Understanding sales tax for restaurants in California can be surprisingly complex. Between dine-in versus takeout, hot food versus cold, and the infamous 80/80 rule, even small decisions can impact your tax liability. Whether you’re a café in Sacramento or a fast-casual chain across the state, staying compliant isn’t optional—it’s critical. Add in district-level tax rates, delivery platforms, and mandatory service charges, and the risk of misclassification multiplies.
That’s where Hands Off Sales Tax (HOST) comes in. HOST helps California restaurants navigate nuanced tax rules, configure POS systems correctly, and stay audit-ready without lifting a finger.
Which Restaurant Sales Are Taxable—and Which Aren’t?
In California, not every item you sell is subject to sales tax. The rules hinge on what’s sold, how it’s sold, and where it’s consumed—with the 80/80 Rule adding a further layer of complexity.
General Taxability Rules
- Hot food is generally taxable, regardless of whether it’s eaten on the premises or taken to go.
- Cold food “to-go” (like sandwiches, salads, or bottled drinks) is usually exempt, unless sold in combination with taxable items or under specific conditions.
- Dine-in meals, whether hot or cold, are taxable because the establishment provides a place to eat.
- Delivery follows the same tax rules as takeout: hot food is taxable; cold food may not be—unless the 80/80 Rule applies.
What Is the 80/80 Rule?
Under California’s 80/80 Rule, if:
- More than 80% of your gross receipts come from food products, and
- More than 80% of those food sales are taxable, then you must collect tax on 100% of sales, including cold food sold to-go (unless the sale is separately itemized and the customer takes it to go).
This rule hits many quick-service restaurants and cafes, especially chains. Failing to apply it correctly is a common audit trigger.
Taxable Scenarios: Hot Food, Combo Meals & Hotel Packages
California sales tax rules can be especially nuanced when it comes to prepared meals, hot food combinations, and bundled packages like hotel stays with meals included. Misunderstanding these distinctions often leads to over- or under-collection of tax.
What Counts as “Prepared Food”?
According to CDTFA Regulation 1603, prepared food includes:
- Food sold in a heated state (e.g., soups, burgers, rotisserie chicken)
- Food sold with utensils provided by the seller (plates, forks, napkins)
- Food that is two or more items packaged together (combo meals)
This means even a cold sandwich with a drink and chips, sold as a combo, could be fully taxable if utensils are provided.
Hot Beverages and Baked Goods
- Hot coffee, tea, or cocoa are taxable, whether consumed on-site or to-go.
- Hot baked goods (like toasted bagels, heated muffins) are also taxable.
- Cold bakery items (like unheated donuts or cookies) are not taxable when sold to-go without utensils.
Hotel Packages with Meals
When hotels or resorts include meals in a package (e.g., breakfast included), the value of the meal portion must be separated and taxed appropriately.
- If the price is not separately stated, the entire package may be subject to tax.
- Operators must itemize room and meal charges on invoices to avoid overcollection.
When Take-Out or Delivery Changes the Tax Game
At first glance, it may seem like food sold to-go in California is always tax-free—but that’s not the full story. The manner of sale, location, and delivery method can all impact whether sales tax applies.
Cold Food Sold To-Go: When It’s Exempt
Generally, cold food sold for take-out is not taxable in California. This includes:
- Sandwiches
- Salads
- Cold drinks (excluding soda and alcohol)
- Unheated baked goods
However, this exemption does not apply if:
- The food is consumed in a facility provided by the seller (e.g., mall food court seating)
- Utensils or napkins are provided, signaling “prepared food” under CDTFA Reg. 1603
- The seller meets the 80/80 Rule (80% of sales are food and 80% of food is taxable)
In places like shopping centers, even to-go orders can be taxed if shared public seating is available.
Third-Party Delivery and Online Orders
Food delivered through apps like DoorDash or Uber Eats introduces more complexity. If a restaurant contracts with a marketplace facilitator, that platform may now be responsible for collecting and remitting tax.
For restaurants handling their own delivery, the same dine-in/take-out rules apply, but delivery charges may be taxable if not separately stated from the food total.
In short, to-go doesn’t always mean tax-free, especially when third parties or shared spaces are involved.
Special Charges: Tips, Service Fees & Mandatory Surcharges
Beyond food and drink, restaurants often add other charges to the bill—but not all are treated the same under California sales tax law. Understanding the distinction between optional and mandatory charges is essential for compliance.
Optional Tips vs. Mandatory Charges
- Voluntary tips left by customers are not taxable, as they are considered gifts rather than part of the sale.
- Mandatory service charges, such as a required gratuity for large parties or automatic fees added to every bill, are subject to sales tax.
“Service charges” and similar fees that are not optional must be included in taxable receipts source.
The “Honest Pricing Law”
Effective in 2023, California’s Senate Bill 478—commonly referred to as the “Honest Pricing Law”—targets misleading price displays. It requires that mandatory surcharges (like a “2% kitchen equity fee”) be clearly disclosed upfront in the advertised price, not just tacked on at checkout.
Non-compliance may trigger action from the Attorney General or local prosecutors under unfair business practice statutes. While the law primarily concerns transparency, it can also complicate tax reporting if surcharges are improperly disclosed or bundled with taxable items.
Current Rates & When Local District Adds Matter
While California’s statewide base sales tax rate is 7.25%, what a customer actually pays can vary widely depending on local district taxes. For restaurants, this means the tax rate you apply depends on where the sale is made or delivered—not just the statewide minimum.
Understanding the Base and Add-Ons
- Statewide base rate: 7.25%. This includes 6% state tax and 1.25% in mandatory local taxes.
- District taxes: Additional voter-approved taxes imposed by cities or counties. These vary and can push total rates above 10% in some areas.
Local Rate Examples
- Los Angeles (City): 9.5%
- Sacramento (City): 8.75%
- San Francisco: 8.625%
These rates are current as of Q3 2025 but are subject to change. Restaurants operating across multiple locations must track rates by ZIP code. Tools like the CDTFA’s Tax Rate Lookup help ensure accuracy.
Failing to apply the correct district tax rate can result in under-collection and audit exposure. Always verify rates regularly.
How HOST Helps Restaurants Stay Compliant
Navigating California’s complex restaurant sales tax rules can be overwhelming. That’s where Hands Off Sales Tax (HOST) comes in—offering end-to-end support so restaurant operators can focus on what they do best: serving great food.
Full-Service Sales Tax Compliance
HOST specializes in sales tax registration, filings, and ongoing compliance for foodservice businesses across California. Whether you’re a single-location café or a multi-unit franchise, HOST ensures:
- Correct tax rates are applied across dine-in, take-out, and delivery channels
- District tax changes are monitored and updated accurately in your systems
- Exemptions like cold food and resale certificates are validated and documented
- Service charges, gratuities, and surcharges are properly categorized for tax treatment
Powerful Integrations for Modern Restaurants
HOST works with leading POS systems, online ordering platforms, and third-party delivery apps—ensuring that every order is taxed (or exempted) correctly across channels. This is especially useful for:
- Restaurants offering delivery via DoorDash, Uber Eats, etc.
- Operators using Square, Toast, or Shopify for online orders
- Catering and event-based foodservice with complex invoices
Audit Protection and Expert Support
Should the CDTFA audit your business, HOST is in your corner with full audit defense and historical reconciliation services. Their team of tax professionals knows the ins and outs of California’s food tax rules—and stays ahead of updates, so you don’t have to.
Final Thoughts: Get Sales Tax Right the First Time
California restaurant sales tax rules are anything but straightforward. From the 80/80 rule to delivery taxability, even small missteps can lead to costly penalties or audits. Whether you’re serving hot meals, packaged combos, or running multiple service models, accuracy is critical. That’s where Hands Off Sales Tax (HOST) makes a difference—offering tailored support, expert guidance, and full compliance coverage for restaurant operators across the state. Don’t leave your sales tax obligations to guesswork. Talk to HOST today and let the experts handle it—so you can focus on growing your business, not decoding tax codes.
Frequently Asked Questions (FAQs)
1. Is cold food sold to-go always exempt from California sales tax?
Not always. If the food is consumed on-site (like in a food court) or includes utensils, it may become taxable—even if it’s cold. The exemption generally applies when cold food is sold to-go and not consumed in a dining area.
2. What is the 80/80 rule for restaurants in California?
If more than 80% of your sales are food and more than 80% of that food is taxable, then all sales (including cold food to-go) become taxable unless separately stated. This simplifies compliance but increases tax exposure.
3. Are service charges or automatic gratuities taxable?
Yes. Unlike voluntary tips, any mandatory service charge or automatic gratuity is considered part of the taxable sales amount.
4. How much sales tax should I charge in Los Angeles?
The base statewide rate is 7.25%, but LA has additional district taxes, bringing the total up to 10.25% in some areas.
5. Can HOST help with restaurant-specific tax questions or filings?
Absolutely. HOST offers expert compliance services including nexus analysis, registration, return filings, and tailored guidance for California’s complex restaurant rules. They’re built to take the burden off your team.
