Does Salt Lake County's 1% restaurant tax apply to banquet extras like flowers, equipment rental, music, bartender labor, ice carvings, corkage, and gratuities -- or only to the food and beverages themselves?

Plain-English summary

A banquet/food-service provider asked the Commission to clarify how Salt Lake County's 1% restaurant tax (formally the Tourist, Recreational, Cultural and Convention Facilities Tax, effective there since July 1, 1991) applies to the various line items typically found on a banquet bill -- since customers were increasingly disputing the extra 1% charge on non-food items and gratuities, leaving the banquet provider stuck either losing business or absorbing the tax itself. The provider specifically flagged flowers/decorations, equipment rental (chairs, dance floor, audio-visual), music, bartender labor, ice carvings, corkage, and gratuities, and asked whether it mattered if a gratuity was fully passed to the server versus partly controlled by management policy.

The restaurant tax is collected the same way as general sales tax, and covers services incidental to serving food/beverages. Under Utah Code § 59-12-603(4), the restaurant tax is collected and remitted in the same manner as the general sales tax. The Commission (via its Auditing Division) drew the following lines:

• Corkage / drink setup charges: Subject to the restaurant tax, because they're an incidental service tied directly to serving food and beverages.
• Flowers/decorations, equipment rental (chairs, dance floor, audio-visual), and ice carvings: Subject to ordinary sales tax, but NOT the 1% restaurant tax -- these aren't considered incidental to serving food and beverages in the same way.
• Music and bartender labor charges: Exempt from BOTH sales tax and the restaurant tax.
• Required gratuities: Subject to the restaurant tax, unless they qualify for a sales tax exemption under the Commission's tip/gratuity rules (see below).

Gratuities follow Tax Bulletin 5-92's control test. Tips or gratuities are taxable (both sales and restaurant tax) unless they're either passed directly to the actual server, or genuinely pooled and allocated among the serving staff themselves. The key distinction is who controls the allocation: simply funneling a tip that's already designated on a bill or credit card slip to the server doesn't make it taxable, but if MANAGEMENT decides how much each staff member receives from a pool, the tips are taxable. To be tax-exempt, the employees themselves must jointly make that allocation decision. If management keeps any portion of the tips or gratuities for itself, that retained portion is taxable regardless.

What this means for you

Restaurants, caterers, and banquet/event venues in Salt Lake County (or any Utah jurisdiction levying a similar restaurant tax)

Separately itemize your banquet bill by category. Food/beverage setup charges (like corkage) and required gratuities generally carry both sales tax and the restaurant tax; flowers, equipment rentals, and ice carvings carry sales tax only; and music/bartender labor can be charged tax-free from both if properly separated on the invoice.

Businesses handling pooled gratuities or service charges

Whether a tip pool is taxable turns on WHO controls the distribution, not merely whether money passes through management's hands administratively. Have employees jointly decide the pool allocation, rather than management, to preserve the tax exemption -- and never let management retain any portion of collected tips if you want to avoid tax on that piece.

Accountants and tax professionals

This ruling is a useful line-item checklist for banquet billing tax treatment under a county restaurant tax layered on top of general sales tax, and cross-references Tax Bulletin 5-92 (tips/gratuities) and Tax Bulletin 8-91 (prepared food/beverage sales) for further detail.

Common questions

Q: Is a banquet gratuity subject to Utah's restaurant tax?
A: Yes, unless it's passed fully to the server or pooled and allocated by the employees themselves (not management) -- in which case it can be exempt from both sales tax and the restaurant tax.

Q: Are equipment rental charges (chairs, dance floor, AV equipment) at a banquet subject to the restaurant tax?
A: No. They're subject to ordinary sales tax, but not the 1% restaurant tax.

Q: Are music and bartender labor charges taxable?
A: No, when separately stated, they're exempt from both sales tax and the restaurant tax.

Q: If management decides how a tip pool is split among staff, does that make the tips taxable?
A: Yes. Control over the split is what matters -- if management determines the allocation, the tips are taxable; if the employees jointly decide, they can be exempt.

Q: Does this ruling apply to my restaurant or venue?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission categorizes typical banquet charges under the restaurant tax.

Citations and references

Statutes:

• § 59-12-603(4) (restaurant tax collected/remitted same as general sales tax)

Guidance referenced:

• Tax Bulletin 5-92 (tax treatment of tips and gratuities)
• Tax Bulletin 8-91 (sales of prepared foods and beverages)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/92-027.pdf

Original ruling text

92-027

Response October 19, 1992

October 19, 1992

XXXXX

Re: "Restaurant" Tax

Dear XXXXX:

Your request for an advisory opinion on whether the 1 percent restaurant tax applies to charges incidental to the sale of food and beverages has been referred to the Auditing Division for their analysis. Your request specified several types of charges. Our response is jointly to the XXXXX and the XXXXX.

It is the division staff recommendation that:

1. Utah Code Section 59-12-603(4) states that this tax is to be collected and remitted in the same manner as the general sales tax. If an incidental service is associated with the sale and serving of food or beverages, it is subject to the restaurant tax. Therefore, setup charges for drinks, such as corkage, would be subject to the restaurant tax.

A separate charge for use of flowers and decorations or equipment rentals and the sale of an ice carving is subject to sales tax, but not the 1 percent restaurant tax. A required gratuity is also subject to the restaurant tax if it does not qualify for exemption from sales tax. An exception would be that separate charges for music and bartender labor are not subject to either tax.

2. Tax Bulletin 5-92, copy enclosed, discusses the tax treatment of tips and gratuities. Tips or gratuities are subject to sales and restaurant taxes unless they are passed on to the actual server or pooled as explained in the bulletin. If management controls disbursement of pooled tips, they are subject to the taxes. Control does not mean the mere payment to the serving team because if a tip is on the patron's bill or credit card charge slip, management would have to channel the money to the server. It means if management determines how much goes to whom, the tips are taxable. To be exempt from the taxes, the employees must jointly make that determination. Obviously, if management retains any part of tips or gratuities, that part is subject to the taxes.

3. The restaurant tax, including these interpretations, became effective on July 1, 1991 in Salt Lake County.

Based upon the facts presented in your letter, we are in agreement with the Auditing Division's recommendations. Obviously, if there are deviations from these facts this opinion may be negated.

If you do not agree with this determination, you may appeal to the Tax Commission for a formal hearing. The results of that hearing would constitute a declaratory judgment and be appealable to the Utah State Supreme Court. A Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of rights are attached. To arrange for Americans with Disabilities Act accommodations, please contact the Tax Commission at (801) 530-6920, (801) 530-6077 or TDD (801) 530-6269 allowing three working days notice.

For the Commission

Joe B. Pacheco

Commissioner

July 22, 1992

State of Utah

Utah State Tax Commission

160 East Third South

Salt Lake City, UT 84134

Dear Commissioners:

In various discussions with individuals on the Utah State Tax Commission staff, the issue of charging the Tourist, Recreational, Cultural and Convention Facilities Tax continues to be unclear, especially as it applies to items associated with banquets. The issue appears to be a distinction between "sales of prepared foods and beverages" as identified in Tax Bulletin 8-91, and what is understood to be the Commission's interpretation of applying the tax to all items incidental to the preparation of food and beverage.

The customer's interpretation is that the tax should be applied only to food and beverage sales, and that only the sales tax would apply to the incidental items, specifically the banquet gratuity. Many customers are now refusing to pay the extra 1% on these items, leaving the provider of the banquet in the position of losing business or paying the tax out of its own pocket.

With this in mind, please issue an advisory opinion, in writing, detailing the extent of the 1% tax and the date you will be making this interpretation effective for the customer. Also, please address the issue of whether it would make a difference in your interpretation if the service charge was wholly passed on to the server or if a portion was controlled by policy of management, as both practices are common in the industry.

Some additional items that could be contained on a typical banquet billing that might cause confusion include:

Flowers and decorations

Equipment rental (chairs, dance floor, audio visual)

Music

Bartender labor

Ice carvings

Corkage

Any specific guidance in these areas would be welcome. Thank you for your assistance.

Sincerely,

XXXXX