Assigning tax rates

The details page for each menu, menu group, or menu item, has a Tax rates section, under the Pricing and taxes section, that shows the tax rates that apply to it.

By default, menus inherit the tax rates that have been configured for their restaurant. Similarly, menu groups inherit tax rates from their parent menus and menu items inherit tax rates from their parent menu groups. If you want to override the inherited tax rates for a menu entity, toggle the link icon to unlink the configuration and then select the tax rates from the list.

In addition to the tax rates, the Pricing and taxes section has two other tax-related options: Calculate prices with tax included and Takeout exception. Both of these options use inheritance behavior: menu groups inherit these settings from their parent menus and menu items inherit these settings from their parent menu groups, and you can override the inherited settings by selecting the unlink icon.

The Calculate prices with tax included option allows you to specify that menu item prices include any tax rates you have assigned. When tax is included, the guest pays the price you have set and any applicable taxes are taken out of that price, instead of being added to it. Use this option when you want a guest's check total to be a round number. This eliminates the need for employees to deal with coins and it makes tipping simpler to calculate. It can, however, decrease net revenue if the price you set does not account for applicable taxes.

To better understand the effect of tax inclusion on your revenue, consider an item that has a price of $10 and a tax rate of 7%. When tax is included, the Toast platform calculates a price and tax combination that equals the price you have set but also covers any applicable taxes. In this case, the guest pays $10 ($9.35 for the item and $0.65 for the tax) and your revenue is $9.35:

  • $9.35 item price x .07 tax rate = $0.65 tax

  • $9.35 item price + $0.65 tax = $10 price with tax included

  • Your revenue is $9.35

When tax is not included, the guest pays $10.70 ($10 for the item and $0.70 for the tax) and your revenue is $10:

  • $10.00 item price x .07 tax rate = $0.70 in tax

  • $10.00 item price + $0.70 tax = $10 price without tax included

  • Your revenue is $10

Your sales reports display the item price and tax amount that the Toast platform has calculated for any tax included items, so you can see the breakdown of revenue versus tax when tax is included. To turn on tax inclusion, toggle the Calculate prices with tax included setting to On.

The Takeout exception option allows you to specify that menu items are not taxed when they are ordered for takeout. This option is for states that do not tax takeout orders. To determine if an order is a takeout order, the Toast platform looks at the dining option associated with the order and then it looks at that dining option's behavior. Dining options that use the Take Out behavior are considered takeout orders and won't be taxed. To turn on this option, toggle the Takeout exception setting to On. For more information on dining options, see Dining options in the Toast Administrator's Guide.

If you do not have any tax rates configured yet, you will see a Create tax rates link that you can select to go to the Tax rates page where you can create them. See Taxes in the Toast Administrator's Guide for information on creating tax rates.