Tax Type
Retail Sales and Use Tax
Description
Gratuity charges on meals
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
01-14-1982
January 14, 1982
Dear ***************
Reference is made to my March 12, 1981 letter to you (copy enclosed) regarding the application of the sales tax to gratuity charges on meals served in the************** restaurant.
The ruling set out in my March 12, 1981 letter was based upon facts set out in correspondence from dated July 18, 1979, October 17, 1980 and February 4, 1981 and facts obtained by telephone from a member of your staff. Subsequent to my letter a member of the Tax Policy Division requested by phone a copy of the minutes of the meeting where the gratuity policy was approved and also a copy of any communications to the members of the club regarding the-gratuity policy. By letter dated September 24, 1981 a copy of minutes (dated April 30, 1981) was received.
As previously stated in letters from the department, tips wholly at the discretion or judgment of a customer are not subject to sales tax whereas an amount or flat percentage added to the price of a meal, commonly referred to as a gratuity, has always been considered by the department as a part of the selling price of the meal and therefore subject to sales tax.
I have again reviewed the procedure used by ****** regarding gratuity charges and it is my opinion that the only time a member's tip is wholly at his discretion or judgment is when the member actually writes the dollar amount or percentage amount of tip on the check itself. This amount would thus not be subject to sales tax.
The ruling letter dated March 12, 1981 is hereby revoked and beginning April 1, 1982, ******** should charge the sales tax on gratuities as set out in this letter.
We apologize for the inconvenience this matter has caused.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner