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Jul 23, 2007 10:31 AM

Gratuity tax?

We had dinner out last night at Rockin' Baja Lobster (it's kind of a chain, some things are good, but that's not the point). We had 6 people + 1 6-year old and we all pretty much just split their seafood "buckets". We dealt with the $4.50 split charge (which seems high to me for this kind of place - it's not fine dining) and the raised prices. I can understand that with more than 6 people they would tack on the gratuity (18%). Our server was pretty good about refilling drinks, we were there late at night, it wasn't busy, and we were all tired so definitely not rowdy.

What I don't understand is that they added a gratuity tax on the 18%. Has anyone ever seen this before? It was basically sales tax on their self-added gratuity, on a separate line from the tax on the food. If there had been 4 of us dining, we would have added our own gratuity and no tax would have been added. Don't even get me started on the fact that on the credit card slip, under the added gratuity, was another line for "additional gratuity". Would they have taxed us for that, too? I know, I know - tax on gratuity is really minimal, but it's the principle of the matter than gets to me.

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  1. Okay, I did some Googling and found out that when gratuity is added by the restaurant, it is no longer voluntary and becomes a "service charge", which is taxable (sales tax on goods and services".

    However, I don't recall seeing this before, so perhaps not all restaurants choose to add the tax? Or do they add the "service charge" to the food list and do one subtotal and one sales tax line?

    1. I think there was a lawsuit last summer or the summer before on that very type of thing in Lake George, NY. I can't remember the out come but the customer refused to pay the additional charge. Anyone remember how it ended?

      1. I looked up the tax code when I realized that in the quote for my wedding reception, they had calculated tax AFTER the service fee.

        Unfortunately (in California), when a caterer or restaurant doing the catering (as it was in our case) charges a "service fee," then it is subject to sales tax. Once your gratuity becomes a fee, it's taxable. It's no longer just a tip, but a service.

        4 Replies
        1. re: julietg

          Once it becomes a service charge, does the "tip" still go to the server or does it get wrapped up in some overall restaurant pot?

          Perhaps restaurants should state that an "XX% service charge (not gratuity) is added to all parties of X or more" and stop calling it a gratuity. But then I'd wonder if I'd supposed to add another 18% "tip".

          1. re: leanneabe

            It was always my experience that when serving a large table, I, the server would get the whole "gratuity."

            The tax is for the state, not the owner!!

            1. re: leanneabe

              If it is a service charge it does not always go to the server. A service charge is technically the restaurants money. A tip/gratuity is the servers money. I worked in a restaurant once where an 18% was added on, but 3% of he bill went to the house, 5% to the busser 2% to bar/host the percentages were based on the bill not the tip. So when all was said and done the server tipped out more than we took home. I don't work at that restaurant any more. It's always a good idea to ask who gets the added gratuity. Most cases the server does get the added gratuity, but it is not the law.

              1. re: sweetnspicy

                3% to the house? That's awful! I've no problem with tipsharing, but jeez!

          2. The original comment has been removed
            1. I'm paying the balance today for a company Holiday celebration party where 70 employees are to attend. The contract includes a 22% service charge which is then subject to a 9.25% (CA) sales tax. How do you like that?

              1 Reply
              1. re: lordway

                #1 22% if a rip-off - negotiate it down.
                #2 Tell them you will not pay any service charge but will agree to pay a 18% tip on charges before sales tax.

                It then becomes a voluntary tip and they cannot tax you on it. We did this all the time on our contracts because I would rather see the money stay in my customers pockets than go the government.