What did the original 2001 advisement say about a club's separately billed employee service charge, and was that answer later revised?

Subject

Gratuities

Plain-English summary

This original 2001 advisement treated the club's separately billed service charge as a nontaxable gratuity, but Florida later revised that answer. The original reasoning was that the full amount collected went to food-and-beverage employees, the club received no benefit, and billing frequency did not matter.

The original document now expressly points readers to revised TAA 01A-023R dated August 19, 2003. That revised advisement concluded that the described prepaid charge benefited the club by funding its employee-compensation arrangement and was taxable as part of food-and-beverage sales.

What this means for you

The original answer is historical, not the Department's final answer for these facts. Review the revised advisement when analyzing mandatory or prepaid restaurant service charges.

Common questions

Q: What did the 2001 advisement originally hold? That the charge was nontaxable.

Q: Did billing frequency matter to the original answer? No.

Q: Is that still the final ruling for these facts? No. TAA 01A-023R revised it in 2003.

Citations and references

• Fla. Stat. § 212.02(15)(d) and (16) — food service and sales price
• Fla. Stat. § 212.05 — sales-tax imposition
• Fla. Admin. Code r. 12A-1.061(3)(c) — separately stated gratuities
• Green v. Surf Club, Inc., 136 So. 2d 354 (Fla. 3d DCA 1961)
• Green v. Riviera Country Club, 156 So. 2d 524 (Fla. 3d DCA 1963)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-023

Original ruling text

SUMMARY

QUESTION: Are separately itemized gratuities billed by a
private club and restaurant to its members and guests
taxable when the entire amount of the gratuity is
distributed to the club employees either on a monthly,
quarterly, or annual basis?

ANSWER - Based on Facts Below: The gratuity charge
collected by the club is not subject to sales tax. Since,
the charge is billed separately to Club members and
identified as a service charge, and the full amount
collected is distributed to the Club employees, with no
benefit from the gratuity charge received by the Club, the
charge qualifies as a nontaxable gratuity. The question
whether the charge is billed by the Club monthly,
quarterly, or annually has no bearing on whether the charge
is subject to sales tax.

See Revised TAA 01A-023R dated Aug. 19, 2003

Apr 30, 2001

Re: Technical Assistance Advisement 01A-023
Sales and Use Tax - Gratuities
XXX ("Club")
Florida Sales Tax Number: XX
Sections 212.02 and 212.05, F.S.
Rule 12A-1.061, F.A.C.

Dear :

This response is in reply to your letter dated February 2, 2001,
requesting the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., and Chapter
12-11, F.A.C., regarding the referenced matter and parties. An
examination of your petition 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 issuance of a TAA.

ISSUE

Whether, in the factual situations presented, separately
itemized service charges billed by a private member-owned
country club and restaurant to its members and guests are
subject to sales tax.

FACTS

The Taxpayer operates a private member-owned country club
organized under the laws of Florida as a not-for-profit
corporation. The Club maintains two 18-hole golf courses,
tennis courts, a swimming pool, a fitness center, and a main
clubhouse with dining facilities for use by its members. As
stated in your Letter of Request for Technical Advisement:

The Club provides gratuities to its food and beverage
personnel based on a percentage of actual gross food and
beverage revenue. At the beginning of the fiscal year, the
Club estimates the gross food and beverage revenue for the
year. The Club multiplies this estimated revenue by 17
percent to arrive at estimated gratuities to be paid to
food and beverage personnel. This amount is separately
stated on the members' bills as a service charge. The
members are billed quarterly for this service charge.

As the money is billed, an entry is made to record the
receivable and a corresponding liability account for the
estimated amount to be paid to the employees. Each pay
period (every two weeks) the food and beverage employees
are paid 17 percent of the actual sales for that period in
addition to their hourly rate, much as a commissioned
employee would be paid based on a percentage of sales.

As the money is paid to employees, the liability account is
reduced on the books of the Club. It is possible that if
food and beverage sales exceed the budgeted amount, the
Club would pay out more to the employees than it collects.

Likewise, it is possible that if actual food and beverage
sales are less than expected, the Club will have collected
more from the members than what it pays out to the
employees. Current policy is that any excess service charge
that is collected is paid out at the end of the fiscal year
to employees so that the Club receives no benefit
whatsoever from the aggregate amounts billed.

The amounts collected from the members for the service
charge are separately accounted for in the Club's books and
records. Furthermore, the funds are not co-mingled, but
are maintained in a separate payroll bank account for
gratuities only.

You have presented three scenarios involving service charges for
which you seek guidance concerning the taxability of the service
charges. For each of the scenarios presented, you question
whether for sales tax purposes, it makes a difference if the
service charge is billed to Club members on a semi-annual,
annual, or monthly basis, rather than quarterly.

Scenario One. In this situation, the total of the service
charges billed to the Club members is less than or equal to the
amount distributed to employees and, therefore, all of the
service charge is paid out to the food and beverage personnel.

Scenario Two. In this instance, the total of the service
charges billed to the Club members exceeds the amount
distributed to employees and, at the end of the fiscal year, the
excess is paid out on a pro-rata basis to the food and beverage
personnel employed at the fiscal year end.

Scenario Three. In this instance, the excess year-end balance in
the service charge account is carried over to the following
fiscal year to reduce the amount members will have to pay in
service charges for the next year.

LAW

As provided in Section 212.02(15)(d), F.S., a sale includes the
furnishing, preparing, or serving for a consideration of any

tangible personal property for consumption on or off the
premises of the person furnishing, preparing, or serving such
tangible personal property. Pursuant to Section 212.05, F.S.,
the 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...."

The case law that exists on the subject of whether a gratuity is
part of the sales price of a taxable item, holds that it is the
value of the transaction to the dealer that controls the
taxability of the transaction. The case of Green v. Surf Club,
Inc., 136 So.2d 354 (Fla.3rd DCA 1961), cert.den. 139 So.2d 694
(Fla. 1962), involved a situation where employees who served
food and drink to members of a club received a share of the
mandatory service charge imposed by the club, instead of
receiving gratuities from the specific patrons they served.

In the Green case, the dealer acted as no more than an
instrumentality or conduit for the collection of gratuities for
its service personnel. By agreement with Surf Club, Inc., these
employees waived their right to receive gratuities from the
patrons whom they served on the provision that the club would
collect a fixed percentage of the gross sales of the food and
beverage. The service charge collected by the club was then
remitted monthly to the employees as part of their wages or as a
bonus. The court in Green stated that the determinative
question is whether or not the dealer receives a benefit from
the charge. If it does not, no tax should be levied. If it
does, the service charge should be taxed.

A similar case involving gratuity charges is Green v. Riviera
Country Club, 156 So.2d 524 (Fla. 3rd DCA 1963), affirmed, per
curiam, on the authority of Green v. Surf Club, Inc., supra. In
this case, a percentage of the gratuity charge collected by
Riviera at its "Nineteenth Hole" was credited to a "Beverage
Salaries Account." The employees of the "Nineteenth Hole" were
then paid a guaranteed weekly wage from this account, and
Riviera either made up any deficiency or held over any overage
for future deficiencies.

Rule 12A-1.061, F.A.C., regarding transient rental
accommodations, provides specific guidance concerning
gratuities, tips, and similar charges. Rule 12A-1.061(3)(c),
F.A.C., provides that gratuities, tips, and similar charges are
taxable except when the charge is separately stated as a
gratuity, tip, or similar charge on a guest's or tenant's bill,
invoice, or other tangible evidence of sale; and the owner or
owner's representative does not receive, either directly or
indirectly, any monetary benefit from the charge.

CONCLUSION

In all three of the scenarios presented, the gratuity charge
collected by the Club is not subject to sales tax. Since, the
charge is billed separately to Club members and identified as a
service charge, and the full amount collected is distributed to
the Club employees, with no benefit from the gratuity charge
received by the Club, the charge qualifies as a nontaxable
gratuity. The question whether the charge is billed by the Club
monthly, quarterly, or annually has no bearing on whether the
charge is subject to sales tax.

This response constitutes a Technical Assistance Advisement
under s. 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 s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory and
administrative rule changes or that 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 s. 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 15 days of the date of this letter.

Sincerely,

Richard R. Parsons
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850) 922-4838

Ctrl. No. 43861