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Sales and Use Tax – TAA 14A-024 – Gratuities/Service Charges

QUESTION: WHETHER SEPARATELY STATED GRATUITY CHARGES ARE PART OF THE TAXABLE SALES PRICE.

ANSWER: THE SEPARATELY STATED GRATUITY IS NOT PART OF THE TAXABLE SALES PRICE AND THEREFORE NOT SUBJECT TO SALES TAX, SINCE 100% OF THE CHARGE IS DISTRIBUTED TO THE EMPLOYEE, WITH NO MONETARY BENEFIT ACCRUED BY THE RESTAURANT.

October 16, 2014

Re: Technical Assistance Advisement – TAA 14A- 024 Voluntary Gratuity Charges

XXXX (Taxpayer)
FEIN: XXXX
Sections: 212.05 and 212.02(16), Florida Statutes (F.S.) Rule: 12A-1.0115(7), Florida Administrative Code (F.A.C.)

Dear XXXX:

This is in response to your letter, dated XXXX, requesting this Department’s issuance of a Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the taxability of separately stated gratuity charges. An examination of your letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.

ISSUE

Whether separately stated gratuity charges are part of the taxable sales price.

FACTS

As stated in your request for a Technical Assistance Advisement of XXXX, you operate a restaurant and bar and are contemplating adding a “voluntary” gratuity of 10%. Signage will be displayed throughout the establishment, on menu boards, and on menus stating, “A voluntary gratuity of 10% will be added to your check for your server, but please feel free to adjust at your discretion." You also state that 100% of the voluntary gratuity charge will be distributed to the employees.

LAW

Pursuant to s. 212.05, F.S., sales tax is imposed on the sales price of tangible personal property. Section 212.02(16), F.S., defines the term “sales price” to mean “... the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise ....” (e.s.)

As provided in Rule 12A-1.0115(7)(a), F.A.C., any charge made by a dealer to a customer for gratuities, tips, or similar charges is a part of the taxable sales price of the food or drinks except when:

1. The charge is separately stated as a gratuity, tip, or other charge on the customer’s receipt or other tangible evidence of sale; and,

2. The dealer receives no monetary benefit from the gratuity. Money withheld by the dealer for purposes of payment of the employee's share of social security or federal income tax or any fee imposed by a credit card company on the amount of the gratuity, or money withheld pursuant to judicial or administrative orders, is not a monetary benefit for purposes of this rule.

The court system has also weighed in on this subject in Green v. Surf Club, Inc., 136 So.2d 354 (Fla. App. 3 Dist., 1961). In this case, the Surf Club automatically added a service charge to the price of food and beverage purchases instead of allowing its members to tip the service staff. The court held that as long as the business solely acts as a conduit for the transfer of a gratuity to its employees, the service charge is not subject to sales tax. The court’s exact language was:

There may be situations wherein the collection of a fixed service charge is taxable, such as where the assessment and collection thereof has no relationship to the sums received by the service personnel but is retained by the employer as a portion of the gross proceeds on the sale of food and beverage. The determinative question in each instance should be whether or not the “dealer” receives a benefit from the involuntary charge. If he does, he should be taxed. If he does not, no tax should be levied. Id. at 136.

In this case, according to the facts provided, Taxpayer is merely redistributing 100% of the gratuity, which is a separately stated on the receipt, to the employee. The proposed process of adding a separately stated voluntary gratuity as outlined in your letter falls within the stated criteria in Rule 12A-1.0115(7)(a), F.A.C., and the criteria laid out in Green v. Surf Club, supra, to allow the charge to be excluded from the taxable sales price.

CONCLUSION

The separately stated gratuity is not part of the taxable sales price and therefore not subject to sales tax since 100% of the charge is distributed to the employee, with no monetary benefit accrued by the restaurant.

This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice, as specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar future transactions to a different treatment than expressed in this response. You are further advised that this response, your request and related backup documents are public records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of Section 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your response should be received by the Department within 10 days of the date of this letter.

Sincerely,

Leihernst Lamarre
Tax Law Specialist
Technical Assistance and Dispute Resolution (850) 717-7202

Record Number 174205

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