Is a third-party restaurant delivery service's own delivery fee taxable, when the service isn't the seller of the food itself?

Plain-English summary

This is a corrected letter — the Comptroller explicitly withdrew an earlier August 11, 1998 response to the same taxpayer and replaced it with this one.

The taxpayer runs a restaurant delivery service: customers call in and place orders from participating restaurants, and the delivery company's drivers pick up the food and deliver it. The delivery company charges and keeps its own delivery fee, but passes along the cost of the meal (including tax on the meal) back to the restaurant. In turn, the restaurant pays the delivery company a commission for taking the phone orders and making deliveries.

Under Rule 3.303, delivery charges are generally taxable when billed by the seller of a taxable item to a purchaser. The corrected analysis here turns on who the "seller" actually is: even though the restaurant pays the delivery company a commission, the delivery company is not the seller of the meals — the restaurant is. Because of that, per Rule 3.303(b), the delivery company's own delivery charge (the fee it bills and keeps for its delivery service) is not taxable.

What this means for you

Third-party food delivery services

Your own delivery fee isn't automatically taxable just because you're handling delivery of a taxable item (food). What matters under Rule 3.303 is whether YOU are the seller of the underlying item — if the restaurant remains the actual seller of the meal and you're a separate delivery/ordering intermediary earning a commission, your delivery charge to the customer stays untaxed.

Restaurants using third-party delivery services

You (the restaurant) remain the seller of the meal and are responsible for tax on the meal itself; a delivery partner's separate delivery fee is a different transaction that isn't taxed the same way.

Accountants and tax professionals

This letter is a clean illustration of Rule 3.303(b)'s who-is-the-seller test for delivery charge taxability — directly relevant to any client operating a third-party delivery, order-taking, or fulfillment service for a separate retailer's taxable goods.

Common questions

Q: Is a third-party delivery company's own delivery fee taxable in Texas?
A: No, per this letter — because the delivery company isn't the seller of the food being delivered.

Q: Would the answer be different if the restaurant itself charged and collected the delivery fee?
A: Yes — per Rule 3.303 as described in this letter, delivery charges billed BY THE SELLER of a taxable item are generally taxable; it's specifically because the delivery company here is not the seller that its fee escapes tax.

Q: Does paying the delivery company a commission change the analysis?
A: No, per this letter — the commission arrangement doesn't make the delivery company the "seller" of the meals.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.303 (transportation and delivery charges)
• 34 Tex. Admin. Code Rule 3.303(b) (delivery charge by a non-seller not taxable)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9809766L

Original ruling text

September 2, 1998

Dear Ms. **:

We have reconsidered our response regarding the taxability of your delivery
service. Please disregard my letter of August 11th. This is the corrected
letter.

You are a restaurant delivery service. Customers call in and place orders from
participating restaurants and your drivers pick up the food and deliver it to
the customer. You charge a delivery fee which you keep. You give the
restaurant the money from the cost of the meal (including tax). The restaurant
pays you a commission for taking orders.

Delivery charges are taxable when billed by the seller of a taxable item to a
purchaser. See Rule 3.303 regarding transportation and delivery charges.
Although the restaurant pays your delivery company a commission for taking
orders and making deliveries, you are not the seller of the meals. Therefore,
your delivery charge for your delivery service is not taxable. See subsection
(b) of Rule 3.303.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division