Having recently attended the NAMA2025 Expo as both a presenter on “Financial Responsibility and Accounting”, and as an exhibitor, we had the opportunity to engage with many professionals across the Unattended Retail industry. We spoke with individuals ranging from newly launched operators to long-established companies who are shifting from vending to micro-markets, and integrating modern technology into their operations. The innovative technology that was presented on the Exhibit floor offers a variety of new concepts, products, customer experience and technology tools to create operational efficiencies for vending machines and micro-market owners.
One of the most interesting insights we gained is that, regardless of business size or experience, many companies face similar challenges in key areas such as regulatory compliance, income and sales taxes reporting, and financial/accounting practices. Whether it was a small side business with two to five machines or a large, multi-state operation, common themes repeatedly emerged: limitations in technology, gaps between software applications, lack of knowledge regarding tax regulations and permitting and license requirements. Many expressed concerns about data accuracy, unreliable information from data sources, and difficulty understanding registration and reporting requirements.
In this article, we aim to shed light on these shared challenges and explain how addressing them can improve your business operations, leading to better decisions around automation, efficiency, and long-term financial health.
Registering with State and Local governments
Most states define vending machine and micro-market owners as Retailers; they fall in the category of “unattended retail” operators. Most states and many local tax authorities require some form of permit to operate a vending machine or micro-market and require Retailers to register to remit sales tax based on product sold. Once registered the owner has the obligation of reporting and remitting sales tax to applicable tax authorities. The filing frequency is defined by each tax authority, which is generally defined by the amount of sales tax calculated/collected and remitted. are required to register with state tax authorities to collect sales tax, because they, by definition, have established the obligation to remit sales tax on taxable vending machine sales. The permitting and registration requirements are becoming more complex and this is compounded when an operator moves machines to separate locations that require permitting and registration based on the new location (CA, CO and FL are some examples).
Resale Exemptions
In previous articles we have discussed misunderstandings related to tax free purchases of inventory that will be sold through a vending machine or micro-market. A Retailer that is registered with a tax authority will have the ability to present a “Resale Exemption Certificate” to their supplier (i.e., Walmart, Sams Club, Cosco, etc.), which enables them to buy inventory products without paying sales tax. If you are not purchasing sales tax free, then you are at risk of double taxation (i.e., paying sales tax on product when purchased and the tax authority requirement of calculating and remitting sales tax when the product sells through a vending machine or micro-market. In a sales tax audit, the auditor is focused on evaluating whether you are paying sales tax correctly on products sold to customers.
Technology Limitation
Sharing some of our observations and experiences with existing technological tools/devices and software systems we have found situations where the amount of data is not complete enough to associate revenue by machine location (i.e., tax authority) or defined well enough to determine taxability of the product (i.e. vague description of product). Both conditions can result in over, or under, paying sales tax. The location of the vending machine or micro-market determines what sales tax rate should be used to calculate the sales tax liability. The owner should not use their office or storage location to determine the sales tax rate.
Based on many state regulations, the ingredients of a product will determine the taxability of the product; therefore, if water is sweetened or carbonated this should be included in the description because it can be the difference of non-taxable vs. taxable. If you calculate tax on a non-taxable product, then you are overpaying sales tax.
Alternative approach to achieve better accuracy and reliable results; one, associate the machine code/ID to the actual physical location. If the machine moves, the code/ID should remain the same, but the physical location should be updated. Determine the applicable sales tax rate at the new location; two, consider using the standard UPC code because this provides a complete and consistent product name and you have a reference to the ingredients that can be used to determine taxability of the product.
Many systems can store sales tax rate by location; however, they do not have the capability of defining the taxability of products by machine location; therefore, there is an accounting process that must take place outside of this system to calculate sales tax liabilities.
Product Taxability
Many new product offerings were presented within the NAMA Exhibit Hall, which included candy, energy drinks, healthy snacks, meat sticks/bites, popcorn, soft drinks, protein drinks, ice cream and many more. A good simple general rule is if the product requires refrigeration, it is food and not subject to sales tax. However, this rule should not be applied to beverages because the taxability of beverages is becoming more complex; therefore, it is important to define the product correctly:
● Carbonated drink (e.g., soft drink/soda)
● Non-carbonated drink – taxability of the items listed below often varies by state
o Water
o Vitamin water
o Flavored water
● Sparkling drink/water – many states treat this the same as a carbonated drink (e.g., PA defines this as taxable)
● Energy drink
● Sports drink
● Sweet Tea vs. unsweetened Tea
● Nutritional drink
● Protein drink
● Juice – several states define the taxability by the percentage of natural fruit juice concentrate
● Hot beverages – Coffee (generally taxable)
Several states apply sales tax to vending machine sales differently when compared to grocery or micro-market retail sales (e.g., CA).
Tax Calculations
Consider the limitations and complex tax rules discussed in this article, and you can imagine the amount of work and potential tax calculation errors which can occur when determining the correct sales tax liability. We have observed that many operators are overpaying sales tax because of system limitations, accuracy of their data, as well as applying the wrong calculation rule that is defined by the state. A few state laws related to vending machines define how sales tax is calculated on Food & Beverage and Other products. One of the most challenging is CA, which was echoed by several owners that we met during the NAMA event. The sales factor calculation rule is defined by the combined sales tax rate of the machine location; therefore, if the rates change, your calculation rules should also be modified.
Filing of Tax Returns and Compliance
The sales tax calculation complexities often transfer to the preparation and filing of the sales tax returns. Each state has its own format regarding how gross sales, taxable amount, exempt amounts, and tax collected need to be reported.
Recordkeeping related to the sales tax returns that have been filed is especially important as they can be reviewed and examined by the tax authority during a sales tax audit. The average statute of limitations for sales tax is three years; therefore, owners should plan to keep copies of tax returns and supporting documents for a minimum of three years. The large majority of businesses feel that compliance ends after they file their returns. The real key to compliance is in the backup information and records to support the returns, which becomes the basis of your defense if you are ever audited.
Summary and Conclusion
We have provided a comprehensive overview of the key financial and regulatory challenges faced by vending machine and micro-market operators, from our experience in the industry, and as we observed at the NAMA2025 Expo. Despite the diversity in business size and experience, operators consistently struggle with similar issues: complex state and local registration requirements, sales tax compliance, product taxability, and technological limitations in tracking and reporting accurate data. We have tried to highlight the importance of correctly registering with tax authorities, using resale exemption certificates to avoid double taxation, and understanding product-specific tax rules—especially for beverages. We have also tried to show how poor data quality and system limitations can lead to incorrect tax calculations and overpayment. To improve accuracy, we recommend associating machine IDs with physical locations, using UPC codes to determine product taxability, and maintaining detailed records to support tax return filings. We cannot emphasize enough the need for better automation and informed practices to enhance compliance and long-term financial health in the unattended retail industry.