Tipping before or after added tax?

[marymac]

When we go to a restaurant, I always tip on the whole amount. My friend says you should tip only for the food, not the tax. Which is correct?

[tj442x]

12% base, 18% if you made me smile, 25% if you were great. Pre-tax only, always.

[scarmoza]

I tip on the subtotal (pre-tax).

[dump123456789]

Just had dinner last night at a relatively high end restaurant ($120 per person). Their 20% auto-gratuity was calculated on the pre-tax total.

The most judgmental ("small", "chintzy", "cheap") responses to this subject seem to come from people who tip post-tax, and they often throw out numbers (eg. "20% tip on 8% tax = chump change"). My question is, if the pre-tax tippers round up anyway for convenience or any other reason (*), doesn't that nullify the numerical argument ?

(*) I knew someone who used to round up the tip so that the cents on the total matched the date the charge was placed. Something about helping cross check that charges were valid.

[nocharge]

I would assume that any many mandatory service charge is calculated on the pre-tax total since the service charge itself is probably subject to sales tax. Theoretically, you could include the tax when calculating the service charge, but it would look kind of strange. Let's say the base total is $100, the tax 10 percent, and the service charge 20 percent. I would expect the service charge to be $20 and the tax $12. If the restaurant wanted the service charge to be 0.2(base + tax) and, at the same time, the tax is 0.1(base + service charge), we would end up with the following:
service charge = 22/0.98 or about 22.45
tax = 12/0.98 or about 12.24
I hope no restaurant would go for that kind of math.

[dump123456789]

The auto-gratuity was not taxed. The tab had 4 lines after the list of items ordered, in the sequence:

Food/drink subtotal
Auto-gratuity = 20% of food/drink subtotal
Tax = tax on food/drink subtotal only
Total = sum of previous 3 lines

That's it.

(If the auto-gratuity were taxed, I would have expected more lines. Something like

Food/drink subtotal
Auto-gratuity = 20% of food/drink subtotal
Subtotal = sum of previous 2 lines
Tax = tax on previous line
Total = sum of previous 2 lines

which was not the case.)

[nocharge]

So was it called "service charge" or "gratuity" on the menu? Don't see why any local tax authority would let a restaurant get away with not paying sales tax on a mandatory service charge that is stated on the menu. It's part of the cost of your meal, so why would it be treated differently than a $12 appetizer? The money legally belongs to the restaurant and it's at the discretion of the restaurant to pass on any of the money to the servers as a bonus. A tip or gratuity, on the other hand, is considered a voluntary gift from the patron to the servers and thus not part of the payment to the restaurant that is subject to sales tax. There have been cases where restaurants have used the word "gratuity" on the menu when adding an automatic surcharge rather than "service charge" and been unable to collect it just because the word "gratuity" implies that it's voluntary.
http://www.nytimes.com/2004/09/15/nyr...
So, maybe a restaurant could avoid paying tax on an automatic "gratuity" by arguing that it's just a voluntary tip.

[huiray]

A restaurant in Chicago [a place well-known by now, which recently ended a menu based on olden French dishes and is now serving a menu based on the cuisine of a certain SE Asian country] apparently had to swallow the error they made for the French menu by calculating tax (11%) on the basic meal + drinks before adding the mandatory service charge (18%) so as to comply with the law which required them to collect tax on the service charge (since it was mandatory). They remedied that for their current menu to levy the tax on (meal+ drinks + service charge).
:-)

[Karl S]

Well, mandatory service charges are not tips.

[huiray]

Correct - especially from the Tax Board's perspective. I was adding on to nocharge's query as to why the restaurant dump123456789 went to did not collect the requisite tax on the service charge and relating a little anecdote about another restaurant in the process.

[dump123456789]

The answer to nocharge and huiray's question may lie in the difference between the bill and the credit card slip. It turns out the bill contained the itemization of the auto-gratuity. However, the credit card slip only contained the sum of the food/drink and tax, leaving the tip still blank. So, in effect, the auto-gratuity was not auto.

Nonetheless, the restaurant's POV was that the tip was based on the pre-tax (not post-tax) amount.

[dump123456789]

Many people tip pre-tax because of the arithmetic involved.

If you want to tip 15% and your tax is 5%, tripling the tax, which is listed explicitly, is easier for most people than shifting the decimal on the tax-included total, dividing that by two, and adding that to the decimal shifted part again.

If you want to tip 18% and your tax is 9%, doubling the tax, which is listed explicitly, is easier than just about any "shortcut" you can find for multiplying the tax-included total by 0.18.

Because tipping rates are usually in the teen percentages, it is automatically harder for most people to multply those percentages against the tax-included totals, than to simply double, triple or quadruple the listed tax as appropriate.

Now, you may personally find it easy to calculate 15% or 18% of something, but as a person who regularly watches a wide spectrum of people do arithmetic, I can tell you that makes you special. (I've watched many people hand calculate 10% of a quantity by long hand multiplication, rather than decimal shifting.)

[hsk]

Maybe I'm more arithmetically challenged but I find it WAY easier to double the total and divide by ten. Then round up to the nearest dollar and put that in the tip line. But then I always use a credit card and tip on the card.

[dump123456789]

Sure, if you're tipping 20%. According to the NYT article linked in the Food Media & News board, 18% is the standard tip for the US, and 15% used to be before that. Those are harder percentages to calculate, so the tax multiplication method was a common way that people simplified it.

[Isolda]

I tip on the whole amount. Why be cheap? If you're going to debate, come down on the side of generosity.

[Pixie Muse]

I couldn't agree more. I always tip on the whole amount, because when you stop and think of it, the value of the meal includes taxes.. it's just part of doing business for the restaurant. And so if the restaurant has to pay for the ingredients to make the meal, which are included in the meal price along with mark-up, and also has to pay the taxes, then the TOTAL value is the TOTAL bill. Why split hairs, unless you're cheap and make a living out of it.

[LAC06488]

If you eat out alot, it adds up..if you spend $5,000 per year on dinners out, it's a far cry from spending $500 per year

[kpaxonite]

If you spend that much each year you should be able to afford the difference otherwise you are spending far beyond your means. Its almost like you are suggesting the more you pay eatng out the less you should tip...illogical.

[LAC06488]

Ilogical???? ..the tip and the tax are proportionate to the bill..if the bill is higher, the tax/tip are higher...if you pay more for the meal, you tip more...

[kpaxonite]

well by saying 5000 dollars eating out is different than 500 in defence of tipping before tax you are insinuating that if you eat out a lot its ok to tip less....

[LAC06488]

The percentage remains the same...___% of $500 or __% of $5,000...are you saying that because you eat out more, you have to raise the percentage tip or tip post tax?

[kpaxonite]

Exactly so why does it atter how often you eat out:

I couldn't agree more. I always tip on the whole amount, because when you stop and think of it, the value of the meal includes taxes.. it's just part of doing business for the restaurant. And so if the restaurant has to pay for the ingredients to make the meal, which are included in the meal price along with mark-up, and also has to pay the taxes, then the TOTAL value is the TOTAL bill. Why split hairs, unless you're cheap and make a living out of it.

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By Pixie Muse on Aug 05, 2011 09:02PM

re: Pixie Muse

If you eat out alot, it adds up..if you spend $5,000 per year on dinners out, it's a far cry from spending $500 per year

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By LAC06488 on Aug 07, 2011 07:53PM

[LAC06488]

Tax is a pass through not a cost of doing business! The customer pays tax on the sale and the restaurant remits the tax to the taxing authority

[Janet from Richmond]

Well said...also I always round up to the nearest zero or five. So if a $100 tab (pre-tax) was now $111.50 (Richmond, VA meals tax w/ sales tax comes to 11.5%), I'd leave $25 or $30 depending on service. If something is comped, I'd make it $40.

[kpaxonite]

Its such a trivial debate : in my province the tax is about 15% . On 100 dollar food bill 15% tip would be 15 dollars. Same tip on 115 food bill is about 17 dollars.

Unless your dinner bills are in the thousands who cares? And even then its just a tiny percentage difference...

[escondido123]

So let us say the bill, before tax is $100 and with tax $107. You are someone who tips 15%. Without the tax your tip will be $15, with it will be $16.05....a difference of $1.05. For me, I'd give the waiter that extra $1.05--but then I usually tip 20%.

[Karl S]

The standing custom in the US is to tip pre-tax (that is to say, you cannot be credibly accused of a breach of the social custom if you tip pre-tax, no matter how much servers prefer you to tip after-tax), but nothing prevents you from tipping after-tax if you prefer, and many people do that. The issue is mainly one of what servers' just expectations: they have a just expectation of X% on the pre-tax amount, but not necessarily on the post-tax amount.

[Harters]

"Which is correct?"

Depends on the social customs in the part of the world where you are.

Where I am, tip is on the tax inclusive amount.

[Chemicalkinetics]

You should tip before tax, but more than often I tip after tax. Of course, the whole "tip" thing does not make sense to me. Why should you tip the waiter/waitress twice as much because you ordered an $30 meal instead of a $15 meal? The waiter/waitress didn't do anything more.

[cowboyardee]

I say tipping on tax is neither expected nor required. But if you tip on the tax as well, no one is gonna take you out back and rough you up.

This has come up several times before and the clear consensus seems to be that you only need to tip on the pretax amount.

[ROCKLES]

I just double the tax for the tip --here it is 10% tax anyway
so I only tip on the food...why tip for the government portion...then again its what ? extra 80 cents to a dollar??

[MamaCrunch]

This is exactly what I do. Well, used to do. Now that I have a toddler who is a messy eater, I double the tax then add $5. We try to clean up as best as possible before we leave, but it's no where near perfect so I hope the extra $5 makes our server feel compensated for the mess.

[velochic]

Over the years it would add up, though. For us, a typical bill (10% tax), we'd pay only about $2.50 more. Still, it's the principle of the matter. It will eventually become "convention" and then those for whom the little extra matters, will be made to feel bad that they tip "pre" rather than "post". Mostly it's about keeping a particular social protocol, IMO.

[melo7]

"it's the principle of the matter"

This always means money. Always.

[velochic]

"This always means money. Always."

Of course it does. Um... what else would it mean?

[melo7]

"Still, it's the principle of the matter" Um, the principle? But you're right. It's never the principle of the matter it's the money. Thanks for agreeing with me.

[dump123456789]

It's the principle of a financial matter. So it's about both the principle and money.

[rebeccamarsh]

Mathmatically it adds up but as far it effecting my lifestyle it doesn't. But, unlike you, my typical meal out doesn't come to $125. I believe people are not MADE to feel bad usually (at least not in this situation), they choose to. "Social protocol" changes over time. Certainly tipping rates have gone up and I'm glad for the servers who actually benefit from the small extra amount I leave them. I tip on the entire amount obviously.

[velochic]

Where we typically dine, the tables are turned about every hour and an average bill is $100. The server is usually tending about 5 tables. That means a "meager" tip before taxes is netting this server about $75 - $100 an hour wage. That is far more than most people are making that are paying the actual tip. Of course, it averages out to less with slower times, but if I'm in a restaurant at a busy time, I'm not going to feel bad that I'm tipping pre-tax rather than post-tax. By FAR, at those times the server is earning more than I do. I'm tired of the "poor little server" complaint. They are earning a decent wage even if they occasionally get stiffed, and they are still earning a decent wage if they are tipped before taxes. (FTR - I almost never tip because it's my dh that does the tipping, as he pays the bill 99% of the time.)

[donovt]

Wow, if I'm dropping $100 on a meal, I'd be very annoyed if I was hustled out in an hour.

[velochic]

Well, to be clear, we have never actually been "hustled" out of a restaurant. We just don't typically sit more than about an hour (give or take 10 or 15 minutes) for dinner unless we're eating some place really nice (where the bill will be twice as much and there will be more courses consumed). An hour and $100 is just typical weekly dining out for us ("us" meaning dh and I along with our 9 yo dd) and we're not hurried along with our meal or anything. I would get annoyed no matter how much we were paying if they "hustled" us along. If we were made to feel unwelcome, that would probably reflect in the tip, too. ;)

[donovt]

It should have been obvious to me that you didn't feel hustled since you said that is here you typically dine. I guess it helps if I read the whole post.

I was projecting since I rarely go out to eat since we had our son, but when I do it tends to be 3 courses and a couple of hours.

[raytamsgv]

We tip on the pre-tax amount.

[redfish62]

I can't believe people even bring this up. In my state the tax is 7%, tip is 20%, so you are concerning yourself with 20% of 7% which is well under 2%.

Why the heck would you go to the trouble of tipping only on the food? Does 2% of the bill really mean that much to you?

[cowboyardee]

How is it trouble? Most bills post the pretax total. After that, it's just second grade arithmetic.

[redfish62]

Well when people say they debate it with their spouses I would say it is more trouble than it's worth.

It seems incredibly small and chintzy to me to even contemplate it.

[LAC06488]

If you are having a $200 meal, it is substantial. I think the point is concept, not dollars. - an intellectual debate if you will

[kpaxonite]

In this scenario the difference is under 4 dollars that's hardly substantial if you are having a 200 dollar meal.

[cowboyardee]

Whether it's substantial is utterly beside the point. The question is what etiquette dictates. Anyone who wants to tip above and beyond is still welcome to. I often do. But I do like to know exactly what I'm tipping on in the first place.

[tommy]

Assuming 7% tax, and 20% tip, the difference would be less than 3 dollars. I guess it comes down to what one thinks is a "substantial" amount of money in the context of eating out and tipping.

[LAC06488]

I have this debate with my husband all the time. I say tip on food only.