Ezel / Tax Rulings / CA

Were voluntary tips part of a restaurant's taxable meal receipts when the restaurant merely collected them for employees and did not apply them toward minimum wages?

Short answer No. When customers were free not to pay and the restaurant merely collected the tips for employees without using them against minimum wages, the amounts were excluded from meal gross receipts.
State
CA
Ruling
Annotation 550.0800
Tax type
Sales and Use Tax
Issued
1953-08-28
Issued by
California State Board of Equalization
Requested by
An attorney asking about restaurant tips collected for waitresses (identity redacted)
Topics
restaurants employee wages gross receipts gratuities
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1953. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1953
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This August 28, 1953 tax-counsel letter addresses tips that customers were not obligated to pay, that the restaurant merely collected for employees, and that were not applied toward employees' minimum wages. Mandatory charges and tips used against wages are outside its express conclusion. Current law controls. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

An attorney asked about tips a restaurant collected for its waitresses.

The letter excluded those amounts from the restaurant's gross receipts from meal sales when three conditions were met: the restaurant merely collected them for employees, did not apply them against minimum wages, and left customers free to decline payment.

For tips applied to employees' minimum wages, the source referred the reader to Anders v. State Board of Equalization rather than giving the same conclusion.

Common questions

Could the restaurant require the customer to pay the amount?

Not under this holding. Customer payment had to be voluntary.

Could the restaurant use the tips to satisfy minimum wages?

Not and remain within the letter's stated conclusion.

Did merely collecting the money for employees make it restaurant revenue?

No, when the other stated conditions were also satisfied.

Citations and references

  • Anders v. State Board of Equalization, 82 Cal. App. 2d 88 (cited for tips applied to minimum wages)

Source

Original ruling text

550.0800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 28, 1953

Mr. S--- L. C--Attorney at Law
XXX West -----, California
Dear Mr. C---:
Mr. Harry L. Say, Sales Tax Administrator, has referred to me for reply your letter of August 19 concerning the application of the sales tax to amounts charged by a person in the restaurant business as tips for his waitresses. If the restaurant operator merely collects the tips on behalf of the employees and does not apply them against the employee’s minimum wages, and further if the customer is not obligated to pay the tip if he does not desire to do so, it is our opinion that the amount collected as tips is not a part of the retailer’s gross receipts from the sale of the meal. Concerning tips that are applied to minimum wages of the employees, see Anders v. State Board of Equalization, 82 Cal. App. 2d 88. Very truly yours,

E. H. Stetson
Tax Counsel

EHS:ph
cc:

San Bernardino – Tax Administrator

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