Were a private club's separately stated gratuities exempt from Florida sales tax when members could choose zero, 15%, or another amount?

Plain-English summary

The club's gratuities were not subject to sales tax because they were genuinely voluntary, separately stated, and passed entirely to employees. Members could select 15%, write another amount, or choose zero.

The club's newsletter explained that the 15% amount was only a convenience and could be changed. If a member failed to sign a guest check, the club added 15%, but the member received the check with the monthly statement and could adjust the gratuity upward or downward before payment.

Florida treated a mandatory gratuity for serving taxable food or drink as part of the taxable sales price. Rule 12A-1.011(13), however, excluded a gratuity when all three conditions were met:

• the purchaser gave it voluntarily;
• it was separately stated as a gratuity or tip; and
• it was distributed in full to employees at least every six months, with no benefit or advantage retained by the dealer.

The Department accepted the club's representation that its program met all three conditions.

What this means for you

Restaurants and private clubs

Calling a charge a gratuity is not enough. The customer must have a real ability to choose the amount, including zero, and the charge must be separately identified.

Automatic suggested percentages

A default percentage can remain voluntary when customers receive clear notice and can change it before payment. The ruling depended on the club's newsletter, guest-check options, and billing-office adjustment process.

Employee distributions

The business must not retain any part or benefit. This ruling required full distribution to employees at least every six months under the cited rule.

Common questions

Was the suggested 15% automatically taxable? No, because members could select a different amount or zero.

What if a member did not sign the guest check? The club added 15%, but the member could change it after receiving the monthly statement and before payment.

Would a mandatory service charge be taxable? Under the ruling, yes; it would be part of the sales price of the food or drink.

Could the club keep part of the gratuity? No. The ruling relied on full employee distribution with no benefit or advantage to the club.

Citations and references

• Section 212.02(17), Florida Statutes — definition of sales price.
• Section 212.05, Florida Statutes — tax on retail sales.
• Rule 12A-1.011(13), Florida Administrative Code — conditions for excluding voluntary gratuities.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 92A-048

Original ruling text

Jul 08, 1992

RE: TAA 92A-048
Sales Tax on Gratuities
Sections 212.02(17), 212.05, F.S.
Rule 12A-1.011(13), F.A.C.

Dear :

This is in response to your request on behalf of XXX (hereinafter "Taxpayer") for a Technical Assistance Advisement concerning the above referenced subject. This response constitutes a Technical Assistance Advisement issued pursuant to the provisions of Section 213.22, F.S.

PERTINENT FACTS PRESENTED

"The Taxpayer is a private not-for-profit club under I.R.C. Sec. 501(C)(7). It operates... a dining room which serves food and beverage. Gratuities are, in most cases, added or a desired percentage amount is indicated by the member when he signs his guest check...

"... the club has instituted the following program with the sole intent of removing the confusion surrounding the subjection of gratuities to sales tax, and clearly indicate that all gratuities are voluntary, and consequently not subject to sales tax. (Note - The club meets the other provisions of Rule 12A-1.011(13), in that gratuities are separately stated and are distributed at least semi-annually to the employees with no benefit or advantage accruing to the Taxpayer:

"The club publishes a monthly newsletter... Within the publication, prominently displayed is the following message:
`The board of Directors would like to reaffirm the Club's longstanding policy concerning the payment of gratuities to its employees. Payment of gratuities is totally voluntary. For your convenience unless you indicate otherwise on your guest check, a fifteen percent (15%) gratuity will be added. That is to say,

the member is voluntarily agreeing to pay a 15% gratuity unless he indicates a different amount on the guest check.'

"The guest check itself has an area to mark for 15% and another area within which to write whatever amount the member desires (including $0.).

"Accordingly, the Taxpayer does not automatically add a gratuity to the member's guest check; rather the member may enter any amount desired, or as a convenience factor may merely mark the 15% box and allow the club to compute the amount of the actual gratuity.

"There are occasional instances where a member neglects to sign his guest check. In these instances pursuant to the above and rule 15 of the Taxpayer's book of rules and regulations which states `For your convenience, a 15% gratuity may be added to your bill unless otherwise noted by the member, the Taxpayer does add a 15% gratuity to the guest check. However, every member receives a copy of the guest check with their monthly statement. Any member wishing to change a gratuity amount (upwards or downwards) may do so by contacting the Taxpayer's billing office. Accordingly, even though a member may have failed to sign the guest check, and had 15% added, he may elect to change the amount prior to payment.

"While the Taxpayer believes that the above actions meet the spirit of the rule (12A-1.011(13), F.A.C.) this request for T.A.A. is respectfully submitted to ensure that the actions taken by the Taxpayer are adequate to ensure that no gratuities are subject to sales tax."

DETERMINATION

Section 212.05, F.S., provides that when tangible personal property is sold at retail, sales tax is due based on the sales price and it is the responsibility of the selling dealer to collect the tax from the purchaser and remit it to the state. Section 212.02(17), 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..." Hence, sales price would include any amount attributable to a service that is part of a sales transaction involving tangible personal property. As such, a mandatory gratuity charge imposed on a customer or patron for serving meals or drinks at a restaurant or like place, is taxable as part of the sales price. However, when a customer or patron gives an amount voluntarily over and above the sales price of the items sold, then such amount is not subject to tax provided the money so collected does not become part of the sales consideration. In order to administer the taxability of such payments, the Department has promulgated the following provisions under Rule 12A-1.011(13), F.A.C.

"(13) Gratuities. Any gratuity charge, made to a customer for the service of any taxable food or drink product, is considered part of the sales price of such food or drink product and taxable unless: "(a) The charge is a voluntary gratuity or tip added to or by the purchaser to his bill or money given freely by the purchaser over and above the sales price of such food or drink product; and "(b) Separately stated on the purchaser's bill or invoice as a gratuity or tip; and "(c) All such voluntary gratuities must be distributed in full to the employees at least every six months with no part accruing to the benefit or advantage of the dealer."

Based upon the facts presented that gratuities paid by members to "Taxpayer" are completely voluntary; and are separately stated on the member's guest checks; and are distributed fully to employees at least every six months with no benefit or advantage accruing to "Taxpayer", it is the position of the Department that such voluntary gratuities are not subject to sales tax in accordance with Rule 12A-1.011(13), F.A.C.

This response constitutes a Technical Assistance Advisement under s. 213.33, 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 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

Sharon Gallops
Technical Assistant

SG/pb
Enclosures
Con. #2204