How to run a hotel restaurant in the US: room charges, tips and tax

A restaurant inside a hotel has two bosses at once. The hotel wants every guest check to land cleanly on the room folio. The tax office wants lodging and food kept apart. Staff want tips that arrive in a pay packet they can read. This guide covers the three places where a hotel restaurant goes wrong, with pointers to the state guides for the detail.

Is a meal charged to a room taxed differently?

Usually it is taxed as a meal, not as lodging, even though it appears on the room bill. Most states and cities tax rooms through an occupancy or lodging tax and meals through the sales tax, and the two taxes can have different rates and different filing forms. A guest who signs a check to room 412 has not turned a dinner into a room charge.

Arizona's tax rules show the principle clearly. A lodging business that also sells meals must state its lodging receipts separately from its restaurant receipts, and gross receipts from meals and room service are taxed under the restaurant classification. Other states say the same thing in other words. Your point of sale should therefore do three things:

• Tag every meal check as food and beverage, whether it is paid by card or posted to a room.
• Send the check to the hotel system with the sales tax already on it, and pass the tax code across.
• Keep room service, minibar items and banquet food in their own categories, since states treat them differently.

What about a package that bundles the room and breakfast?

This is where the real trouble starts. A rate that includes a room and a breakfast has to be split between lodging and food, and the rules for the split differ. Some states ask for a reasonable, documented allocation. Others set fixed percentages for common packages, and a few treat the whole price one way if the meal is not separately stated. Do not guess. Ask the state revenue department how it treats a package, and write the answer into the hotel's pricing sheet. The state guides for Georgia hotel-motel tax versus restaurant sales tax and the New Hampshire meals and rooms tax show how two states draw the line.

A complimentary breakfast is a separate question. A free item is often treated differently from a sold one, and some states tax what the hotel pays for the food. Ask before you advertise it.

Who gets the tip on a room bill?

The server does, and the money has to travel from the folio to the payroll. A tip a guest writes on the check and charges to the room is a tip, and the hotel has to pay it out. Federal law bars an employer from keeping any part of employees' tips, and managers and supervisors cannot share in a tip pool. Payment can run through the next payroll, but it must be tracked check by check so no one is short.

Two details often catch hotels out:

• The card fee on a tip charged to a card may be deducted from the tip, but only up to the actual fee. A room charge has no card fee, so deducting one is wrong.
• Employees report cash tips to you by the 10th of the following month unless they total under $20 in a calendar month.

The tip pooling and service charges guide and the tip reporting guide cover the payroll side.

How are service charges treated?

A hotel banquet or a room service tray often carries an automatic service charge, something like a fixed percentage on top of the food. Under federal wage law a compulsory charge for service is not a tip, and the IRS treats a service charge you add and pass to your employees as wages, reported on the W-2. Many states also tax the charge as part of the price of the meal. Spell it out on the menu, the banquet contract and the folio so the guest sees it before they sign, and do not call it a gratuity if it is not voluntary.

If a guest also leaves a tip on top, that tip belongs to staff. If your contract says the charge covers service and the staff are paid from it, say so in writing to the staff too. For parties and events, see the state guides on mandatory gratuity: Florida, Texas, Illinois and New York City.

Does a hotel restaurant need its own license?

Usually it needs its own health permit and its own sales tax registration or reporting line, even when the hotel holds the building and the business license. Liquor is the one that trips up groups: the hotel may hold the license for the bar and the room-service minibar, or the restaurant operator may hold it, and the two arrangements carry different liability. If an outside company runs the restaurant, put in writing who holds the permits, who files the sales tax and who is responsible for training. The liquor license basics explain how states license on-premises sales.

Which records should you keep?

• A daily report that splits food, beverage, room service, banquets and service charges, tied to the hotel folio.
• Tip records by check, and the date each tip was paid out.
• Every package rate sheet, with the allocation the tax office accepted.
• Permits, and a note of who holds each one.

An auditor who finds those four things in order tends to leave quickly. One who finds a single combined total tends to stay.

More guides for your business:

• How to run a food hall stall or market stand in the US
• How to organize a food festival in the US
• How to run a food truck in the US

More in the US guides for food businesses.