National Coffee Day and Sales Tax: What’s Brewing for Businesses?

Every year on September 29, coffee lovers across the nation celebrate National Coffee Day. For businesses—especially cafés, restaurants, and retailers—this day often brings special promotions, free cups of coffee, and a surge of happy customers. But while the aroma of fresh coffee may be enticing, there’s something else brewing behind the counter that business owners can’t ignore: sales tax.

Coffee and Sales Tax: A Complicated Blend

Whether or not your coffee sales are taxable depends primarily on where and how they are sold. Sales tax rules vary by state, and coffee can fall into different categories depending on preparation and purchase type:

• Hot vs. Cold Beverages: In many states, hot coffee is taxable, while cold bottled coffee drinks may be taxed differently—sometimes treated as grocery items.
• Prepared Food Rules: If coffee is sold as part of a meal or with bakery items, some states classify the entire purchase as taxable.
• To-Go vs. Dine-In: Takeout coffee may be subject to different tax treatment compared to coffee consumed on-site.

These distinctions mean that a coffee shop in one state may charge sales tax on every latte, while another across the border may not.

Special Promotions and Free Coffee

On National Coffee Day, many businesses give away free or discounted cups. Here’s where things get tricky:

• Discounted Coffee: If you sell a coffee at a reduced price, sales tax is typically applied to the discounted amount.
• Free Coffee with Purchase: If the promotion is structured as “buy one, get one free,” tax is usually applied to the paid item only.
• Completely Free Coffee: If you’re giving coffee away with no purchase requirement, most states don’t require sales tax—but you may owe use tax on the product’s cost since it wasn’t sold.

Why It Matters

For businesses, failing to collect the right amount of sales tax—even on small items like a cup of coffee—can lead to costly audits and penalties. With food and beverage rules differing across states, compliance requires close attention.

The Bottom Line

National Coffee Day is an excellent opportunity to connect with customers, but it’s also a reminder that sales tax compliance never takes a holiday. Whether you’re brewing lattes, selling bottled cold brew, or offering “buy one, get one” deals, understanding your state’s sales tax rules can help keep your celebration smooth.

So this National Coffee Day, enjoy your coffee—but don’t forget to check your tax rules, too.

Davis Davis & Harmon LLC is a national sales tax advisory firm headquartered in Dallas, Texas, with a mission to deliver world-class sales and use tax solutions to complex organizations. The firm specializes in audit defense, refund recovery, and compliance strategy, serving Fortune 1000 clients across industries. With more than 30 years of expertise, Davis Davis & Harmon is the go-to partner for navigating the complexities of sales tax. Learn more at www.ddhtax.com.