Question about Gross Receipts

[sharpie]

When calculating gross receipts for an 1120S for a restaurant, do I include the complementary sales? What about for sales tax returns, do I include the complementary sales for my taxable receipts?

Thanks!

[MN-Investor]

Maybe everyone else here knows, but I don't, so I'll ask: What's a complementary sale?

[jkapp]

Complementary sales are usually an in-and-out on the books - comp revenue offset by comp expense. So, yes, they are generally included in the gross sales numbers but then get taken out again in the cost/expense section.

The sales taxes depends on how your state return is set up...is there a place to enter a deduction for comped sales? Since no sale was actually made, and no sales taxes collected, even if they were included in gross receipts on the return they should not be included in any tax calculations on the form. SO I would check on your form to see if there is a "deduction" section after "gross receipts" and then that is where comped sales would be deducted from gross sales. Some forms, though, have a specific line to deduct those types of sales so you need to make sure you put them in the right place.

[mwcpa]

Complementary sales are generally a form of advertising (and or barter income if exchanged for other goods and services).... and as such the sale and the related cost should be reflected on the company's books and records and tax filings.... and if you want the tip credit (form 8027) computed properly.... see excerpt from the instructions to the form...

"Gross receipts include all receipts (other than nonallocable receipts, see definition below) from cash sales, charge receipts, charges to a hotel room (excluding tips charged to the hotel room if your accounting procedures allow these tips to be separated), and the retail value of complimentary food or beverages served to customers as explained below.

Also include charged tips in gross receipts, but only to the extent that you reduced your cash sales by the amount of any cash you paid to tipped employees for any charged tips due them. However, if you did not reduce cash sales for charged tips paid out to employees, do not include those charged tips in gross receipts. Do not include state or local taxes in gross receipts. "



In regards to sales and use tax, you need to check with the local where the enterprise operates, every state has it's own unique set of rules...

an example.... NYS rules

"Petitioner’s serving of complimentary cocktails to its customers, where no payment is received by Petitioner for providing the cocktails, is not subject to the sales tax imposed by Section 1105(a) of the Tax Law. However, Petitioner's purchase of tangible personal property, such as alcoholic beverages and mixers, to produce the drinks would be subject to State and local sales or compensating use taxes. Assuming Petitioner furnished a resale certificate (Form ST-120) to its suppliers when it purchased such tangible personal property and did not pay sales tax on such purchase, Petitioner may use a reasonable method to determine the tax due."

"In those cases where a customer redeems a certificate for a free meal, Petitioner is liable for sales or compensating use tax on its cost of taxable food, drink and other items served to such customer."
link... www.tax.ny.gov/pdf/advisory_opinions/sales/a99_13s.pdf

Again, for sales tax you need to check the laws and regulations of the local.