Was a precomputed 15% gratuity voluntary when the customer check included it in the total but said the customer could ask the server to change it?

Plain-English summary

A seller proposed a check showing a beverage total, a separately listed “Optional 15% Gratuity,” and a total that already added both amounts. A printed note said the customer could raise, lower, or eliminate the gratuity by telling the server.

Counsel distinguished nontaxable voluntary tips from taxable service charges. Because the check presented the customer with a total that included the precomputed 15% amount, counsel concluded that the amount did not meet the voluntary-tip test. The full amount received was taxable despite the printed instruction allowing the customer to request a change.

Common questions

Did calling the amount “optional” make it a voluntary tip?

No. The letter focused on the fact that the amount was already included in the total presented to the customer.

Did the ability to ask the server to remove it change the result?

No. Counsel still treated the total amount as taxable.

What did the letter say about genuinely voluntary tips?

It states that voluntary tips are not taxable, in contrast with the proposed check format.

Citations and references

• California Sales and Use Tax Law (service charges connected with meal sales and voluntary tips, as described in the source without a section citation)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/550-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/550-0715.pdf

Original ruling text

550.0715

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
TELEPHONE (916) 445-3723
FAX (916)323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

August 26, 1996
Mr. --- ----- ----- ---, CA -----

KATHLEEN CONNELL
Controller, Sacramento
_______
E. L. SORENSEN, JR.
Executive Director

Dear Mr. ---:
Your letter of July 11, 1996 was forwarded by Mr. Rudy Ahumada to this office for reply. You are aware that under the Sales and Use Tax Law service charges made in connection with the sales of meals are subject to tax. Voluntary tips are not taxable. You propose to present to your customer a check as follows: Beverage total (tax included)

$ ___

Optional 15%
Gratuity

$____

Total

$____ *

• The above total includes an optional 15% gratuity.
  You may raise, lower, or eliminate this gratuity by
  telling your server

It is our opinion that where the customer is presented with a check which includes a total inclusive of the two amounts itemized, the total amount is subject tax, notwithstanding the printed legend to the effect that the “gratuity” amount may be raised, lowered, or eliminated “by telling your server.” Very truly yours,

Gary J. Jugum
Assistant Chief Counsel
GJJ:sr
cc:
Mr. Rudy Ahumada - MIC:40