Florida mandatory gratuity and sales tax for large parties

In Florida, a gratuity that appears as its own line on the check and is paid entirely to the staff who served the table has been treated as outside the taxable sales price, as long as the business gets no direct or indirect benefit from it. A charge your business keeps, or one folded into the menu price, is taxable like the meal. The wording on the check, and where the money goes, decides the tax.

Is a large-party gratuity taxable in Florida?

The Department of Revenue's published rulings turn on two questions: is the charge separately stated, and does the dealer, meaning your business, receive any benefit from it? In a Technical Assistance Advisement (14A-024), the Department concluded that a restaurant's separately stated gratuity was not part of the taxable sales price where the restaurant would pass the full amount to employees and keep none of it. Florida's rule on gratuities, Rule 12A-1.0115, implements section 212.08 of the Florida Statutes.

Advisements are written for the facts of the business that asked, so use them as a guide to how the Department thinks, not as a promise about your own check. Ask your accountant or the Department before you build a policy on them.

What does separately stated mean?

The gratuity must appear as its own line on the check, with its own label, apart from the food and drink. A menu price that already contains an amount for service is taxed as part of the price. A line labeled gratuity that is calculated on the pre-tax food total and then added is separately stated.

What does no benefit to the business mean?

None of the money may stay with the business, directly or indirectly. These all raise questions:

• Using the gratuity to pay the wages you owe, such as bringing a tipped server up to the minimum wage.
• Keeping a share for the kitchen if the kitchen payout is really a way of avoiding a wage.
• Netting out card processing costs in a way the business profits from.
• Paying managers or owners from the pool.

Pay the money to the employees who served the party, record what you paid, and keep the payroll records.

How does this differ from a service charge?

If the charge is described as a service charge and the business keeps it or uses it to cover costs, the safe assumption is that it is taxable. If the charge is kept, say so on the menu and the check, and charge tax on it. Florida's disclosure rules for automatic charges still apply either way, and the guide on the operations charge law explains them.

How should you set up the check?

1. Add a line labeled gratuity for parties of a set size, and state the size and percentage on the menu.
2. Calculate it on the food and drink total, before tax, and show tax on its own line.
3. Do not apply sales tax to the gratuity line.
4. Pay it out to the serving staff in the next payroll.
5. Keep a written policy and the payout records for the full retention period your accountant gives you.

What about alcohol and delivery?

An automatic gratuity on alcohol follows the same logic, but the larger the pool of money in question, the more reason to check with an accountant. A delivery fee that your business keeps is not a gratuity and is generally a taxable part of the price, so label it for what it is.

What should you do before you rely on this?

Read the current Rule 12A-1.0115 and TAA 14A-024 on the Department's site, and confirm with your accountant that your pay-out method meets the no-benefit test. The Department can change its position, and an advisement is the kind of source to confirm every year.

How do you explain the policy to a large party?

Tell the party when they book, not when the check arrives. A short line in the confirmation, such as an 18 percent gratuity is added for parties of eight or more and is paid to the service team, gives the guest a chance to ask questions. At the table, a server can say the same sentence once and move on. The disclosure rules for automatic charges apply to the menu, bill and receipt as well, so the same wording should appear in all of them.

Do not describe a retained fee as a gratuity. If the business keeps part of the money for any reason, call that part something else, such as a private dining fee, and charge tax on it. Mixing the two in one line is how a business ends up owing tax on everything.

What if a guest asks to remove the charge?

If the charge is automatic, it is part of the terms the guest accepted when they booked or sat down. If your policy lets a manager adjust it, write down when, and record each adjustment. If you would rather make it a suggested tip, change the check so the line is voluntary and the guest fills it in. A voluntary tip is outside the sales price without the extra conditions, which is why some owners prefer it for small parties and keep the automatic charge for larger ones.

More guides for your business:

• Florida operations charge disclosure law for restaurants
• Florida tip pooling and service charges for restaurants
• How to register and file Florida sales tax for a restaurant

More in the US guides for food businesses.