Who's Responsible for the Tax? Navigating the Complex World of Third-Party Food Delivery Services

As third-party food delivery services continue to be an essential part of the restaurant industry in 2025, one critical issue remains consistently overlooked: sales tax compliance. Since the pandemic transformed delivery from a convenience to a necessity, platforms like Uber Eats, Grubhub, and DoorDash have become permanent extensions of restaurant and store operations. But this evolution has created a complex tax landscape that many businesses are still struggling to navigate.

The Retail Delivery Model Explained

Here's how third-party delivery typically works for retail stores:

1. Customers browse and select products through a delivery service's app or website
2. The retail store receives the order and prepares the items for pickup
3. The delivery service coordinates with a driver to collect and deliver the products
4. The customer's receipt includes the product price, delivery fees, service fees, taxes, and often tips

It's in those additional charges where tax complexities arise for store owners.

Setting Up Delivery for Your POS System

When integrating delivery capabilities with your Point of Sale (POS) system, there are several important considerations to ensure both operational efficiency and tax compliance:

Step 1: Choose Your Delivery Integration Method

You have three main options:

1. Direct integration with third-party delivery platforms (DoorDash, Uber Eats, Instacart, etc.)
• Many modern POS systems offer built-in integrations
• Orders flow directly into your POS without manual entry
• Automatic inventory syncing
2. Middleware solutions
• Software that sits between your POS and delivery platforms
• Centralizes orders from multiple delivery services
• Examples include Deliverect, Olo, and Chowly
3. Self-managed delivery
• Your own delivery staff and system
• Complete control but requires more resources
• Often managed through POS delivery modules

Step 2: Configure Tax Settings Properly

This is critical to avoid compliance issues:

• Determine which party is responsible for collecting and remitting sales tax in your jurisdiction
• Configure your POS system to either:
• Include sales tax in the prices shown to delivery platforms
• Allow the delivery platform to calculate and collect taxes
• Set up proper tax categories for delivery fees (which may be taxed differently)
• Ensure your system correctly handles local tax variations if you deliver to multiple jurisdictions

Step 3: Set Up Clear Reporting

Establish reporting that clearly differentiates:

• In-store sales
• Delivery sales by platform
• Tax collected through each channel
• Fees paid to delivery services

This separation is essential for accurate accounting and tax filing.

Step 4: Test Thoroughly Before Launch

• Process test orders through each delivery platform
• Verify that orders appear correctly in your POS
• Confirm tax calculations are accurate
• Check that settlement reports match your expected configuration

Step 5: Document Your Process

Create clear documentation of:

• Which party is responsible for tax collection and remittance
• How delivery transactions flow through your system
• Where tax data is stored and reported
• Reconciliation procedures between your POS and delivery platforms

The Central Question for Store Owners

If you're a retail store owner using third-party delivery services, you're facing a fundamental question: Who is responsible for collecting and remitting sales tax on these transactions? The answer varies significantly by state and sometimes even by local jurisdiction.

Some states consider third-party delivery services to be "marketplace facilitators" – entities that provide a forum where sales take place and collect receipts from customers. This designation can shift the tax collection responsibility from your store to the delivery platform. From a state tax department's perspective, the service provider offered the platform and collected the money, so marketplace facilitator laws may apply.

State-by-State Variations Affecting Retailers

New York's Approach

In New York, the rules differentiate between tangible personal property (most retail goods) and prepared food. For retail merchandise, third-party delivery platforms may be considered marketplace facilitators responsible for sales tax collection.

However, there's flexibility through contractual arrangements. To formalize these agreements, store owners may accept a completed Form ST-150, Marketplace Provider Certificate of Collection, which offers tax liability relief to the seller.

This creates a situation where practices vary by platform and product type. Store owners must carefully review their specific arrangements with each delivery service.

California's Path

California takes a different approach for retailers. The relationship between your store and the delivery service is critical. If the delivery service acts as your agent, your business remains the retailer liable for tax on the full selling price, without deductions for the commission retained by the service provider.

Without an agency relationship, the delivery service may be considered a retailer required to hold a seller's permit and be liable for the tax. In this scenario, store owners must obtain a resale certificate from the delivery service providers.

Additional Complexities for Store Owners

The tax landscape becomes even more complicated when considering:

1. Local Taxes: Many cities and counties impose their own sales taxes with different rates. Marketplace facilitator laws typically address state sales tax but might not cover these local taxes.
2. Service Fees and Special Charges: Different components of the delivery transaction may have different tax treatments. For instance, delivery fees might be taxable in some jurisdictions but not in others.
3. Product-Specific Tax Rules: Different products in your store may have different tax treatments. For example, clothing, food items, and electronics often have different tax statuses depending on the jurisdiction.
4. Contract Terms: The agreements between your store and delivery platforms often determine tax responsibilities, making it essential to review these contracts carefully.

Best Practices for Store Owners

To navigate this complex landscape:

1. Know Your Jurisdiction's Rules: Review the tax laws for each state where you operate to understand baseline responsibilities.
2. Review Contracts Carefully: Ensure contracts with delivery services clearly specify which party will collect and remit sales tax.
3. Monitor Settlement Reports: Regularly review reports from delivery services to confirm whether tax amounts are included in deposits. If your deposit includes a sales tax entry, verify who's responsible for remitting this to the taxing jurisdiction.
4. Consider Local Taxes: Address local sales taxes, which may have different rules than state sales tax.
5. Update Your POS and Accounting Systems: Ensure your systems properly track and report sales through delivery platforms to avoid compliance issues.
6. Seek Professional Guidance: Given the complexity and potential financial implications, consulting with tax professionals experienced in retail operations is highly recommended.

The Stakes Are High for Retailers

The consequences of mishandling sales tax can be severe. If both parties fail to remit sales tax, the taxing jurisdiction could hold both responsible. As sales tax audits increase in frequency, the liability often falls on whichever party is audited first.

For retail stores operating on thin margins, unexpected tax assessments could be devastating. Proper compliance isn't just about following rules—it's about protecting your business's financial health.

"Don't let tax complexities eat into your profits! As a store owner, clear communication with your delivery partners, detailed contracts, and a solid understanding of local regulations are essential. Taking the time to get it right now will save you significant headaches and money down the line."

As third-party delivery services continue to evolve for retail stores, we can expect further clarification and potentially standardization of tax rules across jurisdictions. Until then, store owners must remain vigilant about understanding and fulfilling their tax obligations.

By staying informed and proactive about tax compliance, your retail business can embrace the opportunities of delivery services without the looming threat of tax complications.

Need Help Navigating Delivery Service Taxes?

We understand that tax compliance can be overwhelming, especially in the rapidly evolving landscape of third-party delivery for retail stores. To help ensure your business is on the right track, we're offering a free consultation. Let's discuss your specific situation and find the best solutions for your store. Book now!