In Florida, businesses are generally not required to collect sales tax on gratuities or tips given to service employees. Gratuities are considered voluntary payments made by customers directly to the service provider, and are not subject to sales tax.
When Sales Tax May Apply
There are certain situations, however, where sales tax may apply to gratuities or service charges. Here are a few scenarios where sales tax could be applicable:
1.) Mandatory Service Charges: If a business adds a mandatory service charge or gratuity to the customer’s bill, and it is clearly stated as a mandatory charge rather than a voluntary tip, then sales tax should be collected on that amount.
2.) Gratuity Included in the Sales Price: If the business includes the gratuity as part of the sales price, such as in the case of all-inclusive packages or fixed-price menus, then sales tax should be collected on the total amount charged to the customer, including the gratuity.
3.) Sales Tax on Purchased Gift Cards: When a customer purchases a gift card or certificate that can be redeemed for taxable goods or services, the sales tax is generally collected at the time of purchase. However, if the customer later uses the gift card to pay for gratuities or tips, those amounts would not be subject to additional sales tax.
Understanding Sales Price
It’s important for businesses to clearly distinguish between voluntary gratuities and mandatory service charges. Businesses should also understand the applicable sales tax rules in each situation.
This is because Florida Statutes define “sales price” very broadly. Under Fla. Stat. Ann. § 212.02, sales price means:
“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, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever.”
Similarly, addressing this, the Florida Administrative Code states:
(7) Gratuities.
(a) 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:
- The charge is separately stated as a gratuity, tip, or other charge on the customer’s receipt, or other tangible evidence of sale; and,
- 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.
A Court will likely interpret “any charge” as things that you must pay, like a mandatory gratuity or service charge. An optional gratuity would be outside “any charge”. This is why it is key to determine if the gratuity is optional or mandatory.
Also keep in mind that there’s an “and” in Florida Admin Code (7)(a). It requires that the charge is itemized, and the “dealer” gets no benefit from it. So, in order to determine whether or not an entity can collect sales taxes on gratuity, we’d need to know about whether or not the business is obtaining some benefit from the charge.
Consult Our Experienced Business Attorneys
For more information regarding compliance with service charge laws, contact one of our experienced business attorneys at 305-570-2208. You can also email commercial attorney Eduardo directly at eduardo@ayalalawpa.com.
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