Food Delivery Services as Marketplace Facilitators

F is a food delivery company that operates a website and mobile application where customers may order food from a local restaurant and have it delivered by F. R is a local restaurant that sells its food on F’s website and application. C is a customer who lives in a jurisdiction that imposes a 1% local option sales tax.

F charges a mandatory $5.00 service fee on all orders made through its website or application. F also charges for delivery, which changes depending on the amount of food ordered and the distance the driver must travel. Assume both F and R have nexus in Iowa.

C makes the following delivery order from R:

     3 large pizzas . . . . . . . . . . .$20.00 each = $60.00
     3 orders of breadsticks . . .  $7.50 each = $22.50
     5 bottles of pop. . . . . . . . . . $2.50 each = $12.50

     Food Total: . . . . . . . . . . . . .$95.00
     Service Fee: . . . . . . . . . . .  $5.00
     Delivery Fee: . . . . . . . . . . . $7.50
     TOTAL (pre-tax): . . . . . . . .$107.50

The total tax due is $7.00 = 7% tax on $100.00. Delivery charges, including charges for food delivery, are not subject to sales tax. Therefore, the $7.50 amount charged to C for the delivery is not considered in the total sales price subject to tax. The service fee, however, is included in the sales price.

Therefore, the total C must pay for the order is $114.50 = $7.00 (7% of taxable $100.00) + $107.50 (total due pre-tax).

Who must collect and remit the tax?

Scenario 1

C makes the order and schedules delivery though F’s website. F collects the entire amount of $114.50. From this amount, F keeps the $5.00 service fee and the $7.50 delivery fee. Through its agreement with R, F is also entitled to retain 10% of the sales price collected for the sale of R’s products.

Here, the total sales price for R’s products (“Food Total”) is $95.00. Therefore, F retains $9.50 ($95.00 x 10%) and tenders to R the remaining $85.50 to R.

Here, F is responsible for the collection and remittance of the $7.00 sales tax, regardless of the fact that it ultimately tendered the majority of the sales price to R. F is a marketplace facilitator, and R’s sales through F’s marketplace are marketplace sales. Therefore, F must collect and remit sales tax on all of its marketplace sales. In this example, R has no collection and remittance obligation with respect to C’s purchase.

Scenario 2

Same facts as Scenario 1, except that instead of retaining a portion of the sales price on marketplace sales of R’s products, F purchases the products directly from R at the time F picks up the products for delivery, and then F resells the products to C upon delivery.

The result is the same as Scenario 1. Here, rather than making marketplace sales of R’s products, F itself is the direct marketplace seller of R’s products. After providing a completed Iowa Sales/Use/Excise Tax Exemption Certificate (31-014) to R, F would purchase the products from R tax exempt as a sale for resale, and R would have no obligation to collect tax from F at that time. F would then collect the full $114.50 from C and remit $7.00 to the Department.

B is a business directory company that operates a website and a mobile application where the public reviews businesses. B’s website and mobile application also allow customers to order and pay for food from restaurants which are then delivered by a third party delivery company. B does not deliver food to customers, but charges a mandatory $5.00 service fee and a delivery fee which varies depending on the agreement it has with the third party delivery company.

F is a food delivery company that operates a website and mobile application where customers may order food from a local restaurant and have it delivered by F. F also delivers food to customers who ordered through B’s website or mobile application.

R is a local restaurant that sells its food on B’s and F’s website and mobile application. C is a customer who lives in a jurisdiction that imposes a 1% local option sales tax.

Assume B, F, and R have nexus in Iowa.

C makes the following delivery order from B:

     3 large pizzas . . . . . . . . . . .$20.00 each = $60.00
     3 orders of breadsticks . . .  $7.50 each = $22.50
     5 bottles of pop. . . . . . . . . . $2.50 each = $12.50

     Food Total: . . . . . . . . . . . . .$95.00
     Service Fee: . . . . . . . . . . .  $5.00
     Delivery Fee: . . . . . . . . . . . $7.50
     TOTAL (pre-tax): . . . . . . . .$107.50

The total tax due is $7.00 = 7% tax on $100.00. Delivery charges, including charges for food delivery, are not subject to sales tax. Therefore, the $7.50 amount charged to C for the delivery is not considered in the total sales price subject to tax. The service fee, however, is included in the sales price.

Therefore, the total C must pay for the order is $114.50 = $7.00 (7% of taxable $100.00) + $107.50 (total due pre-tax).

Who must collect and remit the tax?

C makes the order and schedules delivery though B’s website. B collects the entire amount of $114.50. From this amount, B keeps the $5.00 service fee and F keeps the $7.50 delivery fee. Through B’s agreement with R, B is also entitled to retain 10% of the sales price collected for the sale of R’s products.

Here, the total sales price for R’s products (“Food Total”) is $95.00. Therefore, B retains $9.50 ($95.00 x 10%) and tenders to R the remaining $85.50 to R.

Here, B is responsible for the collection and remittance of the $7.00 sales tax, regardless of the fact that it ultimately tendered the majority of the sales price to R. B is a marketplace facilitator, and R’s sales through B’s marketplace are marketplace sales even though F delivers the customer’s order. Therefore, B must collect and remit sales tax on all of its marketplace sales. F merely provides a delivery service, which is not subject to sales tax. In this example, R and F have no collection and remittance obligation with respect to C’s purchase.