Houston Restaurant Tax: Mixed Beverage Rates, Permits & Filing

A Houston restaurant charges 8.25% sales tax on most food and drinks sold for immediate consumption. That total combines a 6.25% Texas state sales tax, a 1% City of Houston tax, and a 1% Metropolitan Transit Authority (METRO) tax.¹ Alcohol sold for on-premises consumption carries two additional taxes on top of that, and the rules for what actually qualifies as a taxable “prepared food” catch a lot of new operators off guard.

The 8.25% figure is the statewide maximum for combined sales tax. If your location sits outside Houston’s city limits but still in Harris County, the local portion may look different. The Texas Comptroller’s address lookup will confirm the exact rate for any restaurant address.

What Is Taxable and What Is Exempt

Texas exempts most grocery-style food from sales tax. Uncooked meat, fresh produce, dairy, cereals, and packaged snacks like chips are tax-free when sold for off-premises consumption.² Restaurants, however, sell prepared food, and prepared food is fully taxable.

Under state rules, food is “prepared” if it fits any of these categories:³

It is ready for immediate consumption, like a plated meal, sandwich, or salad served by a restaurant, cafeteria, or food truck.
It is sold in a heated state, including items the seller warms at the customer’s request.
It is sold with eating utensils such as plates, forks, spoons, cups, straws, or chopsticks. Napkins and foam clamshell containers do not count as utensils.⁴
It combines two or more ingredients mixed by the seller for sale as a single item, with limited exceptions for food that is only cut, repackaged, or pasteurized.

Soft drinks and candy are always taxable, everywhere. Texas excludes both from the “food products” definition, so even a grocery store charges tax on soda and candy. Juice that is more than 50% fruit or vegetable juice by volume is not a soft drink.²

Bakeries get a specific carve-out. A shop that primarily sells baked goods from a display case for off-premises consumption can sell bread, pastries, and cookies tax-free even when they are heated or served with utensils. A restaurant that offers muffins alongside full meals does not qualify, and those muffins are taxable if sold with a plate or fork.²

Comps, Employee Meals, and Discounts

A meal you give away at no charge is not subject to sales tax, but you still owe tax on any taxable ingredients that went into it. Soft drinks are the most common example. Raw ingredients like meat and vegetables remain tax-free.⁵

Employee meals are exempt if three conditions are met: the meal is served immediately before, during, or after the employee’s shift; the employee works in food preparation or service; and the meal is provided for the owner’s convenience rather than as extra compensation.⁵

For buy-one-get-one promotions, tax is due only on the amount actually charged. The free meal carries no tax. A restaurant-absorbed coupon works the same way: a $5 coupon on a $15 meal means you collect tax on $10.⁵

Tips and Mandatory Service Charges

Voluntary tips are never part of the taxable sales price. Mandatory gratuities, such as an automatic 18% on large parties, can also stay out of the tax base, but only if the restaurant meets all three of these conditions:⁶

The gratuity appears as a separate line, apart from food and drink.
It is labeled clearly as a tip, gratuity, service fee, or similar term.
The full amount is paid to qualifying staff. Any portion the restaurant keeps becomes taxable.

There is a hard ceiling. If a mandatory gratuity exceeds 20% of the bill, the entire gratuity becomes taxable, regardless of how it is distributed.⁶ Private-event packages with built-in service charges above 20% trip on this rule regularly.

Alcohol: The Two Mixed Beverage Taxes

Restaurants holding a mixed beverage permit face two separate taxes on alcohol sold for on-premises consumption. They work differently and have to be tracked separately.

Mixed Beverage Gross Receipts Tax: 6.7%

This 6.7% tax applies to the permit holder’s total receipts from alcoholic beverages plus any mixers and ice sold with them.⁷ It is the restaurant’s own liability. Texas law prohibits passing it to the customer as a separate line item or labeling any charge as reimbursement for it.⁸ You absorb it or price your drinks to cover it.

Mixed Beverage Sales Tax: 8.25%

The second tax is 8.25% of the sales price of each alcoholic drink, mixer, and associated ice, and it is paid by the customer.⁹ It behaves like a regular sales tax. Add it to the bill, collect it, and remit it. Both mixed beverage taxes are filed monthly, with returns due by the 20th of the following month.¹⁰

You are simultaneously handling a tax you cannot charge to customers and one you must collect from them. Confusing the two during reporting is a common audit trigger.

Buying Inventory Tax-Free

Ingredients and beverages you buy for resale to customers can be purchased without sales tax if you give your supplier a completed Texas Sales and Use Tax Resale Certificate (Form 01-339). The form needs your 11-digit sales tax permit number and a description of what you are buying for resale.¹¹

The certificate only covers items you actually resell. Bulk cooking oil bought under the certificate but used in your kitchen (not resold as a separate product) triggers use tax. Knowingly issuing a resale certificate for items intended for your own use is a criminal offense in Texas, ranging from a Class C misdemeanor to a second-degree felony depending on the tax amount involved.¹¹

Getting Your Sales Tax Permit

You need a Texas Sales and Use Tax Permit before collecting any tax. There is no fee, though the Comptroller may require a security bond in some cases.¹² Most applicants register online through the Comptroller’s website. If a sole owner, partner, officer, or director lacks a Social Security number, you have to use the paper application (Form AP-201).¹³

Have this ready when you apply:

Your Federal Employer Identification Number (FEIN).
Social Security numbers for each partner, officer, or director.¹⁴
Your Secretary of State file number, if you operate as a Texas corporation or LLC.
Your NAICS code. Full-service restaurants use 722511; limited-service uses 722513.
Bank account details for electronic payments.

Once approved, the Comptroller assigns you a monthly or quarterly filing frequency. The permit has to be displayed at your place of business.

Filing Deadlines, Discounts, and Penalties

Returns are filed through the Comptroller’s Webfile system in the eSystems portal.¹⁵ Monthly filers, which most revenue-generating restaurants are, submit by the 20th of the month after each reporting period. March sales tax is due April 20. Annual filers submit one return by January 20 covering the prior year.¹⁶

If you paid $10,000 or more in sales tax during the prior state fiscal year (September 1 through August 31), you must pay electronically. At $50,000 or more, you must also file electronically. Missing those thresholds adds a 5% penalty.¹⁵ Payments over $500,000 for any single tax type must go through TEXNET.

You can pay by ACH debit or credit card through Webfile. Credit cards carry a fee: $1.00 for payments up to $100, and 2.25% plus $0.25 above that.¹⁵ For larger monthly remittances, ACH is the cheaper choice.

The Timely Filing Discount

Texas gives a 0.5% discount on the tax due to every taxpayer who submits a timely return with full payment. Monthly and quarterly filers can claim an additional 1.25% prepayment discount on top of that.¹⁷ A restaurant remitting $8,000 a month captures $40 per filing from the standard discount alone, or about $480 a year. Miss one deadline and the discount is gone for that period.

Late Filing Penalties

Late payments escalate quickly:¹⁸

1 to 30 days late: 5% penalty on the tax due.
More than 30 days late: 10% penalty.
After a Notice of Tax/Fee Due: an additional 10% penalty, bringing the total to 20% of the original amount owed.

On top of the percentage penalties, the Comptroller adds a flat $50 charge for each late return, even when no tax was due for the period.¹⁸ Interest starts on the 61st day after the due date at a variable annual rate set at the beginning of each calendar year. A restaurant that lets a return slide can face a 20% penalty plus months of interest before the balance is settled.

1
Texas Comptroller of Public Accounts. Texas Sales and Use Tax Rates
2
State of Texas. Texas Tax Code 151.314 – Food and Food Products
3
Cornell Law Institute. 34 Texas Admin Code 3.293 – Food; Food Products; Meals; Food Service
4
Texas Comptroller of Public Accounts. Grocery and Convenience Stores
5
Texas Comptroller of Public Accounts. Restaurants and the Texas Sales Tax
6
Cornell Law Institute. 34 Texas Admin Code 3.337 – Gratuities
7
State of Texas. Texas Tax Code 183.021 – Tax Imposed on Gross Receipts of Permittee From Mixed Beverages
8
Cornell Law Institute. 34 Texas Admin Code 3.1001 – Mixed Beverage Gross Receipts Tax
9
State of Texas. Texas Tax Code 183.041 – Tax Imposed on Sales of Mixed Beverages and Related Items
10
Texas Comptroller of Public Accounts. Mixed Beverage Gross Receipts Tax
11
Texas Comptroller of Public Accounts. Sales and Use Tax Resale Certificate / Exemption Certification
12
Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
13
Texas Comptroller of Public Accounts. Texas Online Tax Registration Application
14
Texas Comptroller of Public Accounts. Texas Application for Sales Tax Permit and/or Use Tax Permit
15
Texas Comptroller of Public Accounts. File and Pay
16
Texas Comptroller of Public Accounts. Sales and Use Tax
17
Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
18
Texas Comptroller of Public Accounts. Penalties for Past Due Taxes