabilities and obligations for retail delivery fees on facilitated sales. Minnesota adopted a similar delivery fee structure, though with exemptions for certain restaurant deliveries. In Florida, the City of Miami has the “13CT” catering license, which is accompanied by a tax on catering, and a required monthly filing. In the absence of state law governing local level tax, it is important for platforms to document who is responsible for the collection and remittance of these local taxes. This lack of uniformity creates substantial audit and reporting risk. This issue becomes even more complicated where platforms collect only certain taxes, such as state level taxes, while restaurants remain responsible for others.

The practical result is that marketplace facilitator laws have not simplified restaurant tax compliance as much as policymakers anticipated. For SaLT practitioners, food delivery platforms exemplify the continuing fragmentation of state tax administration in the digital economy. Although marketplace facilitator statutes established a common conceptual framework, states continue to diverge in applying those rules to prepared food transactions, ancillary fees, and local taxes. As a result, multistate delivery platforms must evaluate each jurisdiction independently rather than assuming consistent treatment across states. At Ribeiro Law, part of what we bring to the table is experience in multistate taxation in the delivery context. Contact us for a free consultation to discuss how we can help with your compliance needs.