Was a separately stated, customer-adjustable restaurant gratuity subject to Florida sales tax?

Plain-English summary

The Florida Department of Revenue concluded that a proposed 10 percent restaurant gratuity was not part of the taxable sales price.

The gratuity would be separately stated, customers could adjust it, and the restaurant would distribute 100 percent to employees. Because the restaurant kept no monetary benefit and acted only as a conduit, the charge met the rule's exclusion.

What this means for you

Restaurants and bars

Separately state the gratuity and avoid retaining any portion as business revenue.

Payroll and tax teams

Document that the charge was passed to employees; permitted tax withholding or credit-card fees do not count as a dealer benefit under the cited rule.

Common questions

Q: Was the gratuity taxable?
A: No.

Q: Why?
A: It was separately stated and fully distributed to employees, with no monetary benefit to the restaurant.

Citations and references

• Fla. Stat. §§ 212.02(16), 212.05, and 213.22
• Fla. Admin. Code r. 12A-1.0115(7)(a)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A-024

Original ruling text

-1-

Executive
Director
Marshall Stranburg

QUESTION: WHETHER SEPARATELY STATED GRATUITY CHARGES ARE PART OF
THE TAXABLE SALES PRICE.
ANSWER: THE SEPARATELY STATED GRATUITY IS NOT PART OF THE TAXABLE
SALES PRICE AND THEREFORE NOT SUBJECT TO SALES TAX, SINCE 100% OF THE
CHARGE IS DISTRIBUTED TO THE EMPLOYEE, WITH NO MONETARY BENEFIT
ACCRUED BY THE RESTAURANT.
October 16, 2014
Re:

Technical Assistance Advisement – TAA 14A- 024
Voluntary Gratuity Charges
XXXX (Taxpayer)
FEIN: XXXX
Sections: 212.05 and 212.02(16), Florida Statutes (F.S.)
Rule: 12A-1.0115(7), Florida Administrative Code (F.A.C.)

Dear XXXX:
This is in response to your letter, dated XXXX, requesting this Department’s issuance of a
Technical Assistance Advisement (“TAA”) pursuant to Section 213.22, F.S., and Rule Chapter
12-11, F.A.C., regarding the taxability of separately stated gratuity charges. An examination of
your letter 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 a TAA.
ISSUE
Whether separately stated gratuity charges are part of the taxable sales price.
FACTS
As stated in your request for a Technical Assistance Advisement of XXXX, you operate a
restaurant and bar and are contemplating adding a “voluntary” gratuity of 10%. Signage will be
displayed throughout the establishment, on menu boards, and on menus stating, “A voluntary
gratuity of 10% will be added to your check for your server, but please feel free to adjust at your
discretion." You also state that 100% of the voluntary gratuity charge will be distributed to the
employees.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Howard Moyes, Interim Director  Information Services – Damu Kuttikrishnan, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Page 2

LAW
Pursuant to s. 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.)
As provided in Rule 12A-1.0115(7)(a), F.A.C., any charge made by a dealer to a customer for
gratuities, tips, or similar charges is a part of the taxable sales price of the food or drinks except
when:

1. The charge is separately stated as a gratuity, tip, or other charge on the
   customer’s receipt or other tangible evidence of sale; and,
2. The dealer receives no monetary benefit from the gratuity. Money withheld by
   the dealer for purposes of payment of the employee's share of social security or
   federal income tax or any fee imposed by a credit card company on the amount of
   the gratuity, or money withheld pursuant to judicial or administrative orders, is
   not a monetary benefit for purposes of this rule.
   The court system has also weighed in on this subject in Green v. Surf Club, Inc., 136 So.2d 354
   (Fla. App. 3 Dist., 1961). In this case, the Surf Club automatically added a service charge to the
   price of food and beverage purchases instead of allowing its members to tip the service staff. The
   court held that as long as the business solely acts as a conduit for the transfer of a gratuity to its
   employees, the service charge is not subject to sales tax. The court’s exact language was:
   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 136.
   In this case, according to the facts provided, Taxpayer is merely redistributing 100% of the
   gratuity, which is a separately stated on the receipt, to the employee. The proposed process of
   adding a separately stated voluntary gratuity as outlined in your letter falls within the stated
   criteria in Rule 12A-1.0115(7)(a), F.A.C., and the criteria laid out in Green v. Surf Club, supra,
   to allow the charge to be excluded from the taxable sales price.
   CONCLUSION
   The separately stated gratuity is not part of the taxable sales price and therefore not subject to
   sales tax since 100% of the charge is distributed to the employee, with no monetary benefit
   accrued by the restaurant.

Page 3

This response constitutes a Technical Assistance Advisement under Section 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 Section 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 Section 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 10 days of the date of this
letter.

Sincerely,

Leihernst Lamarre
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-7202
Record Number 174205