Was a country club's separately stated annual service charge subject to Florida sales tax?

Plain-English summary

Florida taxed the club's mandatory annual service charge as part of food-and-beverage sales price. The club calculated the charge at 18% of estimated revenue, separately accounted for it, and paid employees from the pool. The charge still benefited the club's compensation obligation and was taxable when billed.

What this means for you

Separate accounting does not by itself turn a mandatory restaurant service charge into a nontaxable gratuity.

Common questions

Q: Did passing amounts to employees make the charge exempt? No.

Q: Did the annual billing method change the result? No.

Citations and references

• Fla. Stat. §§ 212.02 and 212.05 — sales price and tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-014

Original ruling text

SUMMARY

QUESTION: Whether, in the factual situation presented, an
annual service charge billed by a private club and
restaurant to its members guests is subject to sales tax,
when the charge is used salaries of the service staff.

ANSWER: The annual service charge billed by the Club to its
members are services that are a part of the sales price of
the food and beverage sales to the Club's members. The
Club is required to collect sales tax on the amount of
"Prepaid Gratuity" when the gratuity is charged to the
members.

Mar 19, 2003

Re: Technical Assistance Advisement 03A-014
Sales and Use Tax - Gratuities
XXX ("Club")
Florida Sales Tax Number: XX
Sections 212.02 and 212.05, F.S.

Dear :

This response is in reply to your letter to the Department,
dated February 27, 2002, 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

The issue is this advisement is whether, in the factual
situation 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 Club operates a private member-owned country club organized
under the laws of Florida as a not-for-profit corporation. The
Club maintains an 18-hole golf course, tennis courts, a swimming
pool, 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
eighteen percent (18%) to determine the estimated
gratuities to be paid to the food and beverage personnel.
This amount is billed to the members annually as a
separately stated service charge.

As the service charged is billed to the member the Club
records on its accounting records a receivable due from the
member and a liability for the estimated amount to be paid
as gratuities to the food and beverage personnel. Each pay
period (weekly) the food and beverage personnel are paid
eighteen percent (18%) of the actual gross food and
beverage sales for that period, in addition to their hourly
rate. The amounts billed and collected from the members as
a service charge are separately accounted for on the
Club[']s books and records.

As the money is paid to the employee[s] the liability
account established is reduced on the Club's accounting
records.

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 the employees. Current policy is that any
excess service charges collected over the amounts paid to
the food and beverage personnel are carried over to the
subsequent fiscal year to reduce the amount members will be
billed and have to pay in service charges for the next
year....

You contend that the Club receives no benefit from the
gratuities paid by the members, as all of the gratuities are
paid out to the employees. However, this is not a statement of
fact.

You question whether the taxability of the transaction is
affected if the service charge is billed on a basis other than
annually. You also question whether the taxability is affected
if the excess balance at the end of the fiscal year is
distributed to the food and beverage employees on a pro-rata
basis, rather than carried over to the subsequent fiscal year.

LAW AND DISCUSSION

Section 212.02(15)(d), F.S., provides that a sale means and
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., 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.)

The case of Green v. Surf Club, Inc., 136 So.2d 354 (Fla.3rd DCA
1961), cert.den. 139 So.2d 694 (Fla. 1962), addressed whether a
gratuity was part of the sales price of meals and prepared food
served to members of a private club, the Surf Club. The Surf
Club automatically added a service charge to the price of the
food and beverages sold to its members and patrons in lieu of a
"tip". By agreement, the employees waived their right to
receive gratuities from the patrons whom they served on the

provision that the Surf Club would collect a fixed percentage of
the gross sales of the food and beverage. The service charge
collected by the Surf Club was then remitted monthly to the
employees as part of their wages or as a bonus.

In the Green case, the court determined that the Surf Club acted
as no more than an instrumentality or conduit for the collection
of gratuities for its service personnel. However, the court
also stated:

... 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 356.

In the case at hand, the operation of the Club differs from the
operation of the Surf Club in the Green case. The amount of
"Prepaid Gratuity" collected by the Club from its members is an
estimate done for the convenience of the Club and its members.
The Club receives funds from the members and uses those funds to
pay food and beverage personnel, in addition to their hourly
wages, eighteen percent (18%) of the Club's gross food and
beverage sales for each pay period. The Club will make up any
shortfall and credit the members for any overage. In this
instance, the Club is more than an "instrumentality or a conduit
for collection" when utilizing the funds collected from the
members to pay employees their percentage of the food and
beverage sales for each pay period. The Club does receive a
benefit from the collection of the prepaid gratuity from its
members for the services of furnishing, preparing, and serving
food and beverages to the members.

CONCLUSION

The amounts of "Prepaid Gratuity" billed by the Club to its

members are services that are a part of the sales price of the
food and beverage sales to the Club's members. The Club is
required to collect sales tax on the amount of "Prepaid
Gratuity" when the gratuity is charged to the members.

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.: 49132