Tax Type
Retail Sales and Use Tax
Description
Gratuity policy
Topic
Taxability of Persons and Transactions
Taxable Income
Date Issued
03-01-1982
March 1, 1982
Dear ****************
Reference is made to your January 29, 1982 letter in which you requested the department's reason for revoking its ruling of March 12, 1981, regarding*********** gratuity policy.
We recognize that your gratuity policy has not changed since the time of our March, 1981 ruling. However, subsequent to that ruling letter, the department again reviewed ************gratuity policy. The department requested and received a copy of the minutes of the board meeting when gratuity policy was approved. These minutes indicated that policy is and has been to add a 15% gratuity charge to all food and beverage checks; members and guests may elect to alter the 15% gratuity.
Upon reviewing these minutes and §1-64 of the Virginia Sales and Use Tax Regulations, our March 1981 ruling letter was reconsidered. As previously stated in letters from the department, gratuities wholly in the discretion of the customer are not subject to sales tax while an amount or flat percentage added by the dealer is considered part of the selling price and therefore subject to sales tax. This departmental policy is set forth in §1-64 of the Sales and Use Tax Regulations.
In your instance, a flat 15% gratuity is automatically added to the charge for meals and beverages unless the member specifies another amount; this is a club policy and is stated on the bill. Therefore, on reconsideration, the department concluded that such 15% gratuity charges do not meet the "wholly at the discretion of the customer" test pursuant to §1-64 of the Regulations. Accordingly, you were informed that the 15% gratuity is part of the selling price of the meal and subject to tax.
However, as we stated in our letter or January 14, 1982, where a member actually writes the dollar or percentage amount of the tip on the check itself, the member's tip is wholly at his discretion. In this instance, the gratuity amount would not be subject to sales tax.
Thus, based on a reconsideration of your gratuity policy as delineated above, the department had no alternative other than to revoke its previous ruling.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner