Tax on gratuity??? Is this standard practice?

You can't usually tax gratuity...that can't be right.

I don't believe that they are. I would call and talk to her again.

You don't tax gratuity, it is for service not sales. There isn't tax on services usually.

It is tru Victoria. When a gratuity is added by the restaurant/caterer, etc. It is no longer voluntary and becomes a "service charge", which is taxable (sales tax on goods and services".

I never knew that. Just googled it.

They can tax a service charge, which most vendors refer to it a a tip. It is wrong, but the government has to get a piece of everything.

LOL @ Fonsetta I just googled it too I don't know why I didn't to begin with I got the same thing : "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." Apparently it goes to the state, I guess CA needs their share too... Thanx Ladies

Yuck! That totally stinks!

Our venue is taxing gratuity, but as Suzy said they refer to it as a "service charge." Every venue we looked at in our area had a taxable service charge. I don't think it's right especially since it really increases the price!

Dear Victoria,

I am a caterer and let me clarify that for you. The 18% (we actually charge les than that) service charge is not gratuity. Tips and gratuity is upon discretion to the client. The 18% is actually business and operation expense and it covers the lease or rent for the kitchen, insurance, electricity bills, and many other expenses. Therefore, it is normal to add tax to that amount. It's like ordering food from a restaurant. When they charge you $30 for your meal, that price includes all those business expenses (labor, equipment, food, rent, electricity, etc.). Tax is then added to your bill. So that is totally normal.

I hope this helped.

Sam

I questioned my venue about the same thing. I got the same answer. I think it sucked, but there isn't anything you can do about it.

I am having the same issue but mine is called 18% "administrative tax" so they take the total of everything I have there.. use the 18% tax.. total that.. then do the state tax. then it says on the bottom of our contract- tips are welcome! umm.. Id like to know why I have an 18% admin. tax.... never heard that before.. I think that is the venues tip! I am so mad at my venue (both ceremony and reception are there) I want to cry.. they are absolutely horrible! They make it like they are too busy for me and will not answer my questions and when I go in there to ask them since they have been ignoring me- they hurry me along....;/

The resort we are getting married at charges 21% gratuity. Daytona Beach, FL

I really think that they are overcharging you and it isn't right at all. Last June 20, 2012, the Internal Revenue Service ("IRS") issued Revenue Ruling 2012-18 to clarify and update existing guidelines on taxation issues affecting the hospitality industry and I guess this is a good news for all of us. In particular, the ruling helped clarify the distinction between tips and service charges. When we apply the federal rules and compare them to New York States, an interesting result occurs. Service charges on banquets and automatic gratuities on large parties that are paid out to employees are considered wages (and not gratuities) for FICA tax purposes, but New York State considers them gratuities for sales tax purposes if the assessment is specifically listed as a gratuity on the bill or invoice and the entire amount is given to the employees.

Now I am confused....I have not been charging tax on our service charges, but everything I've read today, says this is wrong. Our employees are charged with the taxes as they are reported in their paycheck...Does this result in a double tax payment on the same amount? Once from the company and once from the employee?

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Thanks for your explanation Sam, now it makes sense to me. What is the formula you would use for 8.25% sales tax and 21.% gratuity/service fee?

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Sam,

Thank you for your reply. However at my venue like the original posters it is NOT referred to as a fee, it actually says gratuity. ALSO it is supposed to go to the servers and bartenders, not "cover the cost of the kitchen etc." that is what we pay there other fees for (for example I had to pay a fee to the venue for the space, the food cost factors in the cost of making the food (e.g kitchen)). This sounds like a way for banquet halls to make more money. I am very skeptical that they actually pay this money to the government (I'm sure on their taxes they refer to it as gratuity just like it is referred to on my contract NOT as a fee).

What is the appropriate amount for a service charge in Ga for a wedding caterer. Is it right to tax it when the service charge is 30%

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Catering sales

Deli trays and party platters

Sales of sandwiches, grinders, coffee, tea, hot soup, hot sauce or hot barbecue chicken prepared at a delicatessen counter or elsewhere in the supermarket

Prepared food sold with utensils, paper plates, etc. (salad bars, soups, etc.)

Sales of meals in areas of a supermarket where food is intended to be consumed in the supermarket, such as at snack bars or food courts. The meals sold in these designated eating areas are taxable even if taken off the premises by the purchaser.

Sales of any food and/or drinks listed as taxable under section B Convenience Stores.

D. Gratuities and other charges: When a retailer bills a customer for the rental of a public room or for gratuities, service charges, cover charges, or entertainment charges (including charges for bands or orchestras) in connection with the serving of meals or drinks; or when an employer requires employees to turn over to the employer the amount of tips or a portion thereof, received in connection with the serving of meals or drinks, the amounts so billed or received by the retailers will be considered as part of gross receipts from the sales of the meals or drinks and must be included in the measure of tax. Amounts designated as service charges, added to the price of meals, are a part of the selling price of the meals and, accordingly, must be included in the retailer's gross sales subject to tax even though such service charges are made in lieu of tips and are paid over by the retailer to the employees.

E. Caterers: The term "caterer" means a person engaged in the business of serving meals, food, and drinks on the premises of customers but does not include employees hired by the hour or day. Tax applies to the entire charges made by caterers for serving meals, food, and drinks, inclusive of charges for food, the use of dishes, silverware, glasses, chairs, tables, etc., used in connection with serving meals, and for the labor of serving the meals. Tax applies to charges made by caterers for preparing and serving meals and drinks even though the food is not provided by the caterers. Tax also applies to charges made by caterers for the rental of dishes, silverware, glasses, etc., even though no food is provided or served by the caterers in connection with such rental. Sales of meals by caterers to social clubs, fraternal organizations, or other persons are sales for resale if such social clubs, fraternal organizations, or other persons are the retailers of the meals and give valid resale certificates therefor. The term caterer also includes a delicatessen store or a deli area within a food store that sells prepared food as part of a party platter, deli tray, etc.

View Quoted Comment Ashlyn,
Since the service charges are also taxed you would multiply the total amount of food, beverages, cashier, bartender, linens if it's an extra charge) etc. times 1.21 then multiply that amount times 1.0825. That will give you the cost plus service charges and taxes. This increased our price per person for dinner and drinks from $65 to $91 per person. That's a huge difference. We had to decrease the amount of guests to stay within our budget, but I'd rather do that then have a cheesy wedding.