Texas sales tax and delivery app fees cut ghost kitchen margins

What to take away

How Texas taxes prepared food from a virtual brand

Texas taxes most food a ghost kitchen sells as prepared food. The state rate is 6.25 percent, and local taxing units may add up to 2 percent more.

Heat it, assemble it, portion it or plate it, and the exemption for packaged goods is gone. Bagged chips and bottled soda you only store and resell can stay exempt. A combo that pairs a hot sandwich with those chips is taxable on the full price.

The Comptroller's rule is that tax applies to the total sales price. A delivery charge escapes tax only when you state it separately as a delivery service.

Whether you or the platform owes the tax depends on who is the seller. When a platform sells your food under its own name as a marketplace provider, it collects and remits. When your kitchen is the merchant of record, you owe the tax even if the app already collected it from the customer.

That answer lives in the tax section of your contract, not in the app's help center. A brand running on three apps can carry three different treatments, because some platforms act as marketplace providers and others only generate leads. Read the tax clause before you sign, and again before you file.

Self-employed operators also report net earnings and pay self-employment tax on the federal return. The IRS Self-employed individuals tax center covers estimated payments, which catch most first-year owners by surprise.

Delivery app commission tiers and what they take off the top

Platform commissions in Texas run in tiers set by service level. A basic listing may take 15 percent of the food subtotal. Better placement and promotions push that to 20 or 25 percent. Full logistics and customer support can reach 30 percent or more.

The base is the food subtotal, so tax and tips are outside it. A 25 percent commission on a $20 subtotal takes $5.00 before you see a dollar. Delivery and service fees the customer pays go to the platform, not to you.

Tips usually pass through in full, though some contracts let a platform apply them against driver costs. Check that clause, because a tip you cannot count is not revenue.

Exclusivity buys a lower rate. Signing with one app can move you from 25 percent to 15 percent, and it costs you every customer on the other apps. Run both scenarios before you trade reach for rate.

Watch the fees stacked under the headline rate: payment processing, refunds, chargebacks and promotions. A 2.9 percent plus 30 cents card fee is common, and platforms often add their own markup. Your effective commission is the all-in cost per order, not the number in the pitch.

Those fees are ordinary and necessary business expenses. The IRS Guide to business expense resources explains the deduction, and every app statement and bank deposit record supports it.

Local option taxes in Austin and Dallas

Austin and Dallas both land at 8.25 percent combined for most prepared food. That is the 6.25 percent state rate plus city, transit and other local components.

The rate follows the sale. A delivery order is generally sourced to where the customer receives the food, so a kitchen inside Austin delivering to a Round Rock address may owe a different local rate than the one it collected.

A brand with kitchens in both cities runs two local tax profiles. Your app statements should show tax collected by jurisdiction, and your point-of-sale system needs the current rate loaded for each one.

Rates change. A city election can reallocate the local share, and transit authorities can adjust theirs. An outdated rate in the POS means undercollection, and undercollection means you owe the difference.

Reconcile app statements against your own records every month. For how the tax line sits inside the wider cost picture, see our guide to ghost kitchen profit margins.

Margin math: a $20 order after tax, commission and card fees

Take a $20 food item sold through a major app at 8.25 percent tax and 20 percent commission. The customer tips $3.00, passed through in full.

The card fee lands on the transaction total, not the food subtotal. At 2.9 percent plus 30 cents that is about 63 cents plus 30 cents. The commission is a clean 20 percent of $20, and the tip arrives untouched.

Now subtract food and labor. At 30 percent food cost the food is $6.00, and labor plus overhead might add $4.00. Contribution margin is $8.07 with the tip counted, and $5.07 without it.

That is the number to plan around, because tips are not reliable. The same $20 item sold at the counter pays no commission, so the net is $19.07 before food and labor.

Every five points of commission costs $1.00 on a $20 order. At 100 orders a day that is $100 daily, or $36,500 a year, which is why the tier you negotiate matters more than most line items on your P&L.

Inflation moves both sides. Food away from home prices have outrun overall inflation in recent years, according to the CPI Home : U.S. Bureau of Labor Statistics, so your inputs and your menu prices are both climbing. Raising the app price raises the commission in absolute dollars too, so model both effects before you reprint.

Wage data matters for the same reason. The Quarterly Census of Employment and Wages : U.S. Bureau of Labor Statistics publishes average weekly wages for food services by Texas metro. If Austin or Dallas wages rise faster than your menu prices, labor cost per order climbs while your price stands still.

Menu pricing moves that protect virtual kitchen economics

Set app prices above counter prices where your contract allows it. A $20 in-store item at $24 on the app still pays 20 percent, but 20 percent of $24 is $4.80, and the extra dollar stays with you. Platforms with parity clauses forbid this, so read the pricing section first.

Build commission into high-margin sides. Fries that cost 50 cents can carry a $5.00 app price, absorb $1.00 in commission, and still return $4.00. Bundling them with a sandwich spreads the fee across a larger ticket.

Push low-food-cost items. A pasta dish at 20 percent food cost survives a 25 percent commission better than a steak at 40 percent, because the fee tracks the sale price, not the plate cost. Track which items actually clear money after fees using your ghost kitchen metrics.

Negotiate a volume tier instead of exclusivity. Ask for a rate that steps down after a monthly order count, which rewards growth without locking you out of other apps.

Shift repeat customers to direct ordering. A direct order carries card processing and no commission, and moving even 10 percent of volume changes the blended margin. Insert cards in packaging work only where the platform contract permits them.

Know your break-even commission rate before any of this. Food cost at 30 percent plus labor at 20 percent leaves 50 percent, and a commission at that level consumes the entire contribution margin.

If you are setting prices for the first time, our guide on how to price ghost kitchen services covers the cost-plus and value-based methods. For the full pricing picture across a year, see the ghost kitchen pricing and profit guide.

Recordkeeping for Texas sales tax filings and app statements

Texas requires sellers to keep sales records for at least four years, showing total sales price, tax collected and any exempt sales.

Your source document is the app statement: gross sales, commissions, fees, tips and tax collected. It will not match your point-of-sale system, because refunds, chargebacks and promotions land on one side or the other. File on the app's number without reconciling and you overpay or underpay.

The Comptroller can assess penalties and interest on underpayment. A monthly reconciliation worksheet is the cheapest insurance you can buy.

For federal purposes you report gross app sales before commissions, then deduct the commissions, card fees and delivery costs as business expenses. Sole proprietors do this on Schedule C and owe self-employment tax on net profit. Set aside 25 to 30 percent of net profit for taxes, because first-year estimated payments are where new owners get hit.

The routine takes an hour a month. Download statements weekly and save them by month. Enter gross sales, commissions, tips and tax into a spreadsheet. Compare the total to your bank deposits. Any gap is a red flag worth chasing the same week.

Keep app contracts in the same file. The contract shows the commission rate and who collects the tax, and it is your evidence if the Comptroller asks why a sale went untaxed. If the contract names you as seller, you are liable, whatever the app did at checkout.

Fold this into your ghost kitchen licensing requirements calendar so the reconciliation happens on a fixed date rather than when you remember.

Worked example: the break-even commission rate

Start with 100 percent. Subtract food cost percentage and labor cost percentage. What remains is the most commission you can pay before contribution margin reaches zero.

At 30 percent food cost and 20 percent labor, that ceiling is 50 percent. A 30 percent commission leaves 20 points for overhead and profit, and a 45 percent commission leaves five.

Run the same arithmetic with your own numbers before you accept a tier. The result tells you which commission rates are survivable and which ones mean every order loses money.

Common questions

Do I collect Texas sales tax on every delivery app order?

It depends on who the contract names as seller. A platform acting as marketplace provider collects and remits. If your kitchen is the seller, you owe the tax even when the app collected it. Check the contract and the statement for each app.

What combined sales tax rate applies to a ghost kitchen in Austin?

Most Austin addresses sit at 8.25 percent, combining state, city and transit taxes. Special districts can differ, and the rate follows the delivery destination rather than the kitchen address.

Are delivery app commissions taxable in Texas?

No. A commission is a service fee you pay, not a sale of food, so it falls outside sales tax. It is deductible as an ordinary business expense on your federal return.

What records do I need if the Comptroller audits?

Sales records showing gross, taxable and exempt sales, tax collected, plus app statements showing commissions and fees. Keep them four years and reconcile monthly. Requirements vary, so confirm specifics with the Texas Comptroller's office and a licensed CPA.