Were a restaurant's separately stated, voluntary gratuity charges subject to Florida sales tax?

Plain-English summary

A restaurant added a suggested 15% gratuity, or 18% for parties of six or more, to guest checks. The charge was disclosed on the menu, separately stated, voluntary, and adjustable if a guest objected. The restaurant distributed the amounts to employees and retained no benefit.

Florida treated the separately itemized service charge as a nontaxable gratuity. The controlling question was whether the dealer benefited from the charge; here it acted as a conduit for the employees.

The restaurant's deduction of a credit-card processing fee did not create a retained monetary benefit because the rule expressly did not treat that fee as retention by the owner.

What this means for you

The label alone does not decide whether a restaurant service charge is taxable. Voluntariness, separate statement, distribution to employees, and whether the restaurant receives a direct or indirect benefit are central.

Common questions

Was the suggested percentage mandatory? No. Guests could have the charge adjusted, and it was presented as voluntary.

Did paying the gratuities through payroll make them taxable sales? No. The restaurant distributed the gratuities to employees and received no benefit from them.

Did the credit-card fee deduction count as retention? No. The cited rule said a credit-card company's fee was not construed as the owner retaining the gratuity money.

Citations and references

• Fla. Stat. § 212.02(15)(d) (prepared or served tangible personal property)
• Fla. Stat. § 212.02(16) (sales price includes services that are part of a sale)
• Fla. Stat. § 212.05 (sales tax on tangible personal property)
• Fla. Admin. Code r. 12A-1.061(3)(c) (gratuities, tips, and similar charges)
• Green v. Surf Club, Inc., 136 So. 2d 354 (Fla. 3d DCA 1961)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06A-022

Original ruling text

SUMMARY
QUESTION: Are separately itemized, non-mandatory gratuities billed by a restaurant to its guests taxable when the
entire amount of the gratuity is distributed to the employees and no benefit is received by the restaurant?
ANSWER - Based on Facts Below: The gratuity charge collected by the restaurant is not subject to sales tax. Since,
the charge is billed separately to the guests and identified as a service charge, and the full amount collected is
distributed to the employees, with no benefit from the gratuity charge received by the restaurant, the charge qualifies
as a nontaxable gratuity.

August 2, 2006

Re: Technical Assistance Advisement 06A-022
Sales and Use Tax - Gratuities
XXX (Taxpayer)
F.E.I. 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, 2006, in which you are 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.
You are seeking guidance concerning whether, in the factual situation presented, separately itemized service charges
billed by a restaurant to its customers are subject to sales tax. As stated in your letter, the above named entity
requests a determination that there is no duty to collect sales tax.
You state the following relevant facts in your request for advisement:
For the customers' convenience, there is a suggested gratuity of 15% percent (18% for parties of six or more) added
to their checks. The suggested gratuity is highlighted in the menu, separately stated on the bill, it is certainly not
mandatory and is voluntary. In fact, most customers add an additional tip to the bill. When that happens, the servers
point out the suggested gratuity to be sure it is with their approval and not overlooked. On the rare occasion that a
customer perceives the service as not acceptable, or they feel the amount of the gratuity is excessive, the [Taxpayer]
[will] adjust the bill accordingly. The servers receive these gratuities and tips as their full compensation. Since the
amount they receive is in the excess of the current minimum wage requirements, they are not paid an hourly wage in
addition to the gratuities. No portion of the gratuities collected [is] retained by the company and it receives no benefit

from them.
The gratuities are paid in full to the servers on the next weekly payroll less the employee's portion of the payroll taxes.
Any additional tips in excess of the suggested gratuity are paid to the servers at the end of the night in cash, and are
reported on the next payroll as well. The company’s portion of the payroll taxes [is] paid out of its own funds.
In addition, you state that the credit card companies charge a fee to process credit card sales including the gratuity.
Taxpayer deducts 2.5% from the service charges remitted to the employees to cover this fee. You contend that
[Taxpayer] receives no benefit from this deduction because it only covers a direct cost of the transaction.
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 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), 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 stated that 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 is whether or not the dealer receives a benefit from the involuntary charge. If it does not, no tax should be
levied. If it does, the service charge should be taxed.
Rule 12A-1.061, F.A.C., regarding transient rental accommodations, provides specific guidance concerning gratuities,
tips, and similar charges. Although this rule is not specific to the sale of food and beverages, it is the Department's
stated position regarding the treatment of gratuities. 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.

The rule also states that "a fee imposed by a credit card company on the owner or owner's representative is not
construed as the retention of such monies by the owner or owner's representative." 12A-1.061(3)(c)2., F.A.C.
In this instance, the gratuity is not mandatory, it is separately stated on the customer's bill, and it is given to the
employees in full; and [Taxpayer] receives no benefit from the charge. Therefore, the separately itemized service
charges are not 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 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 or administrative rule changes or 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. 20041