When A.J. Navarro rolls his football-themed food truck up to a lunch location, he’s got the menu nailed. His signature “loaded fries,” tri-tip sandwiches and char-grilled burgers are a manly tailgater’s delight.
What’s not so easy: figuring out how to compute, charge and remit the sales tax for every french fry, grilled zucchini stick and cold drink that’s handed out the window to waiting customers.
“It’s tricky,” both for customers and mobile food truck owners such as himself, said Navarro, 35, a former cook who launched his GameDay Grill truck in January. “A lot of customers ask before they order, ‘Is sales tax included?’ They’ve got a 10 (dollar bill) and don’t want to find out it’s $10.85 and they’re short.”
With the mobile food truck industry revving up in California, sales tax is becoming a sizeable issue. In the past three years, the number of licensed mobile food operators jumped more than 45 percent, with an estimated 4,000 statewide, according to the State Board of Equalization. At the same time, the amount of annual sales tax forked over by food truck owners is getting heftier, hitting $12.2 million in 2012.
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That’s why state tax officials are making sure these mobile businesses know how to comply with California’s somewhat byzantine sales tax requirements.
“Especially with food, sales tax is a pretty complicated process. The last thing somebody needs to do is think they’re doing something correctly and find some little mistake could put them out of business,” said state BOE member George Runner.
Every time a mobile food truck crosses a county line or city limits, the owner has to charge the prevailing sales tax in that locale. If it’s in West Sacramento for a lunch run, the sales tax is 8.0 percent, but when a mobile food truck rumbles into Roseville for a dinner event, it must switch the tax rate to 7.5 percent. And if the truck makes a stop in Sacramento city, it must charge 8.5 percent.
On top of the variable rates, mobile food vendors must factor in the state’s dizzying rules on sales tax for to-go food. If it’s a cold sandwich, there’s no tax. If it’s a hot item, there is. If it’s an ordinary breakfast muffin, it’s not taxed; if it’s a cooked egg-muffin-type item, it is. Cold sodas are taxed, but not bottled water. Unless it’s carbonated.
Keeping track of it all is a complicated, confusing task.
“That’s a considerable understatement,” said Paul Somerhausen, director of SactoMoFo, which handles event scheduling for 25 to 30 mobile food truck owners in the greater Sacramento region, including today’s Farm-to-Fork festival on Capitol Mall. “It’s mind-blowing. As a small-business owner, to wrap your brain around all that information is overwhelming.”
He said some longtime food truck owners, such as Krush Burger, use restaurant software that automatically computes the varying tax rates. Others, including Navarro, still tally their receipts on paper, penciling in the appropriate sales tax for each locale.
“There’s a lot of bureaucracy that goes into opening a food truck,” said Somerhausen. “It’s not as simple as the Food Network makes it look.”
The BOE collects all sales taxes on prepared food, whether it’s served in a sit-down restaurant or at a stand-in-line truck, then doles out the local share to cities and counties. Although the BOE doesn’t believe there’s a serious problem with under-reporting, it wants to be sure every food truck owner knows how to comply. The same tax rules apply to trucks, carts or stands that do not have a permanent physical location.
Krush Burger, which operates two mobile trucks as well as a sit-down restaurant in Sacramento, uses the same cash register software for all locations.
“We started that way with the first truck,” said Krush Burger co-owner Davin Vculek. The software, which costs about $300 a month, also helps track labor costs, product shrinkage and theft.
But for new startups like Navarro, that’s a cost he’s not yet ready to absorb. He spent $26,000 on a used taco truck last year, plus additional thousands to refurbish it with deep fryers, char-broil grills and a football-imaged vehicle wrap. With just nine months behind the wheel, he says there’s nothing extra to cover expenses like accounting software. Instead, the Antelope father of two tallies his nightly receipts the old-fashioned way: by hand.
The first time he reported quarterly taxes, Navarro spent 30 minutes on the phone with a BOE tax expert, who “walked me through it.”
SactoMoFo’s Somerhausen hopes to host workshops with state tax officials to explain the complex reporting requirements. “Nobody wants to be noncompliant or risk an audit. They want to go by the book. But the books are hard to understand.”
The BOE has held workshops and offers help on its website, www.boe.ca.gov, and by phone at (800) 400-7115. To simplify, the BOE recommends mobile vendors clearly post on their menu boards that ‘all prices of taxable items include sales tax.’”
That’s a surprise to some regular food truck customers, including Neal Hoffman, a Hillyard janitorial products employee. “I never realized they had to pay it,” said Hoffman, holding a $7 GameDay Grill burger and fries during a recent lunchbreak in a Natomas business park.
“Man, it must be an accounting nightmare.”