A major source of local government revenue is the meals tax. Most states authorize the right of local governments to raise revenues utilizing a meals tax. It is defined differently in each state. If a business is involved in the food service sector the bookkeeper needs to grasp the fundamental concepts of how the food tax is structured. In addition, this tax collection process is accounted for in a similar manner as sales tax.
Meals tax is a state or local levy surtax on prepared foods. The key word is ‘prepared’ which is commonly denoted to sit down or take out restaurants. The tax is collected and transferred to the governing authority under a trust arrangement, i.e. the business acts as an agent for the government.